INSURANCEBUSINESSONLINE.COM.AU ISSUE 1.2
MARK BOURIS
The Apprentice host on how to run your insurance brokerage
MARINE INSURANCE CAN GENERAL BROKERS MAKE A SPLASH? PROFESSIONAL INDEMNITY BROKING IN INSURANCE'S CROWDED NICHE SELLING ON THE WEB BUILD THE PERFECT INSURANCE WEBSITE
INSURANCEBUSINESSONLINE.COM.AU
EDITORS LETTER / 1.2
TOP BROKERS REWARDED Welcome to the second ever issue of Insurance Business magazine. Maintaining the business strategy ethos of our launch issue, this instalment sees us sit down with one of the most recognisable business leaders in Australia. Mark Bouris was best known as the founder and chairman of Wizard Home Loans, but in recent years has gained further mainstream popularity through his hosting duties on hit TV show The Apprentice. The Aussie equivalent of the UK’s Alan Sugar or Donald Trump in the US, Bouris is a passionate supporter of small businesses and how underserviced they are in terms of advice. A staunch advocate of insurance brokers, Bouris is perfectly positioned to contribute to the Insurance Business philosophy of not only informing you of the industry’s movements, but educating you on how to run your actual business better and more profitably. Elsewhere we take a deeper look at the marine insurance and professional indemnity spaces, and identify the broker opportunities within these niches. We also take a glance at the lessons from a broker recently being sued for $2.7m, plus tell you how to build the perfect insurance website. We have also been overwhelmed with traffic on insurancebusinessonline.com.au since we launched at the beginning of May, with newsletter subscriptions rising by the day. To get your daily fill of the news that directly affects your insurance brokerage, be sure to jump online and subscribe today. Finally, this month we launch the Insurance Business Top 10 Brokerage rankings, which will be unveiled in Issue 3, and will hit your desks in September. This is an opportunity for Australia’s very best insurance brokers to be rewarded for their hard work. We will rank individual insurance broking businesses based on criteria such as premium income, client retention, policies written and number of new clients introduced to the business during the 2011/12 financial year. The Top 10 Brokerages will also receive an official logo to use in their marketing, which will further illustrate their status among Australia’s insurance broking elite. So jump onto insurancebusinessonline.com.au now to discover further details.
COPY & FEATURES MANAGING EDITOR Trevor Treharne SENIOR JOURNALIST Robin Christie CONTRIBUTORS Cameron Brown, Tarquin Taylor PRODUCTION EDITOR Moira Daniels
ART & PRODUCTION DESIGNER Ginni Leonard
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Trevor Treharne, Managing Editor, Insurance Business
CONNECT
Contact the managing editor:
trevor.treharne@keymedia.com.au 2 | JULY 2012
Printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry
CONTENTS / 1.2
FEATURE
34
Build the perfect insurance website “If your website was a salesperson, you would have fired them?”
30HALF-BAKED ADVICE FEATURE
12
4 | JULY 2012
COVER STORY
Mark Bouris The Apprentice host tells us how to sell a “grudge purchase” like insurance
Lessons from Kotku After a broker is sued for $2.7m, what have we learned?
COVER STORY
NEWS ROUND-UP
12 | Mark Bouris The Apprentice host tells us how to sell a “grudge purchase” like insurance
6 | The big five The biggest stories to impact insurance brokers 8 | ASIC watch What has the bullish body been telling the insurance industry to do lately? 9 | Forum forces The best of our online broker soapbox 10 | Broker makes Men’s Fitness cover From insurance broker to musclebound cover star!
18 | Marine insurance A niche and specialised area that general brokers can still crack 24 | Professional indemnity How brokers can succeed in this crowded space 30 | Lessons from Kotku After a broker is sued for $2.7m, what have we learned?
FEATURES
INSURANCEBUSINESSONLINE.COM.AU
24
FEATURE
Professional indemnity How brokers can succeed in this crowded space
44
WEEKLY INVESTIGATIONS NOW ONLINE: Make brokers compulsory? Attracting staff Flood definition insurancebusiness online.com.au
42
34 | Build the perfect insurance website “If your website was a salesperson, you would have fired them?” 38 | Dealing with a cash flow crisis Know your working cash from your emergency fund
STATS 40 | Insurance broking in Australia What is the industry worth today?
INSURANCE INSIDERS 42 | Broker focus Paul George, GM of MGA Insurance Brokers, on making more acquisitions
44 | Underwriter Q&A SRS boss Paul Lynam on being one of Lloyd’s biggest local underwriters 46 | Broking from an iPad How you can boost your revenue by over $120k by using an iPad 48 | Social life The best snaps from the industry’s latest shindigs 54 | Favourite things Broker Robert Cooper on The Blues Brothers and roast dinners 56 | Why taxing insurance is wrong Professor Allan Manning makes the case for tax-free insurance
JULY 2012 | 5
NEWS / ROUND-UP
THE BIG
FRAUD
BROKER ACCUSED OF FRAUD ‘LIVED IN MANSION’
FIVE The biggest news stories from insurancebusinessonline.com.au CAPITAL
STEADFAST CEO: FLOTATION IMPLICATIONS FOR BROKERS CHAIRMAN AND CEO ROBERT KELLY has confirmed to Insurance Business what Steadfast’s flotation will mean for the firm’s brokers. At May’s Extraordinary General Meeting, the cluster group’s shareholders voted to make the firm an ASX-listed organisation. “That vote was passed and hardly anybody voted against it – it was spectacularly successful,” Kelly said. “We are now in the process of setting the due diligence teams; this is the hard work time. “We hope that due diligence process will be completed by the end of the year and we will review the due diligence by 28 February 2013. We should have our prospectus done by March/April and float in May of next year.” So what does this mean for Steadfast’s 270-odd insurance brokers? “It allows them to convert their hard work into capital, have shares in a public company and still be able to run their business,” Kelly explained. “Our model ensures that our brokers can, if they want, sell off part of their business to get the capital to get that holiday home, yacht, or whatever they would want a slice of capital for – I wouldn’t dare to speak on what they are going to do with it.”
6 | JULY 2012
DID YOU KNOW? The insurance industry holds a Guinness World Record. ING Life Insurance Romania is a record holder after issuing not only the largest insurance policy in history but also the largest legal document ever made. The legal document stands at nine metres high and six metres wide.
A NEW ZEALAND INSURANCE broker in court on 28 counts of fraud had an extravagant lifestyle, including living in a mansion and driving a Mercedes-Benz. Grant Herbert appeared in Auckland District Court after the collapse of his business, Herbert Insurance Group. The Serious Fraud Office alleged Herbert had appropriated premium payments from clients, forged documents to obtain credit and paid secret commissions to attract business. KordaMentha, the receivers for Herbert Insurance, said the failed company had been making losses for years and large insurers faced a shortfall of $3.1m. The 61-year-old Herbert has gained a reputation as a successful broker and he certainly gave that impression. Along with his Mercedes he paid $1.9m for a 420m2 home in east Auckland. “I’d never heard that he was overly ostentatious, and certainly not to the level where people wondered where it came from,” said Gary Young, chief executive of the Insurance Brokers Association, in reports.
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UNDERWRITERS
PRODUCTS
UNDERWRITERS TO ‘REDUCE RELIANCE ON BROKERS’
THE PRODUCT EVERY BROKER SHOULD OFFER
AUSTRALIA’S INSURANCE BROKERS WILL FACE INCREASING COMPETITION from underwriters and banks who are investing in direct online systems. The report by IBISWorld, Insurance Brokerage in Australia, maps out the pending competitive future for the country’s insurance brokers. “Insurance agents and brokers face intensifying competition from underwriters and banks,” said the IBISWorld report. “Underwriters are investing in online sales capabilities and new sales channels to reduce their reliance on agents and brokers. “Brokers are guarding their distribution share by providing knowledge-intensive services to augment traditional insurance policy sales, and by focusing on more profitable markets such as the commercial segment. “Primary underwriters have not only invested in their own distribution channels but have increased their use of banks as a means to distribute insurance. Bancassurance is another issue that is adding to competition for brokers, and involves banks using customer loyalty to try and sell their existing clients insurance products, often at discounted rates,” warned the report.
INSURER QBE CLAIMS that trade credit insurance is a product that every broker should be offering as it is affecting most of their clients and can be made part of a general insurance conversation. “Trade credit insurance is a natural offering for a broker,” Richard Wulff, QBE Australia group general manager of Trade Credit and Surety told Insurance Business. “A broker goes to a client and asks what kind of risks they have and this will include property, liability, or perhaps marine insurance if they do international trade. During that conversation it is a natural question to ask: ‘what about your trade receivables? Aren’t you worried about that?’ “The broker is seeing these clients anyway; you might as well talk about trade credit insurance in conversation. “If you look at the ASIC liquidation stats, we are back at GFC levels in Australia,” said Wulff. “If you look at the economy and take out the mining industry, we aren’t doing well at all. That’s why trade credit insurance is so important. “The clients who will be most interested are either risk management conscious or look at their balance sheet and realise around 50% of their assets are trade receivable. Plus, banks lend these businesses money, but they want security against that; trade credit insurance is good security.”
BROKER BENEFITS Businesses which use a broker are considerably better covered. Research from CGU found that broker-advised businesses had on average 3.4 business insurance types, compared to an average 2.9 insurance types for those who bought their insurance directly.
DISTRUST
INSURANCE BROKERS DISTRUSTED BY PUBLIC A RECENT ROY MORGAN RESEARCH POLL found that insurance broking is one of the least trusted professions in Australia, below even the likes of lawyers, talk-back radio hosts and journalists. Indeed, insurance brokers found themselves ranked 25th out of 30 professions, being joined near the bottom by the likes of politicians, real estate agents, people in advertising and car salesmen. The Roy Morgan telephone survey involved 651 Australians aged 14 and over being asked: “As I say different occupations, could you please say – from what you know or have heard – which rating best describes how you, yourself, would rate or score people in various occupations for honesty and ethical standards (Very High, High, Average, Low, Very Low)?” The professions are then ranked from those who got the most
NURSES
90%
DOCTORS
90%
TEACHERS
80%
responses offering a “Very high” or “High” rating for ethics and honesty. At the top were nurses, pharmacists, doctors, school teachers then dentists. Just 10% of respondents felt insurance brokers deserved a rating of “Very high” or “High” for ethics and honesty, a drop of 2% from 2011. Gary Morgan said of the research: “Roy Morgan’s annual Image of Professions survey for 2012 shows a majority of professions (18) recorded falls in their ratings for ‘ethics and honesty’ over the past year although Nurses (90%, unchanged from 2011) still lead the way as Australia’s most respected profession for very high or high ‘ethics and honesty’. “Once again Car Salesman (2%, down 1%) rank at the bottom of the list – a position they have held for over 30 years,” Morgan added.
INSURANCE BROKERS 10%
REAL ESTATE AGENTS 9%
ADVERTISING PEOPLE 8%
CAR SALESMAN 2% JULY 2012 | 7
NEWS / ROUND-UP
ASIC
WATCH The latest insurance industry meddling from the government’s corporate wrist slapper
ASIC FORCES INSURER TO CHANGE ADVERTS
Medical specialist Avant Insurance Limited has been forced to change its advertising for its Avant Practitioner Indemnity Insurance Policy after ASIC branded it “potentially misleading.” The ads, which were in the form of a letter sent to policy holders of competing products, included a table comparing the cover provided by Avant’s policy against that of four other competitors. The table showed a tick where cover was provided and a cross where cover was not provided by each policy. ASIC was concerned the table created the impression that Avant’s policy provided more cover than its competitors in some areas, when this was “not necessarily the case.” The ticks used in the table gave the impression that Avant provided unqualified cover for the items ticked, whereas some of the cover had limitations. In particular: •• references to cover for ‘unpaid healthcare activities’ were not qualified to alert the consumer to applicable exclusions; and •• references to cover for ‘supervised acts’ were not qualified to alert the consumer to the existence of conditions and exclusions for practice staff under supervision “Any comparison of benefits should be accurate and balanced and have a reasonable basis,” said ASIC commissioner Peter Kell. “Statements referring the customer to a document such as a product disclosure statement will not be sufficient to correct a misleading impression,” Kell added. “Qualifications should be given sufficient prominence to effectively convey the key information.”
8 | JULY 2012
ASIC DISCIPLINES INSURANCE GROUP
ASIC has imposed additional compliance conditions on a Sydney-based insurance group for failing to comply with a number of obligations as an AFS licensee. After an internal review, Australian Life Insurance Distribution Pty Ltd (ALI Group) reported to ASIC in December 2011 that from the time it was granted a financial services licence in April 2003, ALI Group: •• failed to notify ASIC of the appointment of all Authorised Representatives (ARs) •• failed to include the relevant AR’s details on ALI Group’s Financial Service Guides (FSGs), and •• engaged in activities that weren’t part of their licence terms ASIC will now require ALI Group to employ an external compliance consultant who will regularly report to ASIC until 30 June 2013. The consultant will report on matters including the number of ARs appointed, the number of insurance policy applications submitted by ARs, and the adequacy of compliance resources used by ALI Group. “Confidence in the financial services industry depends on licensees having robust compliance procedures in place, supported by appropriate competencies, resources and a culture of compliance,” said ASIC Commissioner Peter Kell. “ASIC will intervene to impose more onerous licence conditions to satisfy us and the broader community that licensees are meeting the standards expected of financial services participants,” said Kell. ASIC SUSPENDS INSURANCE BROKER
A NSW-based insurance broker has been suspended following seven months of surveillance from ASIC. The financial services licence of Southpoint Insurance Brokers has been suspended until 12 November 2012. ASIC found Southpoint had breached its legal obligations and licence conditions by failing to: •• maintain sufficient base level financial requirements to pay all debts as and when they become due •• hold onto at least $50,000 in surplus liquid funds when holding client money or property over $100,000 •• operate the trust account in accordance with financial services laws •• lodge financial statements and auditors reports by the due date “People look to insurance brokers ... for help in securing services with which they are often unfamiliar, and in doing so place significant trust in those professionals,” said ASIC Commissioner Peter Kell. “Clients should have confidence that [they] are fully complying with their legal obligations and the conditions of their AFS licence when dealing with their money.”
INSURANCEBUSINESSONLINE.COM.AU
FORUM FORCES
Too expensive 41% Risk too small 30% Haven’t got round to it 29% Don’t trust insurers 16% Contents are not worth insuring 15% What our online readers have been saying about the latest news Would pay for damages myself 9% Don’t “As believe 3% to both always put the client’s interest first. It's a matter someonein whoinsurance provides IT solutions underwriters and brokers, I would say that it’s a of principle.” Other/can’t say 12% big call to say that underwriters are seeking to Luis Ros on Brokers: just glorified salespeople? Source: IAG consumer survey (more than one option could reduce reliance on brokers.” Victor Caballero of Insurance Design Services on “There is still an onus for the broker to get be selected) Underwriters to 'reduce reliance on brokers'
“I, and broker colleagues, are seeing an increasing number of policies that have been sold direct/ online where the occupation of the person or description of the business is incorrect – in many instances rendering the policy virtually worthless.” John Jenner of MS2 Insurance Brokers on Clients shift towards online cover “The broker HAS to sell, and sometimes hard. When you know your client needs the protection and is hesitating, you have to be creative and persuasive to bring him on board. However, the key is to
something signed and declared from the insured. Vero could help by allowing us the option of a pre-populated proposal form that we could ask the client to sign confirming the information we entered into the Vero system was correct.” Robert Cooper on Brokers: How to avoid getting sued “This MP does not realise that the insurers in Australia provide much bigger stimulus packages than any government. In Australia today insurers pay out around $100m a day.” Damian Scantlebury on MP’s vicious attack on insurance
CONTENTS INSURANCE
WHY DON’T CONSUMERS HAVE CONTENTS INSURANCE?
16% 15%
12%
9%
Other/Can’t say
Don’t believe in insurance
Would pay for damages myself
Contents are not worth insuring
Don’t trust insurers
Haven’t got around to it
3% Risk too small
Some golf clubs offer huge cash prizes and holiday giveaways should a player score a hole-in-one. Luckily it is possible to get ‘hole-in-one insurance’ which will cover the club should a player achieve the feat.
30% 29%
Too expensive
DID YOU KNOW?
Source: IAG consumer survey (more than one option could be selected)
41%
JULY 2012 | 9
UNDERWRITER NEWS / RAMI FAHMY / PAUL LYNAM
BROKING How an insurance broker from NSW balanced his broking duties with becoming the cover star of Australian Men’s Fitness in just eight weeks
10 | JULY 2012
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DIET FOR BROKING SUCCESS? The types of foods which sparked Fahmy’s transformation The boot camp organisers recommended an ‘Inferno Diet’, an eight-week eating plan that promotes rapid fat-loss by removing carbohydrates, sugar and alcohol from your diet. Examples of what you might find yourself eating: POACHED EGGS AND BACON ROAST CHICKEN SMOKED SALMON AND CREAM CHEESE TURKEY MEATLOAF AND NOODLES NON-FAT YOGHURT OR LIGHT JELLY
You might think the world of insurance broking and being the muscle-bound cover star of Australian Men’s Fitness magazine are polls apart, but one motivated broker has proved that wrong. Rami Fahmy, 29, who owns Parramatta-based Nsure General Insurance Advisors, an authorised representative of Westcourt Insurance Brokers, is the cover story of June’s issue. In just eight weeks Fahmy underwent a truly amazing transformation, losing 8kg of fat and gaining 5kg of lean muscle as part of the boot camp challenge, which allowed him to win a national challenge. The boot camp organisers sent out his story and pictures to Men’s Fitness magazine and they were suitably impressed. So with his insurance broking duties still ongoing, how was it all possible? “The regime was about changing my lifestyle altogether,” Fahmy told Insurance Business. “I learned new recipes, about new ingredients and how to make healthy food taste good. I learned to follow a new eating program. It was about planning my meals and training hard. I did boot camp training on Coogee Beach and made sure I did a 20 minute routine when I couldn’t make it.” Fahmy said the beauty of the whole program was how he structured his meals by ensuring they were ready in the fridge to eat every week. “I used to pack my esky with my meals every day and then hit the road,” said Fahmy. “I did have some lunches out too, but once you have learned what meals you should be eating you know what to order.” We are sure that many insurance brokers reading this article may think this is great but, working in such a demanding industry, how does anyone have the time to produce such results? “I reduced the time of my exercise and increased
WATER, TEA, COFFEE (WITH SWEETENERS, NO SUGAR)
“This whole process has left me feeling sharp; before I was so busy and my mind was getting slack. I can now do more for my clients as I’m more alert and on the ball” Rami Fahmy my intensity, so I was able to squeeze in my whole week’s training in four hours,” said Fahmy. “Boot camp starts at 5.40am every morning, I was done by 6.40am and I was out the door by seven. So it didn’t eat into my work time.” Fahmy also did all of his fitness work outside, so there was no time lost driving to the gym – everything was ready to go as he stepped out of his front door. “In becoming healthy I found the clarity to change my lifestyle even more,” continued Fahmy. “I got rid of our office and everybody works from home now, and I now have four hours more at home.” Are there any broker benefits to this transformation? Will being sound of body help you get a few more sales over the line or pick up a few new clients? “This whole process has left me feeling sharp; before I was so busy and my mind was getting slack,” added Fahmy. “I can now do more for my clients as I’m more alert and on the ball.”
JULY 2012 | 11
INTERVIEW / MARK BOURIS
INSURANCE
IS A GRUDGE PURCHASE
Star of hit show The Apprentice and executive chairman of wealth management firm Yellow Brick Road, Mark Bouris sits down with Insurance Business to talk small business success and how to improve your insurance brokerage It seems impossible to underestimate the value of celebrity in business. Just ask those TV chefs who have full restaurants every day. The same applies if you can be the business face of global hit TV show. The Apprentice now has 24 international versions, from ‘De Topmanager’ in Belgium to ‘El Aprendiz’ in Columbia, and famous finger-pointing bosses of the show include the UK’s Lord Alan Sugar and the US’ Donald Trump (though the South Africa Apprentice might have the boss with the best name – Tokyo Sexwale!). Here in Australia, we have a man who knows a thing or two about broking. Former Wizard Home Loans boss Mark Bouris, who now runs wealth management firm Yellow Brick Road, (YBR) has seen an unprecedented rise in national 12 | JULY 2012
popularity. The Australian Apprentice has been a ratings hit too, but Bouris is enjoying his eminence after a long slog to the top. The idea of an “overnight success” is non-existent in the tough world of business. Following on from our launch issue’s ethos of providing insurance brokers with the top-level business tools and advice they need to succeed, Insurance Business headed into Bouris’ Sydney CBD offices to hear one of Australia’s most famous businessmen outline what makes a successful business. In our exclusive photo shoot and interview, Insurance Business discovers the secrets behind Bouris’ approach to business, his passion for small Australian companies and how you can improve your insurance brokerage.
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“The monoline product provider is going to find it very hard to survive over the next couple of years. You’ve got to have a multiline of products, so why not have a product or service that no one else is offering?” Mark Bouris
JULY 2012 | 13
INTERVIEW / MARK BOURIS
Insurance Business: What inspired you to start YBR and what was your original vision for the business? Mark Bouris: One reason I wanted to start Yellow Brick Road was that the Wizard Home Loans business had been sold to my opposition. So, I basically decided I wanted to set up a business where I could be doing the only thing I know – that is, financial services – but offering a broader range of financial services compared with what Wizard used to do.
IB: You’re now at over 100 branches which operate as their own small businesses. Do you think there is enough support given to Australia’s small businesses? MB: No. The small business community is somewhere between 2.7 and 3.5 million people and there is not enough support for them. That’s precisely what Yellow Brick Road is about. It is about giving small businesses advice, helping them sell their business, buy businesses, finance businesses, and making sure they have the appropriate insurance cover in case something goes wrong. Just asking them the questions that no one ever asked them.
Pulch Photography, pulchphotography.com
IB: What can and should change to help our small businesses flourish? MB: They just need advice. Small business is the loneliest place in the world to be, especially at the moment. They are all hanging out for advice, but they don’t want someone to sell them a product. They are sick of people going up to them trying to sell them a mortgage, or trying to sell them a factoring product or some sort of insurance. They are sick of product salesmen and product pushing; they want advice. They are saying: “Listen, can I just sit down with you to talk about how my business is pumping along and what my aspirations are for the next two years?” But they actually don’t know how to reach those aspirations. If they want their business to be worth $500,000 in two years’
INSURANCEBUSINESSONLINE.COM.AU
time, they want to know how to actually get there. That business needs to know what they’ve got to chase. You can critically analyse what they’re going to do so they can achieve that, so they don’t waste any money and they can get close to that goal over the next few years. Small businesses will pay for that. You don’t have to be a trained accountant to give out that advice, you don’t have to be a licensed credit supplier or a business broker either. You just have to have a level head on you and understand how a small business works. Most insurance brokers are small business people and we know how these things work. At Yellow Brick Road we have the templates of the questions you need to ask. Then we’ve got the support here at head office; when you don’t know an answer, we can give the answer to the particular small business client. These small business people are so busy running their businesses, they don’t do all the little things properly. They are so stressed out about how they’re going to pay the rent this month or about a key employee who is having a baby. Or they’re worrying whether they’re in the right location, and about what their competitors are doing. How do they find that out?
IB: What three aspects does every good business need to succeed? MB: There is only one aspect that everybody needs – somebody who will ask them the questions that they don’t get asked. Small business owners are very good at convincing themselves that they know best. What small business owners need is someone to ask them the questions. They’ve got the answers but they’ve got to have someone to ask them the questions. That is what is not happening in this world today. Small business owners don’t think they can afford this, deserve it or need it. And if they can afford it, it doesn’t have to be expensive. It doesn’t have to be a thousand bucks an hour, you don’t have to be talking to Warren Buffett, you don’t have to go and listen to Anthony Robbins. You are
“If we’ve got 2.7 million small businesses in this country, that is a huge market which is currently untapped” Mark Bouris not going to find the answers out of these guys. Everyone needs a different question put to them. What they need is someone to sit down with them and ask them the questions and say go away, get the answers, and let’s have a look at the answers. Let’s critically analyse your answers once I have given you the questions. The bottom line might be: how do I get my revenue higher and how do I maintain my expenses at a certain level? What are the assumptions that I employ in order to get my revenue higher? And that comes down to their market assumptions. What am I assuming about my brand, my market place, my marketing spend, my advertising spend, my price point? Are people willing to pay this price for it? Could I get more if I slightly discounted it, or am I not charging enough – should I be charging 20% more? Am I too frightened to charge 20% more because of what I think of competitive pressures? There is just a whole series of questions that need to be asked of these people. That’s our business, that’s our bread and butter.
IB: YBR has flourished through smart diversification. How do you manage that diversifying process? How do you evaluate a new market? MB: How do we do it? It is difficult! Most of our branch owners are small business owners. Most of our staff have come out of small businesses. I came out of a small business! I know what people want; it is no different today to what it has been for 20 years. It’s just that no one has bothered to look
JULY 2012 | 15
INTERVIEW / MARK BOURIS
HOSTING DUTIES IB: HOW MUCH OF YOUR TIME DOES THE APPRENTICE CONSUME? HOW DO YOU BALANCE THAT WITH THE DAY-TO-DAY RUNNING OF YBR?
MB: It is a lot of work but The Apprentice is shot at the quietest time of the year. We do it in January, so everyone else is on holidays then. I have the ability to film it whenever it suits me or find time that actually suits me best. And this is a seasonal business so generally it’s not that busy for us in January.
IB: WHAT ABOUT THE POSITIVE EFFECT ON YOUR
BUSINESS? HOW HAS YBR DIRECTLY BENEFITTED?
MB: It has benefited us big time. I can’t explain how valuable it is in terms of what it does for our brand and what it does for our branches, it’s just huge. For us to get that level of exposure in an advertising sense we would have to spend $20m or $25m. Then it would take three years of doing that and we have done this in seven months. The first Celebrity Apprentice was done in October/ November last year. People know what we do and it’s just come out of that and it’s only cost us a couple of million dollars and most of my time.
after small businesses. Australia has been a product environment, globally the world has been a product environment, it hasn’t been a service environment. So everyone has been pushing products at customers like loans, mortgages, insurance products etc. The world has changed; people genuinely need to have someone who will listen to what they’ve got to say and help them along the way. Customers know about the products – it’s all over the internet and the newspaper, it’s everywhere. You try and get small business advice on the internet though and you can’t get it. How do I sell my business? Well, the banks aren’t going to tell you that. If you go into the bank and say “can you help me”, you will get told to see a business broker. But most people don’t even know how to find a broker, what to expect from that small business broker, how to negotiate with a small business broker, what fees to pay, or what that broker will even bring to the table. Banks just don’t do that. In terms of us bringing our strategic products to the market place, it’s not that difficult because it is what we know the market place needs and has always needed. The big boys get it. What we did at Wizard 20 years ago was that we saw that no one really gave a damn about you when you were getting a mortgage. You just went and begged for it at the bank. At Wizard we showed you how to get 16 | JULY 2012
a mortgage and gave it to you at a better price. We are doing exactly the same at Yellow Brick Road today. We’re saying to small business owners and business people generally that they should come in and see us, then we will help you navigate your way through what is a very tough environment. Let’s say we’ve got 2.7 million small businesses in this country – that is a huge market that is currently untapped. Why compete with the banks on mortgages when you can compete with them on something that they don’t even offer a solution to?
IB: You are looking for new franchisees, what do you look for in your recruitment process? MB: In an ideal world someone with mortgage and financial services experience, but frankly someone who understands what we are trying to push here. They need to be prepared to chase leads, originate deals and look after small business owners and then also sell all the products that float around it, be that a mortgage or life insurance. Most of the people that are coming to us are coming out of the mortgage, insurance or financial planning industries. We tend to be getting all those sorts of people in equal amounts but it’s probably more about what they are looking for, which is just to get out of the monoline. The world has changed. The monoline product provider is going to find it very hard to survive over the next couple of years. You’ve got to have a multiline of products, so why not have a product or service that no one else is offering? That is small business advice. And the way we work, we will either do the advice at the head office for you and give you a clip for finding the client and hand holding the client. Or we will give you the questions, you ask the client, the client sends back the answers, we effectively mark
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it for you and the client. Then we set up a Skype session where we charge the client a fee. We say, look, the cost of this session will be x amount of dollars and the guy that owns the branch gets some of that and we get some too. Then, depending what comes out of that in terms of other products etc, we split the fees. It’s pretty simple.
IB: Are there any particular geographical areas where you are especially keen to introduce new franchises? MB: Everywhere! We like growth areas, we don’t want to be in areas where it’s not going to grow. We don’t want to be in an area which is dead on a vine, you know some sort of town that’s got about three people in it, then no! But pretty much anywhere; we could open three hundred of these stores, there is room for that. CommBank has two thousand outlets, so three hundred for us is nothing. It’s 15% of what CommBank has got. We’ve also got this new concept of what we call agencies, so if you don’t want to open up a branch and you don’t want to have a shop, you can operate from home. You can become a Yellow Brick Road agent, just operating from home – one person.
IB: What’s the barrier entry for that? MB: None. They have to get MFAA accredited, but we can organise all that sort of stuff. But they don’t have to open up a branch and start paying rent and build a team. You would make more money out of that branch system, but you might want something that fits in with your lifestyle. You may be a mum who stays at home looking after the kids, perhaps they are at school during the day. Maybe you have come out of a banking system, or you have come out of a broker or
“Small business is the loneliest place in the world to be, especially at the moment” Mark Bouris
insurance company, and you might want to just have additional income at night or during the day. It can be internet-based. So you have these YBR agents; that’s one way of doing it. Or you can become a Yellow Brick Road branch owner. They are the two things in the running.
IB: You talk about the value of the business brokers, we have witnessed how many Queensland flood victims were much better off if they used an insurance broker compared with going direct. But do people still need educating on how much better off they would be with a broker? MB: How do we educate them? It is up to the media to do it. Insurance is a grudge purchase so it is not a good one to push as people usually don’t want to read about it. But one way is to tell people it’s about price and the package. So if you want to make sure you’ve got the right package, especially with what’s going on with people not being paid out or not getting paid out as much as they thought. The only people who will listen are the people who have actually been affected this time round. All those others are sitting back in Sydney or wherever, they haven’t been affected and it’s very hard to reach out to them. I just think that it is a slow grind and it will take a long time, but eventually we will get there.
JULY 2012 | 17
FEATURE / MARINE INSURANCE
MAKING
Marine insurance is a niche area for insurance brokers to play within, but considering how few specialised players there are, is there an opportunity for general brokers to move into the marine space? The lifeblood of much insurance broking is niche specialisation. With that in mind, it might be difficult to cite many more salient examples of the expert knowledge brokers can provide than in marine insurance. You will not be able to navigate the marine insurance broking space with a freshly attained AFS licence in one hand and a list of potential clients in the other. Marine insurance is the Russian doll of insurance broking – with smaller and smaller niches found within its layered infrastructure. Many brokers do not play within a general marine insurance space. Rather, they find further specialisation and focus on, for example, just commercial lines, pleasurecraft or marine liabilities. So what is changing in this highly specialised area for insurance brokers? Maria Dwyer, managing director of broker Oceanic Marine Risks, which specialises in com18 | JULY 2012
mercial hull and related marine liabilities, says the firm is seeing increases in rates and a more cautious approach to many risks that would once have been accepted quickly. “The rate increases are in the order of 5% to 15%. At the moment we are also seeing new underwriting entries into the Australian market,” says Dwyer. “Given that many of the current large resource projects are marine-based, we are in a good growth phase.” Lyndon Turner, chief executive officer of Nautilus Marine Insurance Agency, who mainly deal in the pleasurecraft space, says there are not a great deal of brokers in that area. “There are only perhaps 20 to 30 who play in that pleasurecraft space,” says Turner. “To be a marine insurance broker you need to have those key contacts in the boating sector as it is such a specialised and niche field. Your client base wants to know
FEATURE / MARINE INSURANCE
MARINE INSURANCE CATEGORIES GLOBAL HULL
Commercial vessels engaged in international trade under domestic or foreign flag. Interests are: hull and machinery, disbursements, increased value, freight or other ancillary interests, loss of hire, construction risks.
MARINE LIABILITY
Insurance covering vessels classified as coastal/inland marine and also marine liabilities covering charterers, ship repairers, stevedores, wharfingers, terminal operators and similar legal liability insurances.
TRANSPORT/CARGO
OFFSHORE/ENERGY
All types of insurance relating to cargo, including freight forwarders, CMR and carriers liability, in transit whether on land, sea or air, domestic as well as international trade.
Insurance of all interests relating to offshore exploration and production activities, including both mobile and fixed units, construction risks.
Source: International Union of Marine Insurance (IUMI)
you know what you’re talking about and that is something the broker needs to be considerate of. Successful brokers in this area are often waterfront people and that is how they have built their success in this space.” Therein lies another layer of specialisation in the marine insurance brokering space, or another Russian doll to continue the prior analogy. You need not just a willingness to play in this space, but also the right geographical location. “The marine market is one that requires both a lot of interest and a good deal of knowledge by the brokers,” says Chris Kennedy, Australia branch manager of Sunderland Marine Mutual Insurance. “As a natural progression of that, often these brokers are based in areas where there is an aggregation of vessels, such as ports, so that might be areas like Cairns and other places along Queensland. Those brokers lead the way in marine insurance,” says Kennedy. But in the age of online claims, surely the marine insurance net can be cast wider? Insurer Vero thinks so… “A significant new trend in the placement of Marine Transit cover has emerged in recent months with a surge of business being placed online,” says Mark Williams, executive manager marine with Vero. “Since August 2011, Vero has seen a 50% increase in Marine Transit GWP placed online. Given that the Vero Marine online capability was launched over 10 years ago, this is a marked change in broker buying behaviour.” Williams says brokers can quote and bind a number of Vero Marine Transit policies online includ-
“To be a marine insurance broker you need to have those key contacts in the boating sector as it is such a specialised and niche field” Lyndon Turner ing Import, Export, Inland and Carriers Goodwill, as well as various combinations of covers. They are available as one-off or annual policies. “The increase in online placement volume is not limited to one or two products but has been across the board which suggests a more profound shift in the market,” continues Williams. “There appears to have been a convergence of several factors that have come together to create this surge – improved functionality of the site, enhanced skills working online within the broker community and a greater awareness amongst brokerages of the benefits of transacting new business over the internet.” Williams adds it is fair to say that it’s often the younger, more tech-savvy account executives who are at the forefront of this online change. Fellow insurer Lumley cites another marine insurance trend. “For some time we have seen across the industry a general disconnect between renewal and new business pricing,” says Chris Kelsey, national product manager of Marine with Lumley Insurance. “The trend to commoditise certain products or businesses, such as carriers or SME, is eroding the level of expertise that is required to underwrite
JULY 2012 | 19
FEATURE / MARINE INSURANCE
these classes profitably. Critical mass, in terms of income, also appears to be the key driver for some classes of marine such as pleasurecraft. However there are signs of an increasing trend to ensure adequate profitability of marine insurance products with a more robust approach being taken to risk selection,” says Kelsey. Stephen Rudman, manager of marine at broker JLT, says there is a definite trend of the local market moving towards transactional process general cargo marine policies. “This is evidenced through a proliferation of facilities between insurers and brokers, supported by IT platforms offering online quoting and issuance of marine certificates,” says Rudman. “Another concerning trend in the local market is insurers’ diminished appetite for commercial hull business. A number of insurers are either no longer writing this business or increasing their rates and premiums.” Rudman says marine insurance broking is highly regarded and recognised around the world as a specialist discipline, particularly in Europe, Singapore, Hong Kong and South Africa. “Only experienced
20 | JULY 2012
and qualified marine brokers can service marine accounts in these countries, however in Australia, any general insurance broker is able to look after marine business. As global trade increases, and as long as countries import and export cargo, there will always be a need for marine insurance,” says Rudman. “With the globalisation of and increased complexity of clients’ businesses, brokers require a greater understanding of the supply chain risks, including transportation, logistics and associated contractual risks. Specialist, accredited marine brokers deal with such issues on a daily basis and understand the specific risks associated with certain destinations, the nuances of shipping terminology, the physical and contractual risks, and how they dovetail with marine cargo, consequential loss or liability insurance policies,” he says. So what of a swelling of new brokers into previously uncharted marine insurance seas? Will that happen, and is it even advisable for a broker to do so? “There are far fewer brokers in the marine area,” says Rick Wolozny, managing director of
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Trident Insurance Group. “That means that brokers willing to specialise in it do not have the competition that you would find in property and those types of insurance. Will more brokers start to move into this space? I do not see a lot of evidence of that. It is truly a niche and those who have elected to concentrate on it have done very well.” However, a specialist broker like Wolozny mentions, Maria Dwyer from Oceanic Marine Risks, suggests that some brokers are already attempting to gain more marine business. “Brokers dabble in commercial marine as they may have non-marine clients who become involved in marine-based projects,” she says. “If a broker does not have knowledge of the following then they are taking unacceptable risks for themselves and their clients: current marine State and Commonwealth Legislation, Marine Institute Clauses, Bimco Clauses and International Marine Conventions.” “General brokers have a reasonable understanding of marine insurance, as most businesses that own stock or mobile assets have a need for this cover,” says JLT’s Stephen Rudman. “Having said that, there are many traps for the generalist broker, and their clients, where the lack of understanding of marine law, shipping terms and conditions – such as the new incoterms 2010 – can leave them wanting. “The global insurance market has adopted standardised insurance protection such as the Institute Clauses, which cover a range of covers designed around general and specialised transits. Although significant advances have been made in developing more ‘plain English’ phraseology, the clauses still rely heavily on marine law precedents and can be confusing for general brokers.” Rudman says at times there is a propensity for marine underwriters and brokers to regurgitate the old English language in drafting endorsements, adding to the confusion, occasionally resulting in ambiguity in the cover that is intended to be provided. “Whilst there are almost a dozen Australian insurers actively underwriting marine insurance, there appears to be few specialist marine insurance brokers and therefore the technical skills within the marine insurance field in Australia are very low,” says Rudman. “The principles of marine insurance have some similarities to general insurance, however failing to realise the practical differences can result in marine policyholders being left
SELLING TIPS FOR BROKERS CHRIS KELSEY, LUMLEY INSURANCE
“Brokers need to make sure that their clients are fully aware of the risks and hazards of transportation, from truck roll overs to general average and rejection losses. Brokers should also be ensuring that they are aligned to experienced and knowledgeable insurers who can offer the local and global support required. Their insurer should also offer excellent service and product training opportunities so that brokers can better service their marine clients.”
RICK WOLOZNY, TRIDENT INSURANCE GROUP
“We search the best products available in the market and to do that in marine you have to look for what is available here and in the London market. You need to get known in the marine sector, particularly in certain states and regions, but also be able to jump on opportunities.”
LYNDON TURNER, NAUTILUS MARINE INSURANCE AGENCY
“Like any insurance line it is about understanding what your clients’ needs are, as boat owners are no different to butchers or newsagents, they want to know their broker has an idea of how to insure their asset. They are insuring a rather wealthy leisure asset and are smart people who can see through people who don’t know what they are talking about very quickly. There is quite a large amount of uninsured pleasurecraft out there and that varies across the style of pleasurecraft.”
“There are many traps for the generalist broker where the lack of understanding of marine law, shipping terms and conditions can leave them wanting” Stephen Rudman
JULY 2012 | 21
FEATURE / MARINE INSURANCE
TOTAL LOSSES 1997-2011
By cause, all vessel type (vessels >500 GT) Source: LMIU, total losses as reported by Lloyds List
Weather
Grounding Fire/ explosion Collision/ contact Hull damage
2007–2011 2002–2006
Machinery
1997–2001 Other 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Frequency of all total losses for the period
Head to www. insurancebusinessonline. com.au/tv to watch our Marine Insurance report
22 | JULY 2012
with inadequate cover, no cover at all, or unnecessarily high premium.” Lumley’s Chris Kelsey adds that while marine is a specialist market, which at times is difficult to understand, Lumley finds brokers respect insurers who are marine experts that will meet their clients’ needs. “Brokers who are taking on new marine clients tend to shop around to find a price that meets what their client wants but unfortunately can ignore some of the technical issues that need to be considered,” says Kelsey. “Marine insurance is fundamental to trade, both export and import, and the risks of making assumptions about transit conditions, local transport infrastructure, organised crime, local regulations or restrictions are where brokers can get assistance from Lumley’s marine specialists as well as Lumley’s marine claims experts,” says Kelsey. There can be no doubt that any broker looking to break into, or expand within, the marine insurance space needs both the expert knowledge and the industry contacts to make a success of a complex and niche area of the market. But what does the future hold for marine insurance? “Marine insurance is the original form of insurance and has been developing and adapting for thousands of years as trade and customer needs
have changed,” continues Kelsey. “The global economy is certainly the biggest factor when it comes to marine insurance. As marine insurance is influenced by events internationally, this can often bring challenges for insurers such as recent events in Japan, Thailand, Australia and New Zealand, which also directly impact our clients. “If we have a strong economy the industry obviously fares better, however in more difficult times, we often see an increase in claims and a lag in premiums adjusting to losses,” adds Kelsey. Wolozny states that more clients are looking to deal with specialists with the knowledge and access to those unique products that the general brokers are not aware of. “The brokers with the knowledge of the product, who know where to get the best deals, will be the winner in the marine space,” he says. In the very unlikely event of any broker taking the specialisation in marine insurance lightly, they are taking a great risk with their reputation and broking future. That is not to say marine insurance is a closed system to more general brokers looking to expand into the area, but more research, due diligence and a steady entry into the space will form the bedrocks for any broker looking to swim against the tide and secure fresh business in marine insurance.
FEATURE / PROFESSIONAL INDEMNITY
BECOME THE
LEADING LIGHT The professional indemnity insurance space is congested, yet still growing. So how do insurance brokers win a slice of such a burgeoning but competitive area?
24 | JULY 2012
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The professional indemnity (PI) insurance space is one that has experienced rapid change in the last decade. It has swiftly evolved from specialist niche to seemingly the space every insurer and broker now plays within. The increased insurance industry focus is warranted though. Previously PI insurance was for the professions who most obviously needed such cover, but two aspects have emerged: firstly more regulation and contractual requirement is demanded of a wider range of professions than ever before. Secondly, there has been a more organic rise and appreciation of the advantages of having such a policy in place. More professionals than ever before are aware of PI insurance and are taking out such coverage off their own backs. The demand has sparked the supply, and no-one in the insurance industry is denying we are dealing with a packed sector of the market. “The PI space is overcrowded,” bluntly says Paul Lynam, chief executive of SRS Underwriting Agency. “We focus on the service side for our brokers as they have so many options.” “There are loads of options in the PI market,” concurs Rhys Mills, managing director of Solution Underwriting Agency. “When we launched two years ago we understood we were coming into a market that was well catered for, we had competitive pricing, but you need to offer more on that service side as there are so many options for brokers. “We have quite a broad appetite in terms of the professional indemnity we offer. We do everything from bookkeepers to mining engineers. We are across just about every occupation that is out there. There are certainly quite a few markets which offer what we do, so the brokers certainly have a choice in who they go to,” explains Mills. James Stringer, Zurich’s national underwriting manager, says: “There is substantial competition in the PI market as there are a number of insurers in Australia who will write PI. There is certainly more competition than there has been in the past when the market was in more trouble with lots of claims and not enough premium.
“PI insurance has a healthy future, especially with regulatory and legal changes increasing the need for it” James Stringer “Pricing is flat as a trend, but we are seeing coverages become more responsive to customers’ needs as insurers try to accommodate customers’ requirements. If you go through Zurich’s products, where 10 years ago you might have had one PI policy that would be miscellaneous which you would then adapt for individual industries, now you have profession specific policies.” Stringer cites that another PI development is that claims costs have been trending upwards. He puts this mainly down to the GFC from a few years ago, where disagreements are now starting to crystalise to the point where they have become a legal matter. “When you get tougher economic times you will get more disagreements that might have been resolved in boom times,” he says. “We are enjoying success across all of the professions taking up PI, but a lot depends on what is happening in that market segment at any given time,” says Stringer. “If I had to nominate a professional area doing particularly well, I would have to say the architects and engineers, design and construct areas are always very competitive. We are seeing more opportunity in that space at the moment as there have been some claims in the market.” There is a broker-insurer relationship elephant in the room though. The recent Richard St. John inquiry into financial products and services in Australia claimed that with the PI market many insurers are reluctant to offer brokers all the cover they need, which then forces brokers to implement a layered policy using several insurers. The Compensation Arrangements for Consumers of Financial Services report stated that insurance brokers then find difficulty acquiring professional
JULY 2012 | 25
FEATURE / PROFESSIONAL INDEMNITY
THE BROKER OPPORTUNITY James Stringer, Zurich
Rhys Mills, Solution Underwriting Agency
“Speaking as a former broker, brokers should be offering PI insurance. They should be offering it as part of a review of clients’ needs and that is something that every broker would be doing. A lot of customers are finding that they are required to have a PI policy in place to win business. A broker recently said to me that you need millions of dollars’ worth of cover to sweep a floor in NSW under government legislation. In the past PI was for pure professionals – an engineer, accountant, a surveyor, lawyer etc. – but over the years with legal trends and government regulations that has expanded out to anyone who provides services of a specialised nature. That is an opportunity for the broker. We have even seen brokers set-up divisions within these PI specialisations as it is quite a complex area. This complexity is growing further too, which only presents further opportunity for brokers to meet their customers’ needs.”
“It is still a competitive and growing area. That is important for brokers looking to expand their portfolios; PI is certainly a good area to achieve that growth. Brokers are going well in PI and brokers have become more confident working in this area. Previously there was a bit of a fear factor associated from the brokers’ point-of-view in dealing with PI. It was seen as being a very specialised segment of the market and you had to be a very specialised broker to provide a price on PI insurance. That can still be the case in relation to certain areas and professions, but most aspects are well within the realms of the general broker to look after PI now. The broker needs to establish if their clients provide advice or design to their clients and whether that could result in a financial loss to those clients. There is then exposure to those people as they are offering expert advice in a field, so there are certainly occupations where the PI exposure is obvious and they need that PI policy in place.”
“There is an extreme inadequacy and unavailability of professional indemnity insurance for financial advisers and licensees in Australia” The Financial Planning Association indemnity insurance that meets ASIC requirements of adequacy. Contributing to the report, the Financial Planning Association, states: “There is an extreme inadequacy and unavailability of professional indemnity insurance for financial advisers and licensees in Australia. “There are three to four underwriters in [the financial planning space] offering policies with multiple exclusions and inadequate cover to meet the RG 126 requirements.” NIBA also contributed to the report and suggested that the PI market is harder given the recent adverse claims and dispute experience. “NIBA understands that whilst aggregated adviser groups can still obtain compliant PI at reasonable cost given the number of participants, smaller advisers may face difficulty, dependant on their claims experience.” The report highlights that when a broker needed $20m of cover, it may be forced to implement 26 | JULY 2012
a layered policy from two insurers who share the risk. NIBA adds: “In relation to insurance brokers, as the risk has remained relatively stable along with the PI requirements that applied before the Corporations Act 2001, so too has the premium and availability of insurance. “In relation to investment advisers the trend has generally been towards a lessening of capacity as insurers withdraw from this specific PI market as a result of the increasing claims experience trends. NIBA understands that the costs have been increasing and the flexibility of terms decreasing.” However, David Bailey, managing director of Eagle Insurance Brokers, says that the brokerage has been successfully operating in the professional indemnity insurance space for several years. “Our success rate continues to grow,” says Bailey. “We have a national scheme for real estate agents which runs very well, while rates are stable and cover availability is good. It is only a couple of markets that cause us issues.” Bailey says those troubled markets where there is reduced capacity offered by the insurer are professions who have high instances of litigation, such as property valuers and engineers. “This has resulted in the need to buy excess insurance whereas previously this was never an issue,” says Bailey. “Generally speaking this is only necessary where the limit of indemnity required is in excess of $5m.”
FEATURE / PROFESSIONAL INDEMNITY
PI POLICIES AND CLAIMS POLICIES AND RISKS WRITTEN
During the 2010 underwriting year, APRA-regulated general insurers wrote
$2,894 million of gross premium for the professional indemnity (PI) and public and product liability (PL) classes of business. The gross written premium for professional indemnity policies was
$1,175 million covering more than 0.4 million risks (excluding facility business). APRA-regulated insurers wrote public and product liability policies covering 2.3 million risks in 2010 (excluding facility business). These policies had gross written premium totalling
“Certainly there are some professions where it is difficult to get coverage,” said Zurich’s Stringer. “Financial planners and property valuers are finding it difficult to find cover in the Australian market. This is forcing them to go to markets such as Lloyd’s and they are paying much higher prices for PI insurance. But in insurance the price charged is based on the experiences of the insurers that write that type of business. “Zurich does not write PI for those professions, and never has; it is not part of our business strategy. What insurers cover are insurable risks and PI is about fortuitous loss, it is not a financial guarantee for every risk in the business. A lot of the Richard St. John inquiry did not apply to Zurich’s portfolio. In terms of engineers though, I don’t think getting the coverage is the issue, rather the problem is getting the cover at a price that the customer is prepared, or expects, to pay.” So what will the future hold for the PI insurance space? Is the growth from the last 10 years sustainable, or will those clambering to do business in this area eventually find themselves in a saturated space? “I did not think when I started in the industry writing PI 25 years ago that we would be where we are today,” continues Stringer. “We are seeing increased coverage needs, new covers that we would not have even thought of all those years ago, and we are seeing more brokers specialising and more insurers underwriting these exposures. “We are almost at the point that there is not a huge amount of cover left to be given. I doubt that covers will go backwards though. PI insurance has a healthy future, especially with regulatory and legal changes increasing the need for it. So it will con28 | JULY 2012
$1,661 million CLAIMS
During 2010, APRA-regulated general insurers paid claims totalling over
$1,342 million on professional indemnity and public and product liability business. Of these payments, $594m related to PI insurance and $680m to PL insurance. These payments were made in respect of
90,600 claims reported to the NCPD that were open at any time during the 12 months ending 31 December 2010. Source: National Claims and Policies Database
tinue to grow, in areas such as security and privacy, and insurers will find ways to meet customers’ needs as they evolve.” Mills agrees that the PI space will continue to grow, with new professions becoming more interested in the cover and further legislation creating contractual obligations for PI insurance. Brokers have a plethora of options when it comes to PI insurance cover and that plays into the hands of the type of service that brokers offer. Clients will be looking to adopt insurance in a specialised niche which has a baffling number of options; that is why brokers are, and will continue to, do so well in PI.
FEATURE / KOTKU BAKERY
HALF-BAKED
ADVICE
After a Brisbane broker was sued for $2.7m by a bakery, leading law firm Allens highlights the lessons for all insurance brokers 30 | JULY 2012
INSURANCEBUSINESSONLINE.COM.AU
LESSONS Michael Quinn, partner at Allens WHAT ARE THE MAIN LESSONS FOR INSURANCE BROKERS FROM THE KOTKU BREAD PTY LTD V VERO INSURANCE & ANOR CASE?
Kotku Bread is an important reminder for brokers of the extent and enforceability of their obligations. Brokers are more than just conduits between an insurer and the insured - they have positive obligations to their client to ensure that relevant risks that they know of are accounted for, and to ask appropriate questions of an insured so that adequate information is provided to the insurer in proposal forms. Brokers must remember that there is potential for them to be ‘on the hook’ of liability if things go wrong in the event of a contentious claim. In this case the failure to ask simple questions of an insured in relation to a known risk meant that the broker failed to properly fulfil their duty, with serious consequences.
It is every broker’s worst fear –costly, and potentially ruinous, legal action resulting in a bumper payout. Earlier this year a Brisbane-based insurance broker found itself on the receiving end of a $2.7m settlement after Kotku Bread Pty Ltd sued Vero Insurance and Brisbane brokerage 786 International Pty Ltd, trading as Osman Insurance Brokers (no connection to a Sydney broker of the same name). So what can the broker community learn from this episode? In 2010 the premises of the Kotku bakery were destroyed by a fire and it was revealed that the premises had been constructed using a large quantity of highly flammable ‘Expanded Polystyrene’ (EPS). During the underwriting process, the broker had used Suncorp/Vero’s online system to assess the risk and determine whether to issue a new policy to Kotku. The online form included a question relevant to the use of EPS in the internal construction of Kotku's business premises. The broker selected ‘zero per cent’ as the answer which indicated that the premises had no EPS component. In fact, more than two-thirds of Kotku's premises comprised EPS. Vero denied the claim on the grounds of a relevant non-disclosure and/or misrepresentation. Kotku commenced proceedings against Vero seeking indemnity under the policy, and against the broker for negligence and breach of contract. In court, Justice Applegarth found that Kotku's answer to the EPS question amounted to a relevant non-disclosure and misrepresentation with the effect that Vero was entitled to reduce its liability under the policy to nil. Justice Applegarth also found that the broker had breached its duty of care to, and contractual retainer with, Kotku. The decision turned on the facts which were, in many respects, quite unique. In particular, there
Michael Quinn
was a threshold dispute as to whether or not the question about EPS had in fact been asked as part of the online questionnaire, and, if so, what answer had been given by the broker on behalf of Kotku. It was ultimately determined on the balance of probabilities that the question had been asked as part of the online form, and that the response was ‘zero per cent’. A further issue arose as to whether Vero had knowledge of the existence of the EPS material at Kotku’s premises in circumstances where that information had been provided to Suncorp by a different broker acting for Kotku a number of years earlier, and before Suncorp had acquired Vero. Justice Applegarth determined that the fact that information is held within an insurance company does not necessarily mean that it has ‘knowledge’ of those matters that ought to be disclosed by the insured. He added that an insurer should not be expected, as part of its underwriting processes, to undertake costly searches of its entire archives to locate information obtained years ago, in respect of a transaction that never eventuated. On the question of whether the broker breached its duty of care and contractual retainer, Justice Applegarth said that the presence or otherwise of EPS material was a matter known within the insurance industry to be relevant to whether cover would be offered. However, the importance of that matter to underwriters was not known by Kotku. On the facts of this case, the broker's failure to make enquiries about the presence of EPS, or to inspect Kotku's premises, constituted a breach of the broker's duty. The court held that, even if the EPS question had not been asked as part of the underwriting process, the broker still would have breached its duty of care and contractual obligations to Kotku because the importance of EPS risks was so well-known in the insurance industry. JULY 2012 | 31
FEATURE / KOTKU BAKERY
THE BROKING LESSONS... LESSON ONE
An insurance broker’s duty will ordinarily extend to making enquiries of its client(s) about matters that the broker knows to be relevant to the insurer’s decision of whether to accept the risk, even if the insurer has not made those enquiries itself.
LESSON TWO
An insurer cannot be regarded as having relevant ‘knowledge’ of every document it, or its parent company, has ever received. In this case, an insurer was found not to have ‘knowledge’ of information that should have been disclosed to it, even though that information had previously been provided to its parent company in a policy proposal that it did not accept.
LESSON THREE
The decision also represents a pragmatic approach to dealing with underwriting issues by drawing a distinction between information provided to an insurer in satisfaction of an insured's duty of disclosure, and relevant information previously provided to an insurer for an unrelated purpose and that is not readily accessible to underwriters.
Insurance Business: How often do insurance brokers find themselves in these types of legal issues? Is this case a common occurrence? Michael Quinn: Insurance brokers always need to be aware of their obligations. It is difficult to estimate the number of allegations, claims or proceedings brought against brokers for negligence of this type because most claims do not end up in contested proceedings and a publicly available judgment. Brokers are a relatively easy target for joinder to proceedings by an insured who is denied cover, even if only as a secondary target to an insurer. Having said that, Kotku Bread involved some basic broking errors which ultimately made the insured's decision to join the broker in that case much easier.
IB: Ultimately, whose responsibility is it to ensure these types of mistakes don’t slip through? The brokers themselves, the insurer, the client, the broker’s legal advice? Where does the buck stop? MQ: All players in an insurance transaction have some degree of responsibility on a general level. An insured has its disclosure obligations, a broker owes a duty of care to its client and the insurer must ensure that it asks relevant questions and is satisfied with the answers before writing cover. The issue of liability often turns on discrete facts or questions of 32 | JULY 2012
law, as it did in this case where there was a potential for the court to find against the insured, the broker or the insurer. The buck can stop anywhere depending on the facts of the case and all players should approach an insurance transaction on the basis that the buck will ultimately stop with them.
IB: What would be your advice for a broker concerned that they are doing everything to ensure their client is appropriately covered, but are worried they might miss something by accident and end up in court? MQ: It is very important that brokers keep adequate records of all stages in the process of obtaining a policy. In the absence of documents to support their position, brokers can be left in a "he said/she said" position where a claim is made or threatened by an insured. Contemporaneous documentary evidence is usually the best way to refute a claim or threatened claim by an insured. Brokers should also remain up to date with risks in the areas that they place cover, particularly as the Kotku Bread decision highlights that a broker has a responsibility to bring those risks to the insured's attention. Brokers should also remind their clients in each transaction of their disclosure obligations and be careful not to make assumptions about an insured's business or premises.
FEATURE / SELLING ON THE WEB
T C E F R E P E H T D L I BU
INSURANCE
WEBSITE
Your website might be your most important sales tool. If it is failing to create more business, you are missing a trick. Digital marketing firm Ogilvy unveils how an insurance website should work Macquarie’s 2011 Insurance Broking Benchmarking Report unveiled that a staggering one in 10 Australian insurance brokers do not even have a website. How well the 90% that do are performing is another issue. However, in a conservative and often ageing industry, it might be fair to assert that at least some of those brokers are not leveraging their websites to their full potential. So what should the successful insurance website of today look and act like? Digital marketing firm Ogilvy, who has worked with Suncorp’s AAMI brand, gives us the answers...
34 | JULY 2012
“A good salesperson tries to establish what you want to buy and then comes up with a tailored solution so that the chances of you buying something are quite high,” says Athan Didaskalou, strategy & digital planner, Ogilvy Melbourne. “Your website is a sales tool, it is often the first point of contact when somebody wants to buy something from you. With many websites you don’t get that personal experience or that edited sales pitch. You get that one-size-fits-all approach in the hope that you will convert something. To offer that tailored solution you need people’s
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personal data, but in the insurance space you often don’t have that information.” Didaskalou says that while that database of personal information is extremely valuable, and is filled with your current customers, it is not filled with the potential customers or with those who are shopping around to buy insurance. “There is another way to personalise the sales experience which focuses on the immediate needs of the user and it is called ‘consumer intent’,” says Didaskalou. “That is what people are looking for at that very moment based on searched key words and the way they navigate through websites. That intent will adjust based on which websites they have been to before, what they are looking for at that time and where they are in the world too. Matching that intent matters now more than ever before, as people’s expectations have changed and risen. Static websites with hordes of information and tedious forms used to get the job done. Not anymore.” Didaskalou explains that the web today is about taking advantage of implicit data, which is defined by user habits which you then leverage to achieve your goals. LinkedIn does this aspect well – it picks up what you have read before, what others in your professional industry are reading and gives you what your bosses are probably reading. “That is how LinkedIn has become the number one business social network. You need to personalise and optimise the experience for potential and existing customers. It’s called ‘User Experience Design’ (UXD), which is the planned process that you want your potential customers to go through in order to give the best chance of them converting into a sale on your website,” says Didaskalou. “If your website was a salesperson, you would have fired them a long, long time ago. Australian websites are only just realising the benefits of realtime personalisation and simplifying the sales process to ensure conversion. This is a large cultural shift and about the business leaders understanding that they need to change.” Didaskalou says Ogilvy looked at the top Australian insurance websites based on traffic and assessed what their user experience was like. Ogilvy then ranked them on customer segmentation, drive to purchase, ease of quote tool, website best practice and guidance. What they found was that every major player with significant traffic had
THREE PILLARS OF SUCCESSFUL BUSINESS WEBSITES TRAFFIC
“For traffic you are relying on good communications and advertising.”
AVERAGE SALES PURCHASE
“This is more of a pricing strategy that underpins what to charge based on what people will pay.”
CONVERSION
“This is how your website actually performs. This is the user experience which leads people to that sales funnel and converts them.”
“If your website was a salesperson, you would have fired them a long, long time ago” Athan Didaskalou, Ogilvy a poor sales funnel in the user experience process when obtaining their quote. “We then did some basic consumer intent profiling and we found that there are over 800,000 insurance related searches every month, with 50% of them targeted towards car insurance. Most insurers gave car insurance the prominence, which is what they should be doing. However, in the UK we found that 25% of insurance transactions came through those iSelect-type comparison sites, but in Australia that was only 1–2%. That might be because local insurers don’t give that type of information out as freely, but the demand is there,” says Didaskalou. “Of 223 of the top 883 insurance searches it was all about shopping around. If you know that people are going to be comparing prices with your rivals, your salesperson should be able to adjust, but that was not what we found from Australia’s insurance sites.” Didaskalou says we are seeing a shift towards that UXD philosophy where you are putting the interest of the user first and matching them with your business objectives. JULY 2012 | 35
FEATURE / SELLING ON THE WEB
INSURANCE WEBSITE PERFECTION “There is one insurance website, which unfortunately is not Australian, which performs that ethos of ‘keeping it brief’ really well,” says Didaskalou. “Statefarm’s website (www. statefarm.com) understands that there are only four key things they want people to do when on its site: get a quote, get in contact with us, manage your claim, and login directly. When you do sign up, they keep it simple and ask for very few details. Hopefully we start to see a few more examples of what Statefarm is doing with its insurance website in Australia.”
“Static websites with hordes of information and tedious forms used to get the job done. Not anymore” Athan Didaskalou, Ogilvy
IN SUMMARY Make your website: · brief, intuitive and driven by data · always changing based on what users want · a selling tool for your insurance brokerage
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There are three main phases in the UXD process: • THE DEFINITION PHASE – this consists of research and profiling your customers. • THE SOLUTION PHASE – where you start to explore the potential solutions through experimentation. • THE IMPLEMENTATION PHASE – where the chosen solution is put in place. “Think of it as moving from the strategy that you first defined to the tactics and how you can execute everything,” says Didaskalou. “It doesn’t end there though, the most important part is still to come. When it comes to a website it is not just about building it and walking away. It is like a retail store, it is the front window of your shop and your visual merchandising needs to change according to seasons and your customers.” Didaskalou says smart businesses are continually making improvements on their site based on what the data is telling them and what is being discovered through research, which can be conducted via social media or a research company. Businesses need to embrace the philosophy of “perpetual beta”, which means always staying as an unfinished product. “If I was to use an example using A/B Testing, which is one of my favourite recommendations,
where you have two versions of the same website with slightly altered copy, imagery and calls to action. Take the example of a US software company called 37signals, which is quite an innovator in this space and even publish their results. It tries out long copy, short copy, photos and then monitors the increases and decreases in sales from its website. It was even able to rank which people they used in their photos, with white guys and Asian girls not doing very well at all! It could then successfully profile its audience and what sells well. That is a very rare insight to get without people signing up.” Didaskalou says there are three UXD truths that assisted corporate change: being brief, being intuitive and being driven by data. Being brief involves saying only what you need to say and a lot of insurance websites fail that aspect as they are very copy heavy. Being intuitive is about knowing what is right and understanding the needs of your clients. These could be aspects like auto-filling forms when certain questions are asked and making sure that everything on the site makes sense. The final aspect, of being driven by data, is making sure your site acts like a salesperson and ensuring it reacts to everything a customer does and knows their intent. You have to find your clients’ “in the moment needs”. “Every website has different business objectives, which is why everything starts from research. The result should be a data-driven, consumer-centric approach to your website’s user experience. You need to gain insights into what people want and how our website can best service their needs. More importantly, you will sell more insurance,” adds Didaskalou. Which we are sure to every reader of this magazine, seems like a very good idea indeed.
COLUMN / CASH FLOW
CASH FLOW
CRISIS?
Keeping the money flowing is essential if you want to achieve your business goals. Michael Quinn highlights some quick and simple cash flow management tactics
Managing cash flow is a key concern for any business owner or manager. When a business is plagued with cash flow problems, it becomes difficult to capitalise on opportunities that arise. Even insurance brokers are not immune to the effects of negative cash flow and are at risk of business failure. In fact, a large majority of business failures are a result of ineffective cash flow management. The insurance industry is a difficult one to manage cash in, as you’re liaising with a range of people at once. Whatever decisions you make, make them early and stick to them. Managing cash flow is something that you need to be proactive about, and make a plan for in advance. Your accountant or financial planning consultant should be able to assist you with setting goals and systems for reaching them. You need to find a balance between accumulating money for the future (though there is a place for that) and using it to grow and expand. One of the best ways of doing this is setting up a cash system that gives you different pools of funds for different purposes. 38 | JULY 2012
TELL-TALE SIGNS OF CASH FLOW PROBLEMS
An inability to pay staff wages and superannuation on time Difficulty in paying what is owed to suppliers and creditors Unpaid taxes or unlodged Business Activity Statements
70%WORKING CASH
This is the money you use day-to-day. Be careful how you spend it but don’t be scared to use it. This fund needs to be liquid and accessible, but not enormous. Look for cuts you can make here, and stick to a budget.
10%WORKING CASH RESERVES
This is the money that you set aside to cover large and regular expenses such as payroll, taxes and other fixed costs. Set a percentage of your regular trails to put aside for these items, and you’ll ensure you never miss a payment for your important creditors.
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SEEKING FINANCE If you aren’t bringing in enough money to contribute to these different pools of savings, or have ambitious expansion plans, you may need to seek out finance. There are a range of options available to you to inject cash into the business but the two most popular are investor funding and bank funding. INVESTOR FUNDING
Investor funding is common among mortgage brokers. It involves seeking out investment funding from private lenders. This is a risky manoeuvre, as the interest rates attached are often high. You’ll need to have a specific, measurable, achievable, realistic and timed (SMART) plan in place to ensure that, following the injection, your business will utilise the cash in such a way that
10%RESERVE CASH
This is where you keep money for growth and expansion opportunities, as well as any surprise threats. This includes things like capital expenses or acquisitions. Try to avoid using this for expenses. Any time you have a large commission or period of sustained earnings, shift some more money into this account in preparation for the future.
will both help you to pay it back as well as to grow. These are not repayments to renege on, so make these decisions cautiously – and this is where a clear business strategy will be priceless. BANK FUNDING
The same applies when seeking bank funding. A bank loan or overdraft might be a solution for you to increase the amount of cash in your business quickly, but this is a decision to be undertaken only when you have a very clear idea of what you want to achieve with this money, and how it will enable you to repay the bank while still growing. Some businesses turn to bank loans first as they can be turned around quickly, but remember that your credit history is at stake with this decision.
10%EMERGENCY FUND
Sometimes referred to as a “war chest”, the premise of this strategy is to keep money in reserve to act as a hedge or to fund expansion. Many small businesses make the mistake of not keeping an emergency fund: if you go through a sustained period without closing any loans or collecting any commission, you may find yourself stuck.
JULY 2012 | 39
STATS BROKING INDUSTRY
INSURANCE
Annual growth 2012-17*:
Profit:
Businesses:
$2.4bn
2,967
2.2%
*Projected
Revenue:
Total staff:
$10.8bn
Wages:
24,254
$2.3bn
Sector vs. industry costs
100
Insurance broking industry costs (2011-2012)
Average costs of entire Finance & Insurance sector (2011-2012)
0.7
9.6 0.8
22.5
0.1
80
6.5 1.3 60 Percentage of revenue
82.6
48.7
40
20
21.0 0
Source: IBISWorld Industry Report – Insurance Brokerage in Australia, June 2012
6.1 Profit
Utilities
Other
Rent
Depreciation
Wages
IBIS WORLD STATS
Premiums written NT:
0.6% QLD:
18.6% WA
11.2% SA:
5.5% NSW:
40.5% ACT:
1.3% VIC:
20.6% Products and services segmentation (2011-2012) 2% Health insurance 8.5%
TAS:
1.7%
Other
18%
Private general lines
42%
Life insurance
33.5%
Commercial general lines
Total: $10.8bn
“Of the $100.6bn in insurance policies estimated to be sold in Australia during 201112, half will be written through brokers” IBISWorld JULY 2012 | 41
BROKER FOCUS / PAUL GEORGE
BROKER
FOCUS
Paul George, general manager of acquisition-hungry MGA Insurance Brokers, talks about how the ambitious firm plans to trailblaze through the insurance broker space with a series of further purchases across the country Insurance Business: What has been MGA’s approach to acquisitions to date? Paul George: We have been making them for a long time, since before I was involved with the company. So they have been happening on an on-going basis for 20 years, but in the last eight years we have made more inter-state acquisitions. We needed to do more in the Eastern states and that is where our more recent focus has been. In the last 12 months we have had an acquisition in Perth and a second one in Melbourne, plus another in Adelaide.
IB: Why do you favour an acquisition approach to growing your business? PG: Our brokers are Authorised Representatives, but we are not your mass AR model – we are more of a branded brokerage. So for quite a lot of these acquisitions we are not purchasing 100% of the business, we are quite often purchasing 50% of the portfolio. So that principle, for all intents and purposes, is a partnership. We provide a lot more services than with the standard AR model. We have a full-time training officer, a full-time compliance officer and have three in our IT team. We look after 42 | JULY 2012
the costs of these firms’ staff, offices and some other bills. That model has worked very well for us for many years.
IB: When you are looking to acquire another brokerage what are you looking for? PG: We find out what their income is, which is the simple first step. We then like to meet them as you can often tell if someone is running a good business by walking through the front door. From there we can put a budget together from a basic criteria, such as rent, phone costs, and then we can calculate what sort of bottom line we can get. That approach of purchasing 50% of the portfolio is something that Austbrokers did a lot in its early days. Strategically we think that is a sound approach.
IB: How do you manage the balance between your own brokerage work and your SmartBroker arm? PG: SmartBroker is confused as a brand. The SmartBroker model almost looks like a piece of software, and it is; if you asked someone in our office what SmartBroker does they would say that is how we
INSURANCEBUSINESSONLINE.COM.AU
MGA’S PRODUCT FOCUS.... • AVIATION
Placing cover for ultralights, turbines, jet aircraft, rotary wing etc FARM INSURANCE
Farm contents and machinery, livestock and working dogs, business interruption HOME AND CONTENTS
Fire or explosion, earthquake, theft, fusion of electric motors MOTOR VEHICLE
Heavy motor insurance, public liability insurance, marine transit insurance PRIVATE PLEASURECRAFT
Boat, trailer, sails, masts, spars, standing & running rigging LANDLORD INSURANCE
Building, contents, damage or theft caused by tenants, rent default
get our processing done. We have a central processing unit, with about 14 people working there, who are generally ex-broking assistants who have kept working for us. They are dealing with around 110,000 transactions a year, so it is significant. We do not have any processing that is done in the office anymore. In the last 10 years we have had a system built called SmartBroker and we are marketing it as a dynamic solution for people who might want to sell their business, but continue in the business for a while.
IB: What are your longer-term plans? PG: Every broker might say this, but we would like to bolster our presence in Sydney, Melbourne, Brisbane and Perth. I have always seen us as a regional specialist too. We have 24 branches, with the major mainland capitals and then all the rest in regional areas. We do a lot of farm insurance, including around 15–20% of the rural market in South Australia. We have an underwriting agency which is a sister company and we distribute all our farm insurance through that. We have the experience in those regional areas to do well.
“Every broker might say this, but we would like to bolster our presence in Sydney, Melbourne, Brisbane and Perth” Paul George IB: Your last two acquisitions have been in Melbourne. Is Victoria the focus at the moment? PG: We are looking everywhere. We have been focusing on Melbourne more, but we would not be concerned if it came from Queensland, Tasmania or New Zealand. We would have a look at it and see if we could get some dialogue happening. There are a lot of brokers looking to make acquisitions. Macquarie’s Insurance Broking Benchmarking Report suggests there is around a 5% interest in selling and about a 70% interest in buying amongst brokers. Perhaps it is hard to agree with those figures because if you ask people whether they are interested in selling strategically the best thing to say is no. JULY 2012 | 43
UNDERWRITER / PAUL LYNAM
Insurance Business: You are Australia’s leading Lloyd’s of London underwriter – can you talk me through the evolution of that relationship with Lloyd’s? Paul Lynam: We have been with Lloyd’s markets since 1993. A number of the underwriters who supported us then continue to support us today. We predominantly write liability, construction, prestige home, professional risk, commercial motor, plus accident and health. We also write some other lines like contingency cover, miscellaneous risks and pharmaceuticals. So if you look at underwriting agencies, and a lot of them have changed hands over the years – JMA they have been around since 1964 but they were owned by JLT until 10 years ago – we would be one of the largest independently owned Lloyd’s agencies.
IB: Lloyd’s recent financial results took the full impact of the various natural disasters from around the world last year – did that affect SRS or your brokers? PL: Not really, not out of step with the rest of the market. It wasn’t just Lloyd’s, it was the market globally that took a knock from all manner of catastrophes around the world. We were impacted in line with what anyone else would have been impacted regardless of their supporting security, whether it was Lloyd’s or another market.
LLOYD’S
ADVOCATE Paul Lynam, chief executive of SRS Underwriting, on being one of Australia’s largest Lloyd’s underwriters and dealing with brokers
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SRS’ STRONGEST AREAS
HOME OWNERS
LIABILITY
CONSTRUCTION
MOTOR MARKET
“OUR SUMMIT PRESTIGE HOME OWNERS COVER IS BROAD, WITH VERY GOOD CLAIMS SERVICE, AS WAS TESTED DURING THE BRISBANE FLOODS”
“LIABILITY HAS BEEN A STRONG PERFORMER OVER THE LAST 10 YEARS. WE HAVE VERY GOOD CAPABILITY ON THAT CLASS”
“CONSTRUCTION IS GOING WELL, GIVEN THE REBUILDING HAPPENING AND THE INFRASTRUCTURE SPEND”
“THERE HAS BEEN PLENTY OF OPPORTUNITIES IN THE MOTOR MARKET TOO, WHERE WE COVER EVERYTHING FROM CARS, TRUCKS, RAIL PLUS PLANT, MACHINERY AND EQUIPMENT”
IB: What do you want from a broker? PL: We like to deal with brokers who act in a professional manner and give us comprehensive submissions. I would hope the days of details written on the back of a postage stamp are gone!
IB: What do you offer those brokers in return? PL: The success of our business is our response times. We offer a very good service to the brokers, with a response time second to none. We have very good technical underwriters and you are able to talk to an underwriter rather than putting things down a chute and accepting whatever comes out. We are probably at the more technical end of the market. Generally underwriting agencies will attract people that have either grown out of the insurance companies or are sick of working in that culture, so they join the agency model and therefore we have very good technical people.
IB: Are you looking to make any changes to your broker channel? Either in the way you deal with your current brokers or getting new brokers on board? PL: We will deal with brokers who have a good reputation, so we don’t close the door, we are here to assist the market. If I had a look at our book we probably deal with 80% of the market, but we probably get 80% of our business from 20% of the market.
IB: How much extra assurance do you think your brokers get from knowing you are backed by a brand like Lloyd’s?
PL: The proof is in the pudding – we’ve been around for 20 years. We have been very constant over the past five years, and so has our broker panel. People know who we are, what our capabilities are and they continue to support us.
IB: Lloyd’s claims it is still battling some “myths”, especially that it is just a UK company. Do you come across that attitude? PL: You do come across that, but it depends from a broker’s point-of-view. One broker will tell his client Lloyd’s is great, but if he has a different underwriter he might have a different view. The pity is Lloyd’s is in London and if people want, for their own commercial benefits, to paint a story – whether it is correct or not – it’s not that difficult to do.
IB: What are the upcoming challenges for brokers that underwriters can assist with? PL: As the market firms, the electronic platforms may not be able to answer all the questions that we have there for brokers. It may transpire that as the market eventually firms we will get a lot of aspects that won’t be able to be put onto an electrical platform because of the complexity of them. That complexity will be recognised, and it is going to have to be handled on a more technical one-to-one basis.
IB: Do you want further diversification into new products/services? PL: We will grow when the market allows us. We are not about top line growth, we are about profitable growth.
COMING NEXT ISSUE... Insurance Business sits down with Adrian Humphreys, Lloyd’s General Representative for Australia, to discuss dealing with brokers, disastrous financial results and the future of the insurance industry in Australia.
JULY 2012 | 45
WORDS OF WISDOM / iPAD BROKING
INSURANCE BROKERING
FROM AN iPAD
Motivational speaker Debbie Mayo-Smith tells the story of an insurance broker who used an iPad to streamline his client service and managed to increase his income by over $120,000 Are you still relying on paper? Is your company reticent to modernise technology usage? If so, you and your company can be sustaining much more of an opportunity cost than you know. While sipping a coffee in a cafĂŠ after a 6AM pump class, I looked up to see this fellow tapping away at his iPad. I found his case unusual, so I commented on it. We started to chat. I was speaking with Scott Morrison, an insurance broker. After a lively half-hour conversation, I found Scott to be a stunning example of how making a few changes and modernising the way one works can make one incredibly successful without working harder. Just smarter.
SAVING TIME Scott chose an industry software (called RMS InControl) which integrates across the internet to allow advisers (and their assistants) direct access while out of the office. One of the many benefits is information can be taken directly from the client, entered in front of them and automatically charted for visual emphasis – eliminating the need for another appointment.
46 | JULY 2012
INSURANCEBUSINESSONLINE.COM.AU
AT A GLANCE IMMEDIACY
SAVING TIME
Quotes can start to be gathered straight away
Information can be entered in front of clients EARNING MORE
FLEXIBILITY
Saving time means more opportunity to do other business
Less time pushing paper in the office, more client meetings
IPAD VS LAPTOP
MONEY TALKS
Easier to use iPad and is not such a physical barrier
By using an iPad to do broking you can earn over $120k more
EARNING MORE
FLEXIBILITY
Because Scott and the client walk through the questioning process online, all the questions are prompted step-by-step on screen and thus need to be discussed and answered. Some of these questions might be skipped when done by pen and paper. Scott said there’s a significant triple benefit. It insures (no pun intended) he’s comprehensive and more client-focused in his approach. It benefits his clients as they often comment that as a result of the process they better understand their need for insurance. Since using the online process with clients, his overall income has increased by 25% from extra insurances sold from the discussions prompted by the software.
Next – as he doesn’t have to go back to the office to drop off paperwork, he drives to his next appointment. This saves him at least three to four hours a week travel time and petrol. So Scott saves significant down time in travelling, data entry (remember, it’s already done with the client) and cuts out the need for one of the appointments. Think of the client perception of Scott’s service, follow through and speed. Let’s not forget that following the comprehensive questionnaire has increased his income 25%.
IPAD VS LAPTOP Scott switched to an iPad to eliminate the barrier that a laptop may make, and he uses wireless. He brings a printout of the questionnaire to each client (with pre-meeting questions filled-in) in case there’s a problem with the connection. I think the proof is in the pudding with this statement. Scott said: “I’ve asked every client before we begin if they prefer to go through their insurance plan with me on paper or on the computer. To this day not one has ever selected paper.”
IMMEDIACY When he steps back into his car in the client’s driveway, Scott’s able to automatically email them a meeting summary and also send a request to his assistant to start the process of gathering quotations for his advice.
MONEY TALKS. FLUFF WALKS Let’s quantify and look at the dollars and sense of this. One appointment less per new client – two hours plus three to four hours travel eliminated per week. Two hours of report writing and data entry eliminated per week. In all, 7.5 hours a week x 45 working weeks = 337.5 hours a working year, or eight and a half weeks or two months! The industry average commission for a new client is $1,400. So with 7.5 hours a week Scott could fit in at least 4-6 extra appointments. Two would hopefully be with new clients (not to mention increased premiums from seeing existing clients too). Presuming he had an 80% sale rate, 2 x 45 weeks x 80% x $1,400 (plus Scott earns 25% more) = $126,000 additional income generated. Subtract a 64GB iPad for $1,150. Annual software of $2,000 and throw in $2,250 (generous) for broadband and mobile computing. $126,000 less $5,400 cost = $120,400. Do you think this too high an opportunity cost for comfort?
DEBBIE MAYO-SMITH Debbie Mayo-Smith works with businesses that want to be more effective so they can get more done and grow business easily and cheaply. www.debbiespeaks.co.nz
JULY 2012 | 47
SOCIAL LIFE
The Insurance Council of Australia held its 2012 Annual Dinner at the Westin Hotel in Sydney recently. Entertainment included comedian Joel Ozborn and music by Jazz Nouveau while veteran journalist and newsreader John Gatfield was the event MC
INSURANCE COUNCIL OF AUSTRALIA / SOCIAL
JULY 2012 | 49
SOCIAL LIFE
Brokers recently headed to Melbourne’s Council Chambers for Zurich’s Generation Z Forum, ‘Bucky Rides Again!’ Brokers were treated to an interactive courtroom role-play designed to bolster broking knowledge by highlighting the latest market trends and legislation requirements. The Forum forms part of Zurich’s Zenith program and was held in 11 locations around Australia during May
ZURICH’S GENERATION Z FORUM / SOCIAL
JULY 2012 | 51
SOCIAL LIFE
The NSW Women in Insurance gathered on Thursday 14 June for its annual members-only art & cocktail evening. The event took place at Sydney’s Establishment on George Street and featured art from Willem van Stom and Feyona van Stom
NSW WOMEN IN INSURANCE / SOCIAL
JULY 2012 | 53
FAVOURITE THINGS / ROBERT COOPER
Favourite things...
Robert Cooper, CPR Insurance Services
Movie: I still love the original Blues Brothers film. It has everything in it and gave me a love of Blues music
Book: A Fortunate Life by A B Facey – very inspirational story about an Australian who had a hard life but still thought he was very lucky
Vacation spot: I love Venice in Italy but also the Whitsundays in North Queensland
Celebrity: Not really interested in celebrities but there are many people who inspire me like Nelson Mandela, Dalai Lama, John Eyles and Tony Christiansen
Place to be: Living in the Wilston Grange area of Brisbane is the best place to be with my family. The community is fantastic, people are friendly and we like being part of it
Music: As mentioned, I have a great love of Blues music but there is still a lot of other music I enjoy, from Rock to Classical
About working in insurance: It crosses over into many professions and you never stop learning. I do not intend to ever retire from it especially when each day brings a new challenge. Young people should choose it as a career
Sport: I love all four football codes and it is great in Brisbane as we have four very successful football sides with the Reds, Roar, Lions and Broncos
Drink: Can’t beat Food: I love food from all around the world, but at the end of the day, you cannot beat a roast dinner with any sort of meat 54 | JULY 2012
a nice bottle of Tim Adams Shiraz from the Clare Valley
GUEST COLUMN / ALLAN MANNING
WHY TAXING INSURANCE IS
WRONG
The failure to remove taxes on insurance will result in more Australians opting to stay uninsured
ALLAN MANNING Professor Allan Manning, managing director of LMI Group, is one of Australia’s leading experts in insurance. He is the author of nine books on insurance including It May Happen to Me! – the essential guide to general insurance. He has over 40 years’ practical experience managing and preparing claims. He is the brain child behind many of the online research tools such as PolicyComparison.com, BIcalculator.com, RiskCoach and ContinuityCoach.com used by the insurance and business communities.
56 | JULY 2012
It has been quite a year for insurance taxes with the Victorian Government committed to removing the Fire Sevice Levy, the ACT heralding that they will be removing Stamp Duty on insurance in stages over the next five years, and the NSW Government announcing they will be conducting a review of both Fire Service Levies and Stamp Duty on insurance. However, the Tasmanian Government is giving no indication that they will remove Fire Service Levies on commercial risks (there is none on domestic) and it increased Stamp Duty on insurance by 25% from 8% to 10% in their last budget. The beauty of taxes on insurance is that it is hidden and government can blame the insurance industry for increases in insurance rather than be honest with the electorate. The cost of collection is also very low as the burden is passed on to private enterprise, the insurers and their advisers. The simple fact is that if you double or more than double the cost of any product including insurance, this means consumers buy less which was starkly shown during the Victorian “Black Saturday” Bushfires. Home after home, business after business, was either underinsured or tragically not insured at all. But we did not need such a terrible event to wake us up. Every enquiry into insurance states that taxes on insurance are inefficient, counterproductive and should be removed. I therefore applaud the Victorian, NSW and ACT governments for their desire to remove the taxes on insurance and at the same time urge the Tasmanian State Government to come in line and look after home
and business owners in their state and remove all taxes on insurance. At the same time I am also extremely disappointed that the Federal Government has decided to take a “dividend” out of the Terrorism Levy that is incorporated into the base premium of all commercial insurance thus creating yet another hidden tax on insurance. This is frustrating in the extreme when the major states have or are planning to do the right thing. Talk about two steps forward, one step back. While I do applaud the Victorian Government for removing the Fire Service Levy, I am a strong critic about the way they are doing it. The issue here is there is no smooth transition between the current tax on insurance to the proposed tax on property rates. This means that whenever a property insurance policy is due in Victoria during the 2012–13 financial year the insured will be charged the full Fire Service Levy. From what I understand the Victorian Government’s logic is that the home or business owner pays one Fire Service Levy in one financial year and a fresh one in the next. Clearly, this simplistic approach is completely unfair, unjust and plain wrong. While there is no easy way out of this mess at such a late stage in Victoria, with most agreeing it is better to cop one terrible bitter and expensive pill to cure the insidious ill that is Fire Service Levy on insurance than to delay or stop the removal of the tax, I strongly urge the government of NSW (and Tasmania when they come to their senses) to follow the example of Queensland, WA and SA and use an equitable tapered transition. One that does not double-tax something that has already been double-taxed before but rather a transition that looks after the best interests of the constituents they are elected to protect. Visit www.NoTaxOnInsurance.com.au