Insurance Business 3.01

insurancebusinessonline.com.au Issue 3.1

The movers and shakers of the insurance industry revealed v

PREMIUM SERVICE HOW PREMIUM FUNDING CAN BOOST YOUR BUSINESS

CYBERSPACE AN EXCLUSIVE REPORT ON THIS YEAR'S BURNING ISSUE

HOWZAT? WHAT BROKERS CAN LEARN FROM THE CRICKET FIELD

CONTENTS / 3.1

16

COVER STORY

The HOT LIST 2014 Who are the trailblazers shaping the future of the Australian insurance industry?

NEWS ROUND-UP

SPECIAL REPORT: CYBER RISK

6 | The big five The biggest stories to impact brokers 8 | News analysis How technology is transforming brokerages

30 | Cyber space Why you need to be acting on cyber insurance now, by the people making the policies 36 | Cyber risk and privacy: the legal view The key changes to the Privacy Act explained

44

12 | Leo Demer JLT Australia’s main man on the broker’s future plans 28 | What brokers can learn from the cricket field Cricket and insurance have more similarities than you might think 38 | Splashing the cash Challenges and innovation in premium funding 44 | Five things you need to know about income protection The big changes taking place in this space

FEATURES

Five things you need to know about income protection The big changes taking place in this space

The big interview JLT Australia’s main man on the broker’s future plans

FEATURES

BROKING INTELLIGENCE 46 | Succession planning How to maximise the value of your business when you exit

2 | MARCH 2014

12

FEATURE

50 | Stats The big global risks for the next 10 years

INSURANCE INSIDERS 52 | Social life Charity begins at the office in this special segment 55 | Favourite things Rhys Mills, Solution Underwriting 56 | The final word The importance of proactive customer service

DAILY INVESTIGATIONS NOW ONLINE: Regulation Acquisitions Market moves insurancebusiness online.com.au

EDITOR’S LETTER / 3.1

PEOPLE POWER

Kevin Eddy

Insurance is all about people. Indeed, it’s something of a truism that insurance is a ‘relationships business’, where negotiation abilities, rapport-building skills and knowing the right people can make the difference between a successful outcome and a failed enterprise.

But it goes deeper than that. At the end of every policy, of every contract, of every claim, is a person. More often than not, a person whose livelihood could one day depend on that piece of paper (or electronic ephemera). So, when you hear the phrase ‘insurance is all about people’, it’s worth bearing in mind that the personal element of our line of work goes somewhat deeper than just collecting business cards at the next networking event.

With that in mind, it’s people we’re showcasing this issue: Australia’s most powerful, the most innovative, and most influential insurance personalities in our inaugural Hot List. I’d love to hear your thoughts on where we got it right, wrong, or if you think you should have made the list too.

Elsewhere, Leo Demer lays out JLT Australia’s big plans, we quiz premium funders on the future of finance, and industry commentators tell us just how big cyber insurance is going to be. Add to that the usual mix of business strategy advice, news, behind-the-scenes insights and opinion, and it’s another packed issue.

Kevin Eddy, editor, Insurance Business

COPY & FEATURES EDITOR Kevin Eddy CHIEF REPORTER Chinwe Akomah CONTRIBUTORS Darren Trott, Craig West PRODUCTION EDITORS Roslyn Meredith, Moira Daniels

ART & PRODUCTION ART DIRECTOR Jonathan Phillips DESIGNER Joenel Salvador

SALES & MARKETING GENERAL MANAGER Peter Smith COMMERCIAL DEVELOPMENT MANAGER Sophie Knight COMMUNICATIONS MANAGER Lisa Narroway MARKETING EXECUTIVE Anna Farah TRAFFIC MANAGER Abby Cayanan

CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – AUSTRALIA & NEW ZEALAND Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Kevin Eddy tel: +61 2 8437 4793 kevin.eddy@keymedia.com.au Advertising enquiries Commercial Development Manager Sophie Knight tel: +61 2 8437 4733 sophie.knight@keymedia.com.au General Manager Peter Smith tel: +61 2 8437 4740 peter.smith@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 • fax: +61 2 9439 4599 Offices in Singapore, Auckland, Manila, Toronto, Denver insurancebusinessonline.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Insurance Business magazine can accept no responsibility for loss

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Contact the editor:

kevin.eddy@keymedia.com.au 4 | MARCH 2014

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NEWS / ROUND-UP

THE BIG

FIVE

The biggest news from insurancebusinessonline.com.au FACEBOOK BROKERAGE TO LAUNCH IN AUSTRALIA German brokerage Friendsurance, which is based on social networking, is to launch in Australia.

The innovative brokerage plans to launch an offering this year, according to Perry Abbott, executive director of Friendsurance and Vantage Fund, which has a stake in the peer-to-peer intermediary.

The brokerage Friendsurance uses Facebook to connect people who pool their money together to purchase insurance. The brokerage distributes a range of insurance including household, liability and legal expenses. Last year it launched a new offering, providing insurance for electronics including TVs, laptops, mobile phones and tablets.

Insurers sign up to Friendsurance to offer their products to customers.

Asked what products the brokerage will distribute in Australia, Abbott said: “Friendsurance will take the products being sold in that country and apply the Friendsurance model to create value for insurers and customers and increase the market share of insurers.”

Friendsurance in Germany has a host of insurers who distribute their products through the company. Abbott said insurers were sceptical at first but soon realised that it was another distribution channel for them to use that is beneficial to their claims ratio.

6 | MARCH 2014

BY THE NUMBERS

$1.845bn The amount paid for Wesfarmers’ underwriting businesses – including WFI and Lumley Insurance – by IAG in December 2013 Source: IAG

72%

The percentage of finance and insurance firms who are looking forward to improved conditions in 2014.

Source: Future Business Index, Commonwealth Bank

OAMPS ACQUIRES SPECIALIST INTERMEDIARY OAMPS Insurance Brokers has acquired TCIS Insurance Brokers as part of a strategy to make the most of the industry expertise throughout the OAMPS broker network.

TCIS has been providing professional services in commercial and business insurance for over 20 years. It specialises in transport industry services, the recreational four wheel drive community and historic motoring clubs and tourism, and has offices in Adelaide, Brisbane, Melbourne and Sydney.

The TCIS SA branch will relocate to the OAMPS Adelaide office. The other offices remain unchanged.

The acquisition forms part of OAMPS’ plan to “make the most of the industry expertise throughout the OAMPS broker network”.

OAMPS CEO Mike Cutter added: “Rather than pursuing growth for growth’s sake, we strongly believe in acquiring businesses with the right cultural and strategic fit. This means that we are interested in businesses that are experts in industry sectors that complement our existing capabilities, or align with our desire to expand our geographic footprint.”

COMPETITION COMMISSION MULLS IAG AND WESFARMERS DEAL

The Australian Competition and Consumer Commission is conducting an informal review into the acquisition of Wesfarmers’ underwriting business by IAG with a view to publishing provisional findings on 27 March.

Wesfarmers sold its underwriting arm to IAG in December for $1.845bn, which includes WFI and Lumley.

A letter by the ACCC states it is considering the proposed acquisition under section 50 of the Competition and Consumer Act 2010. Section 50 of the Act prohibits mergers and acquisitions that substantially lessen competition in a market, or are likely to do so.

The ACCC is conducting the review under its mergers register. A spokesman for IAG told Insurance Business it has made a submission.

Concerns have already been raised regarding the acquisition with some market observers fearing it will create a duopoly.

INSURANCEBUSINESSONLINE.COM.AU

HOLLARD BACKS ‘NEW WAVE’ OF UNDERWRITERS Hollard Insurance Group has signalled its plans to continue to seek out industry entrepreneurs who want to form insurance businesses in niche lines through its Business Partners division.

Hollard Insurance Group MD Richard Enthoven told Insurance Business the company’s main focus this year is to do “more of the same and to do it even better”.

“We have a track record of supporting industry experts to set up specialist insurance businesses,” he explained. “We are constantly looking at entrepreneurs who have skills and who are keen to employ our resources and capital to start new initiatives.”

Enthoven predicts a new wave of insurance entrepreneurs, keen to carve out insurance businesses in niche markets.

“A lot of the specialist agency businesses have been acquired by corporations over the last four to five years,” he said. “We will now see waves of entrepreneurship. We are sitting at the precipice of a new wave of entrepreneurship. We tend to see this happen in lines with insufficient capacity or too much concentration of the market.”

BY THE NUMBERS

$246,409

The amount spent on international travel by ASIC chief Greg Medcraft in 2013. Medcraft has come under fire for the amount of time he has spent overseas as part of his role as head of the International Organisation of Securities Commissions (IOSCO).

Source: ASIC

INDUSTRY ON TENTERHOOKS OVER D&O APPEAL The industry could be heading for another blow over whether insurers can use insurance proceeds to pay their policyholder’s defence costs, after the plaintiffs in the Great Southern case lodged an appeal with the High Court to overturn the judgment made by the NSW Court of Appeal.

The court had ruled that directors can use the funds paid for their D&O policy to fund their defence costs. This was met with jubilation from the insurance industry as it would mean their clients could have their day in court and not fund it out of their own pocket, which could potentially bankrupt them.

However, the decision could be overturned if the High Court allows the plaintiff to appeal.

This comes as a similar case in New Zealand, the Bridgecorp decision, reached a bitter conclusion.

Last month, the Supreme Court ruled that a charge could be placed on the directors of Bridgecorp’s policy, allowing the plaintiff to freeze the defence’s insurance proceeds until the claim is settled. The court also decided that carpet-makers Feltex’s directors could not use their AIG New Zealand insurance policy to pay their defence costs in the shareholders’ action against them.

MARCH 2014 | 7

NEWS / ANALYSIS

Getting with the program Digital disruption isn’t about to hit the insurance industry; it’s already here.

Chinwe Akomah asks brokers how it’s affecting their businesses The insurance industry has often been criticised for being slow to adopt technological innovations – and brokers have been some of the worst offenders. Fast forward to today, however, and forward-thinking brokers are embracing innovation in a number of ways to improve their businesses, provide better services to clients and introduce new products.

But just how are brokers making the most of new technologies?

IMPROVING PERFORMANCE MGA Insurance Brokers managing director Paul George says that many intermediaries are using technology to improve their back-office systems and business performance.

“Most brokers are forward-thinking with new technology,” he says. “It seems in the past five years that technology is really starting to work for us.”

MGA is a prime example of a brokerage using advances in technology to improve its business.

The SA-based brokerage is piloting inbound mail scanning. Under the pilot, mail is centrally scanned and users view it in a specific portal from anywhere in the world. The system will also handle incoming faxes and generic branch emails.

The brokerage also recently introduced an “active renewal” system, built by its in-house IT 8 | MARCH 2014

manager, that allows brokers and assistants to manage their pre-renewal lists in real time, from anywhere in the world. In addition, MGA is currently developing an electronic day book and task manager.

“Our portfolio managers and assistants are beginning to get benefits from these tools, which leads to an improvement in organisation and record management, which are two important aspects of what we do,” George explains.

He suggests that brokers looking at updating their back-office systems should start by obtaining information from IT vendors.

“By simply walking around the NIBA conference, for instance, you can talk to these vendors about a number of broker-specific products,” says George.

Other brokerages are also adopting new technologies to make life easier for the customer.

Mega Capital founder Michael Gottlieb launched online insurance marketplace BizCover in 2007, which enables companies to buy professional indemnity, public liability, business insurance, management liability and cyber insurance online.

NEWS / ANALYSIS

“Technological innovation is having a huge impact on all areas of business, and broking is no exception. The world of broking in five years’ time will be a very different world” Marc Diffey, CIO, Xchanging Australia “Typically, insurance purchasers were unable to find relevant information about what insurances they required,” he says. “Then, the insurance process was often extremely time-consuming and resulted in only receiving one quote. This left the business owner frustrated and unsure whether they had the most appropriate product at a competitive price.

“BizCover offers SMEs and insurance brokers an online insurance service that simplifies comparing and buying cover, so businesses can benefit from transparent pricing, a fast, hassle-free experience, and the right cover.”

EMERGING TECHNOLOGIES One of IT’s biggest buzzwords, ‘big data’ is another major innovation that is about to transform insurance businesses, says Marc Diffey, the CIO of IT firm Xchanging.

“The ability to harness [big data] will realise significant benefits for those insurance businesses that can use it effectively,” he says. “Insurers already use new data sources and sophisticated analytics for more accurate pricing of risk, and they use this information to drive new loss-prevention measures.”

Diffey says one of the biggest benefits of big data is more accurate premium pricing: “The exponential growth in data and the ability to accurately personalise risk removes broad-brush approaches to probability calculations based loosely on geographic data or mortality tables. This means that premiums can now be priced to every person’s or business’s individual risk profile.”

The insurance industry in the UK and New Zealand could also give us some clues as to how the Australian industry is likely to develop.

Cloud computing, for example, is a way of life for brokers in New Zealand, according to Michael Clarke, managing director of insurance technology solutions company SSP Australia.

10 | MARCH 2014

“Four years ago, New Zealand brokers would have run systems like ours on their premises and have to manually update them, but small brokers do not have the budget for IT trouble and would often get themselves into bother,” Clarke explains.

“Cloud-based offerings mean they do not need to have any hardware or software on their premises.

They simply go on a website, pay their subscription fee, and start broking. It’s easy and cheaper for them.

It would be a perfect solution for an SME broker in Australia.”

Another technology that has gained huge traction, especially in the UK insurance industry, is telematics to provide usage-based pricing. SSP Australia business development manager Jerry Hall observes that brokers in the UK, not insurers, are the innovators in this space.

“We have done a lot of work in telematics.

Brokers saw it as way of differentiating themselves and bringing new things to market.”

Hall adds that underwriting agencies have recently started to consider implementing telematics to manage risk for commercial fleet and heavyweight plant and machinery, and to track usage. It is also used as a way of ensuring the equipment isn’t being misused or fraudulently used.

EMBRACING THE FUTURE There are many new technologies that are yet to be embraced, but the general consensus is that this is the key to success in a changing world.

Diffey suggests that technology will remove many of the repetitive, duplicated and paper-based tasks that brokers currently perform.

“Client enquiries will move from ‘Can I have a copy of my certificate of currency?’ to ‘How can I strategically manage the claims cost pressures facing my business today?’” he continues.

“Technological innovation will be a key driver in enabling brokers to deliver on this, playing to their strengths and significantly enhancing the customer/broker relationship.”

Brokers must embrace technology if they are to survive – as long as it’s the right solution, concludes George.

“Technology enables us to improve our business and efficiency, so yes, I believe it is very important to embrace technology, provided it is the right solution for the business and the people in it,” he says.

“If we don’t embrace technology, we will be left behind.”

INSURANCEBUSINESSONLINE.COM.AU

JANUARY 2014 | 11

THE BIG INTERVIEW / LEO DEMER

THE QUIET

GIANT

Jardine Lloyd Thompson’s Australian business has been quietly outperforming its peers in a number of areas over the years – and now it has set its sights on conquering the corporate sector.

JLT Australia CEO Leo Demer explains the firm’s approach

12 | MARCH 2014

INSURANCEBUSINESSONLINE.COM.AU

Insurance Business: Could you tell us about JLT Australia, where you’ve come from and the current state of play?

Leo Demer: Jardine Lloyd Thompson (JLT) Australia is a wholly-owned subsidiary of JLT, which has been in Australia for a long time now. By revenue we’re probably third biggest of the international brokers, but the largest of the multis in terms of profitability.

We’ve got four main divisions: specialty, public sector, benefit solutions and enterprise solutions.

Public sector is fairly self-explanatory; enterprise solutions is primarily the SME-type market schemes – domestic and commercial business; and employee benefits is employee schemes such as life and health.

In those three sectors, we’re either the largest or second largest player.

Where we haven’t necessarily been all that strong is in the corporate space, which is our specialty business. We’ve made some investments in that part of the business over the last 18 months.

IB: Can you tell us more about those investments?

LD: We looked at our business structure on the corporate side with the view that we either want to be a player or we don’t. We figured we had a good business and that we wanted to build on it.

First, we set about fixing up our internal systems and structures. Once that was sorted, we went to find the best people in the Australian marketplace – it was obvious there was a particular group of people – Bob Mann, David Stanborough, Jeremy Rowsell and Wayne Holcombe. We recruited those guys, which raised our different profile in the marketplace.

A lot of people wanted to come on board to work with those people, because they’re client-driven.

That’s why we thought they were a good fit for us: wherever you walk around this organisation, you’ll hear us talk about ‘client first’. That’s at the heart of everything we do.

IB: How important is that philosophy? Is that the key to success for any broker?

LD: I think it’s critical. If you put the client at the forefront of everything you do, the business looks after itself.

IB: Since you’ve brought Bob et al on board, what growth have you seen on the corporate side of the business? Has it been significant?

LD: It’s fair to say we’ve had an outstanding year.

The guys came on board on 1 February [2013] and we’ve secured some major accounts since then. In fact, our new business acquisition has been more than the three previous years put together.

IB: What are your thoughts on attracting talent? How do you attract the best people? Is there a skills shortfall out there, as some commentators have suggested?

LD: It depends on what level you’re talking about. If you’re attracting people to the industry, which is probably the most concerning issue, it’s interesting that not many people know what the industry is all about. That would indicate the industry isn’t very good at selling itself.

We recently spoke to a couple of mainstream media outlets and it was clear they knew nothing about the industry. They had a superficial knowledge, but not deep at all. If that’s the case, then a lot of the people out there who may want to come into the industry probably don’t know what it’s about either!

If you think back to the old days, the accounting firms always had recruiting teams grabbing people out of universities as they came out of economics classes – we need to do more of that.

At JLT, we run a graduate program where we take six to eight graduates a year, and we will continue that program. We do our bit in terms of internal training, but the issue is really attracting people to the industry, rather than JLT. That’s where we need to focus, broadening the talent pool.

IB: Some commentators express concerns over outsourcing of junior roles overseas as reducing the talent pipeline, making it harder for people to come up through a business. Is that something you have any thoughts on?

LD: In terms of the people we look for, I don’t think that [outsourcing] enables them to absorb the culture. For us, culture is very important. We believe we have a particular ‘JLT DNA’ which is client-driven. Unless you work [within that culture] you’re not going to become part of it, it won’t be ingrained in your psyche.

IB: What about attracting people at a more senior level, such as your recent recruitment of [former Zurich claims chief] Stephen Brooks? Is it a healthy recruitment market at that level, or is it a case of grabbing the good people when they become available?

MARCH 2014 | 13

THE BIG INTERVIEW / LEO DEMER

“Wherever you walk around this organisation, you’ll hear us talk about ‘client first’. That’s at the heart of everything we do. The client is at the core of this organisation”

LD: Cultural fit is essential. We’ve made many acquisitions in the past, and the ones that work have been the ones where the culture and the fit has been right. We’re not going to acquire just to get bigger.

Our strategy has always been sustainable growth.

We have our strengths: in our specialty practice, we’re probably the number one construction broker in the world. We’re strong on energy, life sciences, communications. Any acquisition has to fit the areas we want to be in. It’s not about bulking up, because that doesn’t work.

IB: What would you say to a broker considering selling to Steadfast or Austbrokers versus coming on board with someone like JLT? LD: I’ve got a lot of respect for Robert and what he’s done – there is a need for organisations like Steadfast and Austbrokers, as it gives smaller brokers access to a lot of things they need to grow their businesses.

LD: We’re always on the lookout for good people.

We tend to look at it in this way: if there’s a good person out there who will fit, we should be able to find a role within the organisation.

Steve is very talented – he’s one of the best claims guys in the country. He was available, we secured him. That’s the same with a lot of people we’ve hired. We know our strategy in terms of the business that we’re after, and recruited the best people in the field that play to our strengths.

IB: How important is Australia as a market for JLT globally in the coming years?

LD: We provide 24% of group profits, so we’re a significant part of the JLT family. We’re a business that has achieved year on year growth of 5-10% in a very difficult market. If you look at some of our competitors and look at their growth patterns, you can see we’ve significantly outperformed them.

Because we account for such a large part of the group profits and we’re achieving year on year growth, they don’t see any reason why that should change.

IB: In previous interviews with IB online, you’ve mentioned you’re actively looking for acquisition opportunities. What are you looking for – skills, attributes, culture?

14 | MARCH 2014

IB: Are you competing for the same targets?

LD: Yes – in particular areas there will be businesses that we consider good fits, and there’s a good chance they’re a Steadfast broker already or considering being one. But ultimately it comes back to culture – do the people in those businesses want to fit into a JLT-type organisation, or do they like to run their own business and maintain total control?

After all, some people never want to work for a multinational, but some want to play on the world stage. We can help brokers bring their businesses up to that level. We can offer a bigger platform, a bigger stage to the people who want international opportunities.

IB: Anything else you’d like to add?

LD: We’ve been a bit quiet in the past, but that’s possibly worked against us. In the last 12 months there’s been a lot more talk about what we’ve been doing. However, from our view we haven’t really set about doing anything differently.

We have a funny saying here – ‘we’re really good at what we do, but for Christ’s sake don’t tell anyone!’ I think that goes for Australian culture in general. We should be going to universities and schools and saying that [insurance] is a great industry.

If you ask insurance people about their career, most will tell you they ‘fell into it’. But when you look at the industry, the livelihood and the variety it gives you, it’s fantastic. That’s what we need to be making clear to the next generation of insurance professionals.

COVER FEATURE / THE HOT LIST

16 | MARCH 2014

INSURANCEBUSINESSONLINE.COM.AU

Who are the trailblazers, the headline makers and the disruptive thinkers who will shape the future of the Australian insurance industry? Turn the page to find out…

Welcome to the first Insurance Business Hot List. We’ve trawled the industry to find the most influential people in Australian insurance – and it’s not just the usual suspects.

Yes, you’ll find the requisite number of insurer chief executives, but we’ve also highlighted those brokers, underwriters and service providers who are leading the way on innovation. We’re pleased to say that several of those people are under 40 and/or female, suggesting that the fu-

ture of the insurance industry is in safe hands indeed.

So, without further ado, here’s our take on the people that matter in the Australian insurance industry today. We’d love to hear your thoughts on where we’ve got it right, who we’ve missed and where tomorrow’s trailblazers will come from, so please don’t hesitate to contact our editor on kevin.eddy@keymedia. com.au or to leave a comment at www.insurancebusinessonline. com.au.

MARCH 2014 | 17

COVER FEATURE / THE HOT LIST

Joe Hockey Treasurer Joe Hockey and right-hand man Arthur Sinodinos are the men who could transform the Australian insurance advice industry with the wave of a hand (pending consultation, of course). The forthcoming ‘Son of Wallis’ inquiry is almost certain to see Hockey take centre stage once its results are announced.

David Murray

Mark Searles

Chair, Murray Inquiry The former Future Fund chairman is in the hot seat as the point man of ‘Son of Wallis’ – and he can expect to be busy. The original Wallis inquiry attracted 268 submissions in its nine months, and produced a 17-chapter report of 705 pages – not including appendices. Will ‘Son of Wallis’ bring changes as seismic as its forerunner? We’ll find out later this year (hopefully).

CEO & managing director, Austbrokers Searles spent much of last year asserting his position as Lach McKeogh’s successor and quietly reshaping Austbrokers’ business.

Affable he may be, but interviews with the Austbrokers supremo have revealed a core of steel and a taste for competition. The Steadfast management won’t have everything their way in 2014 if this man has anything to say about it.

Damien Coates Deputy CEO, DUAL International and CEO, DUAL Asia Pacific Coates’ full-time return to Australian shores in mid-2013 saw several people breathe a sigh of relief – not least Coates himself. After all, two years of commuting to London and back every month might rack up the air miles, but it doesn’t do any good for the sleep patterns. Coates’ return to Sydney is expected to put the Australian business back on track after an annus horribilis featuring that $17m fraud.

Robert Kelly CEO & managing director, Steadfast Is Robert Kelly the happiest man in insurance?

After the extremely successful float of Steadfast in August, you’d be hard-pressed to argue otherwise. 2014 will present new challenges, albeit of a very different sort, as Kelly looks to invest the cash on Steadfast’s balance sheet in a way that will take the business to the next level.

18 | MARCH 2014

INSURANCEBUSINESSONLINE.COM.AU

Rob Whelan

Inga Beale CEO, Lloyds of London The first of two Lloyds of London entries into this year’s Hot List, the appointment of Inga Beale as CEO of Lloyds in January isn’t just significant for the company – it’s a landmark appointment for the male-dominated insurance industry. Beale’s previously gone on record about how having women at board level changes how companies are run: could she transform the 325-yearold firm’s famously stuffy image, and provide a blueprint for other businesses too?

Executive director and CEO, Insurance Council of Australia The challenges that Whelan faces as the head of the insurance industry peak body shouldn’t be underestimated this year. Not only does he have a (relatively) new government to contend with, the changes to the General Code of Insurance are already sparking controversy. Add to that the Institute’s drive to improve the perception of insurance in the wider community, not least through its Understand Insurance initiative, and Whelan’s set for what could be the most important few months of his tenure so far.

Daniel Fogarty CEO, General Insurance, Zurich Financial Services Australia It’s been a banner year for Zurich, claiming both the NIBA General Insurer of the Year award and the overall winner spot in Insurance Business’s inaugural Brokers on Insurers survey. Indeed, the plaudits have run thick and fast since Fogarty took the top spot back in May 2012 – and with plans to build its already strong marine arm, as well as to diversify its business further, few would bet against Zurich to outperform again.

Heath Amber

Adrian Humphreys

President, Underwriting Agencies Council Freshly minted as chairman at the UAC’s December AGM, Heath Amber’s set to lead the association into interesting times.

Ambitious expansion plans, initially into New Zealand, mean the UAC is positioning itself not only as the voice for Australian underwriters, but potentially across the Asia-Pacific. Next stop the world? Watch this space.

General Representative for Australia, Lloyds of London As the world’s oldest insurance market’s earthly representative on these shores, Humphreys wields significant power – particularly where underwriting agencies are concerned. With Australia becoming an ever-more significant market for Lloyds, Humphreys’ influence is only set to increase. Can it be too long before he’s tapped up for a senior role back in Blighty, though?

MARCH 2014 | 19

COVER FEATURE / THE HOT LIST

Nick Kirk

Dallas Booth Chief executive, NIBA Need a broker? We wonder if that’s a question that echoes around Dallas Booth’s head in the early hours of the morning. NIBA’s strategy to promote the virtues of insurance brokers to the wider public is likely to emerge this year after a lengthy gestation period. Booth’s played down the importance of this strategy, but a smart and effective strategy could do wonders for the industry’s ‘image problem’. It’s essential that NIBA gets it right.

Chief executive, Calliden The pressure is on for Calliden head honcho Nick Kirk to deliver after significant losses in 2011, minimal profits in 2012 and a near-50% profit downgrade for 2013. Admittedly, the group has gone through some fairly tortuous restructuring over the last couple of years; but, while its agency strategy is generally viewed to be robust, investors aren’t going to wait forever for the promised riches to appear. It’s crunch time for Calliden in 2014.

Mike Wilkins CEO, IAG While the Steadfast IPO may have been the story of 2013, it was IAG’s purchase of a large tranche of Wesfarmers’ insurance arm that should take the title of Coup of the Year – especially as IAG was only linked with the sale a few days before it was finalised.

The addition of Lumley to the IAG arsenal makes Wilkins and IAG as big a player in the intermediated space as it is in the direct market – that is, as long as the deal isn’t nixed by the ACCC. 20 | MARCH 2014

Michael Gottlieb Managing director, Mega Capital/BizCover The man from Sydney is on top of the broking world, and not just because his Mega Capital business was successful in taking out the Insurance Business Brokerage of the Year award and featured in the Deloitte Technology Fast 50 Australia ranking for the second year running. No, it’s because his marketleading BizCover operation – an online platform providing financial lines cover to small businesses – is going from strength to strength. Could this be the future of insurance broking?

Tony Clark CEO, NTI Commercial motor is on the cusp of complete transformation due to two growing trends: the presence of black boxes in vehicles and the realisation of how important workplace culture is to safety.

NTI is at the forefront of both of these movements, and its work with brokers and companies is not only improving profit margins – it’s also saving lives.

COVER FEATURE / THE HOT LIST

Prue Willsford

John Elliott

CEO, ANZIIF ANZIIF’s new boss hasn’t been sitting on her laurels in her first few months: she’s been jetting off to China and New Zealand, as well as buckling down to study the association’s qualifications (under a pseudonym). With sustainability and solving the talent crisis high on the agenda, Willsford’s shooting for the stars.

CEO, Elliott Group John Elliott is just 31 – and, along with TradeRisk’s Shane Moore, is one of the young brokers who will take insurance into the future. Having set up Elliott Group when he was just 26, the firm has developed into one of Australia’s top brokerages. He’s also passionate about the next generation of brokers, telling us a few months ago that there’s “a new pool of talent” about to break through.

Brian Siemsen

Niran Peiris

Claim Central Former Rabbitohs player and Ernst & Young 2011 Young Entrepreneur of the Year Brian Siemsen’s groundbreaking Claim Central business is promising to revolutionise the world of claims.

The business, which started out as a carpentry firm, is already knocking on the door of major insurers and brokers with its claim management system.

Could 2014 be the year that it becomes the industry standard?

Managing director, Allianz Australia Another relatively recent appointment, Peiris took on the role of Allianz Australia MD at the beginning of 2013 – and it’s been steady sailing since. Mind you, when you consider the size of a vessel like Allianz Australia, that’s no mean feat. The course for 2014? More of the same, we hope.

Stuart White CEO, Macquarie Premium Funding Much of White’s 2013 has been taken up with the logistics of tying up Pacific Premium’s business with Macquarie’s existing operation.

That means he’s been a little quiet of late, but the indications are that the newlyminted behemoth of a business is about to come roaring out of the traps.

With competition heating up from smaller players, 2014 is set to be a very interesting year where premium funding is concerned.

22 | MARCH 2014

John Neal CEO, QBE It’s been the worst of times and the worst of times for QBE. The news that it was undergoing a major restructure and that Australian jobs would be lost was never going to be well-received, but even we were surprised by the anger displayed by some commentators. The icing was well and truly taken off the cake by the announcement that losses in its North American business would result in a full-year loss of $250m. Still, the night is often darkest just before the dawn, so here’s hoping 2014 sees a better year for CEO Neal and the company as it continues its transformation program.

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Danny Gumm Parmia Insurance NIBA’s Broker of the Year, Danny Gumm has taken his Parmia Insurance .business far beyond the beauty industry it’s specialised in over the last few years. His marketfirst policy for tattoo parlours – long offlimits due to bikie connections – was a highlight of 2013, and plans to venture into the allied health and alternative healing sectors are also coming to fruition. Ambitious plans to wholesale products to brokers across Australia could take Gumm and Parmia to the next level.

Karen Hardy Acme Insurance The highest-ranked woman on our Elite Brokers ranking at third place, Karen Hardy’s drive to educate clients – rather than sell on price – offers a blueprint that brokers looking with trepidation at the consumer market could emulate to great success.

Peter Harmer Managing director, CGU Harmer has been quietly reworking CGU’s business over the last year to make it a leaner, more nimble operation. The biggest impact, however, could come from outside, with the addition of Lumley Insurance to the IAG stable. It remains up in the air whether the two brands will run separately or be folded in together, but the smart money would be on IAG making the most of the synergies between the two – making Harmer and CGU an even more significant market player for brokers.

Ron Tatarka Scott Winton Insurance Brokers Insurance Business’s first ever Broker of the Year, industry veteran Ron Tatarka is a fitting recipient of the top spot in our inaugural ranking. His focus on putting clients first every time and building long-term relationships is a template that many brokers could – and should – look to emulate.

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COVER FEATURE / THE HOT LIST

Richard Enthoven Managing director, Hollard Insurance Hollard’s founder is always one to watch, as he’s usually up to something groundbreaking. After urging the insurance industry to get over its ‘major issue’ with social media and embrace the internet, he announced that Hollard would be backing a new wave of underwriting businesses.

What’s next for Hollard? We don’t know, but it surely won’t be long before we find out.

Sampath Soysa President, Young Insurance Professionals This digital media production specialist turned insurance lawyer is passionate about one thing: bringing more young people to the insurance industry. The grassroots YIPS association that he leads is growing fast: between their efforts and that of NIBA’s own young professionals group, we could yet see insurance become a career of choice in the coming years.

Shane Moore Managing director, TradeRisk Like fellow Hot Listee John Elliott, Shane Moore is a young broker putting his money where his mouth is. At 34, Moore’s TradeRisk business is blooming, having recently added trauma, life, income protection and TPD insurance to its existing tradie-focused business.

With big players targeting the small business market, Moore can expect stiff competition over the coming months – but we have a feeling he’s up for the challenge.

24 | MARCH 2014

Deirdre Blythe Acting CEO, Ansvar Thrust into the lead role at niche insurer Ansvar after predecessor Andrew Moon’s surgery to remove a benign brain tumour and subsequent retirement, Blythe is another female executive leading the way in a maledominated industry. Blythe told Insurance Business that she remains committed to “delivering strong partnerships and support to our broker community” – an aim that will be well-served by the insurer’s newlybolstered sales team.

George Meligonis Managing director, Compare the Market Meligonis may be brokers’ bête noire, thanks to his internationally-successful insurance aggregator and its furry mascots being repeatedly fingered for reducing insurance to a price game, but there’s no doubt he’s one of the most influential people in the personal lines market.

Like it or loathe it, online aggregators are here to stay, so we expect his firm to go from strength to strength over the coming months.

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Kate Fairley Founder, Get Informed Kate Fairley, 25, may not be the biggest name in insurance at the moment – but it’s only a matter of time. Setting up a consumerfacing broker advocacy service would be daunting at the best of times, but combining that with studying for a law degree and working two jobs takes an indomitable will. Dropping everything to help residents of the Blue Mountains affected by last year’s bushfires capped off her achievements in 2013. Don’t bet against her surpassing these in 2014 – she’s a star of the future.

Noel Condon Kate Carnell CEO, Beyondblue The head honcho of a depression charity may not seem like an influential person for insurance, but bear with us. Beyondblue has been a thorn in the side of the industry, particularly in relation to mental illness exclusions in travel insurance plans. The charity argues that counting depression and anxiety amongst these exclusions is unfair. The ICA and beyondblue were working together to find a solution last year, but talks broke down. Could this be the year this delicate situation is resolved? We certainly hope so.

CEO, AIG Noel Condon may not have been at the top of the headlines in 2013, but he’s not been resting on his laurels. AIG’s spent much of 2013 pushing through a wide range of service improvements, advancements and innovations, including a $1.5bn commercial property capacity limit and a new ‘evergreen’ rolling management insurance policy. With AIG set to be a major player in the burgeoning cyber market this year, we expect Condon to continue taking the insurer from strength to strength.

Larry Page CEO, Google Another left-field entry to the Hot List, Google’s Larry Page doesn’t look like a traditional insurer. However, Google will inevitably turn all that data it’s collecting, storing and analysing to more than serving advertising: could Google Insurance be the next logical step?

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COVER FEATURE / THE HOT LIST

David Porteous Director, Brooklyn Underwriting Brooklyn’s recent website relaunch has been the talk of the town recently – and not just because it features a ‘Usual Suspects’-style line-up of the Brooklyn staff. Rather, it’s the innovative design and sense of fun that permeates the website – an aesthetic that reflects this underwriter’s cultural outlook. While director David Porteous says his staff were the driving force behind the redesign, he must also take credit for fostering an atmosphere where taking risks is encouraged.

We look forward to seeing what else comes out of Brooklyn over the coming months.

Anthony Day Rod Sims Chairman, Australian Competition & Consumer Commission The implications of the IAG/Wesfarmers deal has occupied many minds over the last few months, but there’s one man who could undo the whole thing: ACCC chief Rod Sims. The government body is currently reviewing the acquisition under section 50 of the Competition and Consumer Act 2010, due to concerns that it could substantially lessen competition. Whether the ACCC will embark on formal action won’t be known until the end of March: in the meantime, all eyes are on Rod.

CEO, Suncorp It’s been largely ‘business as usual’ for Suncorp CEO Anthony Day in recent months – apart from a hiccup when subsidiary Vero revealed it was to slash personal insurance commissions late last year. Still, the industry behemoth continues to roll onward, and can be expected to continue on its path of ‘evolution, not revolution’ in 2014.

John George Chairman, MGA MGA may be one of Australia’s largest brokerages, but chairman John George’s sights are set further afield. The brokerage recently opened its first Asian office in Phnom Penh, with plans to open more branches in Siem Reap, Sihanoukville and Battambang. It’s a prescient strategy from an innovative company – especially if Cambodian premium income fulfils George’s prediction of doubling over the next four years.

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FEATURE / REAL LIFE

What brokers can learn from the cricket field Cricket and insurance have more similarities than you might think.

Former Victorian cricket captain Jonathan Moss tells Chinwe Akomah what brokers can learn from the sport

While some industry professionals may dream of becoming professional sportspersons, former Victoria cricket team captain Jonathan ‘Mossy’ Moss has been there, done that and held the trophies. His cricket career spans 15 years, including captaining the Victorian Bushrangers, playing alongside famous former international cricketer Shane Warne, and playing for Derbyshire in the UK. Leaving his cricket career behind in 2007, Moss is now the manager of Chubb Sydney’s independent broker team. Moving from cricket to insurance might seem like a big leap; however, Moss says cricket has been advantageous. After all, he says, the principles of both are much the same, whether you are the owner of a brokerage or the captain of a cricket team.

LEADERSHIP Moss led the Victorian Bushrangers during 2004 and 2005. He says his time as captain has lent itself to managing people in insurance.

“As with any sports team or business, what is important is that the leader understands the personalities of the individuals in their team,” he notes. “They need to know what makes those 28 | MARCH 2014

individuals tick, what is important to them and how to get the most out of them.”

RELATIONSHIP MANAGEMENT There are two parts to handling relationships, Moss remarks. In a cricket team, you need to have a healthy internal relationship with the teammates, coaches, selectors, board members and support staff.

“It’s the selectors, coaches and board members that make the decisions. Your performance on the field and your relationships with those decisionmakers are significant. It’s important to get everyone buying into the same strategy, much like in business,” he explains.

Managing external relationships is also critical.

“As a professional sporting body you have a responsibility to have a relationship with the media because your performance on and off the cricket field tends to determine how many people turn up to watch your game. A lot of that is derived through the media. You also need to have a very good relationship with your sponsors as they pay a lot of the bills.”

Insurance isn’t very different.

“The insurer’s external relationships are with brokers and their clients,” adds Moss.

“The brokers I work with are my external relationships. How I treat them, the service and value proposition myself and my company provide them, is paramount.”

COMPETITION While financial services is an incredibly competitive arena, Moss says the professional sporting environment is as competitive as it gets.

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“Everyone lives and dies by their performance against the competition. If you can’t outperform or out-think your competition, then you won’t succeed. Cricket is very much a game of attrition.

It comes down to which team does the basics the best for the longest period of time.

“In business, the things you can control are the basic things – service, value proposition, product coverage, ability to respond to brokers and clients when they need you. Doing the basics to the best of your ability for the longest period of time will generally give you a head start on the competition.”

STRUCTURE As captain of the Bushrangers, one of Moss’s constant focuses was where and how the skill sets of his individual team members were best utilised, whether in the batting and bowling order, or the fielding positions.

“Cricket is a very strategic game, just like business. In a cricket team, it’s important to put the right people in the right positions that complement their skill set. When you pick a cricket team you look at your opposition’s strengths and look at the fortes of your own players and work out the best positions for them.”

PLANNING A significant part of Moss’s captaincy also involved trying to stay one step ahead of the competition at all times.

HOW TO AVOID STICKY WICKETS • Build strong relationships with underwriters

“The best brokers have the strongest relationships with underwriters and recognise that those relationships are key. As underwriters, we truly understand how important brokers are to our business too.”

• Stay close to clientele

“As well as keeping underwriters on side, maintaining a healthy relationship with clients is important as well.”

• Understand your value proposition

“This is vital for brokers because they are pushed and pulled between policyholders and underwriters, but if a broker wants to improve their business, it comes down to their service and value propositions.”

“The planning [and the processes] that go into being successful for a long period of time in cricket is no different to what insurance companies do. The game never stands still. You have to continuously look at ways to better your skills, to keep learning, setting targets and practising. In business, you have to look at ways to improve your product coverage, claims service and staff. In both areas you set your target and you work back from that.

“It is all well and good to plan internally, but if you don’t plan for what your competition is trying to achieve, you will be left behind.

“It is not an easy thing to do, but if you can understand that, you will be able to leapfrog them.”

TEAM PLAYERS Brokers and business development managers may not be on the cricket field, but their roles are similar to those on the green Captain “The captain of a cricket team is like the manager of a brokerage or insurance company. They need to consider the individuals as well as the company’s performance as a whole. There are many moving parts to the role, and it is, by far, the hardest. You need a pretty thick skin to handle it.”

Number three batsman “The number three batsman is like a brokerage’s business development manager [BDM]. The BDM’s role is to get new business and is the face of the business. The number three batsman is as good as they get. The tone can be set by that batsman, just like the tone is set by the BDM.” Number four, five and six batsmen “The account manager keeps the business afloat. They are the core of the group – much like the four, five and six batsmen. They’re the ones who maintain the relationships and the work that’s already been done.”

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CYBER

SPACE The advent of new privacy legislation in March and the unstoppable growth of cyber crime has meant that cyber insurance is flavour of the month. Insurance Business opens the floor to the people devising the policies to find out what you need to know AIG Matthew Clark Australasian professional indemnity manager for financial lines What, in your view, are the biggest risks for organisations when it comes to cyber?

The number of exposures businesses face continues to increase as organisations become more globally networked and complex. One of the biggest risks organisations face is the misconception that they have adequate protection under their existing insurance policies, when the reality is far from this.

Some organisations have already discovered gaps in what is and what isn’t covered after an attack. Many businesses still underestimate the devastating impact a cyber breach can bring upon their organisation and in the case of some, do not have the ability to respond in the event of an

30 | MARCH 2014

attack. A comprehensive cyber liability policy will address these gaps in cover whereas a standard business policy may not.

How critical is it for organisations to obtain cyber insurance?

Cyber liability insurance should be seen as an integral part of the risk management strategy for organisations. However, it should not be used as a replacement for good risk management; rather it should complement robust risk management strategies.

The high profile security breaches of ANZ, Google, Sony Playstation and the FBI are a testament to the fact that even the most sophisticated security systems can be breached and organisations need to have a plan, which should include cyber liability insurance, in the event of a cyber breach.

What should organisations be doing to protect themselves other than obtaining insurance cover?

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Being aware of exposures, industry trends and market developments is paramount to helping businesses protect themselves against a cyber attack and will ensure that risk management strategies are evolving at the same pace as the cyber criminals that seek to attack them.

Cyber crime is a company-wide issue and organisations should focus upon educating their staff in order to understand how they can identify potential threats and respond in the event of an attack.

Organisations can also help protect themselves against cyber risks by applying some relatively simple strategies including implementing a data protection/privacy policy, ensuring that IT security and firewalls are regularly updated, and encrypting all data on mobile devices used by the organisation.

A good insurer will review a client’s cyber risk management strategy and advise them of how it can be improved to prevent an attack.

How can brokers convince clients that they need cyber insurance?

Brokers regularly talk to their clients about uninsured exposures. With the prevalence of cyber attacks increasing and the introduction in March 2014 of new strengthened privacy legislation, cyber liability represents one of the largest uninsured exposures organisations face today. This educational process is incredibly crucial in helping the client understand what type of policy they require.

I think that insurers should focus more on how they can assist brokers in educating clients about cyber risks and the gaps in a standard business policy through the development of educational tools and materials. For example, AIG has launched our CyberEdge App and sponsored a Cyber Insurance Research Paper written by the Centre of Internet Safety in the last couple of years, and we will continue to develop other materials that we believe will benefit the broker and the client.

What are the standout features of your cyber product?

Cyber liability is a unique product in that it provides traditional third party liability covers, but also includes a range of first party “expense” covers.

AIG’s approach to cyber liability is a flexible one because we understand that the needs of clients vary from one to another. We work closely with our MARCH 2014 | 31

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ONLINE GROWTH:

BY THE NUMBERS broker partners to ensure that our offering is relevant and competitive for each client.

AIG views the relationship with insureds as a risk management partnership. In support of this relationship, we also provide policyholders with access to our global network of third party vendors to assist in the event of a cyber breach. AIG also provides brokers and insureds with access to the CyberEdge App, which provides a wide range of information from technical training and media articles, through to a data breach calculator and an interactive data breach threat map.

AIG’s CyberEdge was also nominated as a finalist for Innovation of the Year award at the 2013 ANZIIF Industry Awards.

Why should brokers/clients choose your product instead of others?

Globally, AIG is the largest insurer of cyber liability.

This provides us with a depth of knowledge in underwriting and claims handling experience that should be a key consideration when choosing a cyber liability insurer.

Our insurance offering is comprehensive, and it is important to note that when buying a policy with AIG, you are buying into the global network of relationships that AIG has. This ensures timely response to matters irrespective of where they occur: a critical need for a truly global exposure such as cyber liability.

We are also on the cusp of launching CyberEdge onto our online broking platform, Transact, which will allow brokers to quote, bind and process midterm endorsements, and retrieve policy wordings in one streamlined and efficient online transaction.

BROOKLYN UNDERWRITING Rob Collyer Underwriting manager, Professional Risks What, in your view, are the biggest risks for organisations when it comes to cyber?

With so many businesses now with an online presence and/or holding personal information it is becoming increasingly difficult to protect your own IP as well as private info belonging to members of the public.

One of the biggest risks today faced by businesses is a breach of that data and the impending costs associated with that breach.

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2.5 exabytes of data is created daily 1.1bn active Facebook users 36% of data will be in the cloud by 2016 Predicted 23% growth in telematics by 2016 Sources: Forrester, Digital Disruption (November 2013), Gartner (June 2012), IBM (What is big data?), International Telecommunication Union, TechNavio (August 2013), World Bank (2012), Symantec

• Civil penalty orders up to $340,000 for individuals and $1.7m for companies.

• Third party claims from those affected.

• Associated breach costs including costs of notification, forensic investigations, credit monitoring and brand damage.

How critical is it for organisations to obtain cyber insurance?

The introduction of new privacy legislation from March 2014 will see increased levels of security around holding data belonging to members of the public. The powers of the privacy commissioner have been enhanced and we see the costs of a data breach increasing significantly.

What should organisations be doing to protect themselves other than obtaining insurance cover?

Utilise the services of an experienced data protection specialist to conduct an audit of your current systems ensuring compliance with current privacy and data retention standards. Review and implement a cyber or data breach plan, including the steps to be taken should a breach occur.

Why should brokers/clients choose your product instead of others?

Brooklyn has teamed with Lloyd’s, data privacy and breach experts, and cyber legal practitioners to form a comprehensive cyber liability offering. This product offers both first and third party protection as well as crucial coverage for multimedia content, hacker damage, business interruption and much more.

We are excited to be able to offer this product in various formats allowing the broker to tailor the cover to their clients’ needs. Brooklyn has built up a great reputation for ease of transaction online as well as access to experienced underwriters.

We are committed to “making you the expert” in all our product lines and this is critical on a new product such as cyber.

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LONDON AUSTRALIA UNDERWRITING James Crowther National development underwriter

What, in your view, are the biggest risks for organisations when it comes to cyber?

While the big data breaches and actions of hacktivists take all the headlines, the biggest risks to the largest number of organisations is still the action (or inaction) of employees – whether deliberate or accidental, malicious or well meaning.

How critical is it for organisations to obtain cyber insurance?

It depends on the organisation. A good place to start is to identify the uninsured risks that are not covered by traditional insurance policies, then consider where cyber insurance can offer the risk transfer required.

What should organisations be doing to protect themselves other than obtaining insurance cover?

While defence in depth and having a multi-layered approach to network and information security is essential, it is no good just having privacy and security policies without educating staff on the implications of potential threats and the actions that should be taken to minimise them.

How can brokers convince clients that they need cyber insurance?

The best brokers carry stories of real events and the costs they have meant for firms (Telstra or Melbourne IT for example). The fact is that it is a case of when, not if, firms will suffer a privacy or network security incident.

What are the standout features of your cyber product?

• It provides cover for voluntary notification cost involved due to a breach of personal information in accordance with the OAIC’s ‘Data Breach Notification’ guide • No hourly loss limit or limit on the days for loss of business income. Our calculation is based on the prior 12 months’ net income and we also take into account the reasonable projection of future profitability had no loss occurred. This will

“The best brokers carry stories of real events and the costs they have meant for firms” include all material changes in market conditions that would affect the future profits generated • Data recovery and loss of business income is covered whether the loss occurs at the insured’s premises or external backup data centre or storage facilities • Data recovery is provided where the loss arises from a broad range of events including a natural disaster • Crisis costs include public relations costs (up to full policy limit) to avert or mitigate any material damage to any of the insured’s brands Why should brokers/clients choose your product instead of others?

• It uses a short SME application process for clients with revenues less than $25m, with only five basis risk assessment questions • It is a flexible, modular policy that can be tailored to suit clients’ needs and pricing expectations • Our Incident Response Team is also on hand to assist clients when there is a crisis

$1 trillion

Estimated value of cyber crime per year in US dollars Source: Zurich

89%

of respondents to a New Zealand survey stated that they felt businesses should notify them if their personal information had been breached Source: Cyber Insurance Research Paper, Centre for Internet Safety; New Zealand Privacy Commissioner

AXIS SPECIALTY AUSTRALIA Klaus Lejon Senior underwriter, Professional Lines IT & Multimedia Liability What, in your view, are the biggest risks for organisations when it comes to cyber?

The reliance by organisations on technology has grown exponentially in recent years and with this development a number of cyber risks which can have a detrimental effect on an organisation’s balance sheet have emerged. If such technology is compromised by a cyber-attack it may result in network and data security breaches which can have a significant economic impact.

With an increased level of inter-connectivity between businesses and between individuals there is a serious emerging cyber risk relating to breach of privacy. Cyber attacks can also result in severe MARCH 2014 | 33

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59%

of respondents to a survey conducted by McAfee were unaware of the recent major changes to the Privacy Act Source: Cyber Insurance Research Paper, Centre for Internet Safety; State of Privacy Awareness in Australian Organisations survey 2013

65%

of SMEs said that, in general, their organisations’ sensitive or confidential business information is not encrypted or safeguarded by DPL technologies Source: Cyber Insurance Research Paper, Centre for Internet Safety

reputational damage affecting share prices and as such corporate directors are in the firing line as they have a duty to ensure that systems and procedures are in place to prevent or mitigate such risks.

How critical is it for organisations to obtain cyber insurance?

Insurance is a risk transfer mechanism. Some organisations are more exposed than others so step number one is to identify the level of exposure by asking questions such as: • “Can the data we hold lead to financial gain if stolen?” such as financial details • “Is the data we hold of a sensitive nature?” such as medical records • “What will the business impact be if our technology was inoperable”?

Cyber insurance can be a valuable asset for reducing losses. However, an insurance policy is post-event protection and the best practice is therefore to combine a cyber liability policy with external risk management advice.

What should organisations be doing to protect themselves other than obtaining insurance cover?

Organisations that have identified cyber risk exposures should adopt a proactive approach to risk management by receiving external expert advice. Security consultants can develop a risk matrix and suggest implementations which an organisation’s internal IT department may have overlooked. The key is to identify critical assets and define policies in respect of network security, redundancy, back-up, physical security and review the procedures and systems regarding the collection and storing of personal data.

How can brokers convince clients that they need cyber insurance?

There are typically two main purchase drivers of insurance: claims and regulatory enforcements.

In Australia we have seen limited cyber claims activity. However, there has been a number of large cyber-related claims overseas such as the TJ Maxx data breach claim, resulting in suggested costs in excess of US$64m and Sony hacking incident where 77m personal data records were disclosed.

With effect from 12 March 2014, brokers can now also leverage off the national privacy reform. An example of a breach which could potentially have triggered the Australian privacy reform is the

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hacking incident that disclosed AAPT customer information stored on Melbourne IT’s servers.

Furthermore, brokers may have additional ammunition if the Privacy Amendment (Privacy Alerts) Bill 2013 passes in parliament which imposes mandatory data breach notifications.

What are the standout features of your cyber product?

The Australian cyber market has experienced a number of entrants recently that are focused on acquiring market share – resulting in a highly competitive space. There is currently no standardisation of cyber coverage in the market and brokers therefore need to be aware of the major discrepancies between wordings.

Cyber liability insurance plays an integral part in AXIS Specialty Australia’s growth strategy. A leapfrog strategy has been adopted which will see AXIS introducing a cyber liability wording once the Australian cyber liability market has found its feet.

This strategy combined with the cyber experience and knowledge of AXIS’ overseas branches will provide brokers with a comprehensive wording advantage, priced accordingly, hereby developing the trust-based broker/insurer relationship which is one of AXIS’ core values globally.

LIBERTY INTERNATIONAL UNDERWRITERS Richard Head Senior vice president Specialty Casualty Asia Pacific

What, in your view, are the biggest risks for organisations when it comes to cyber?

I consider the biggest risks that organisations currently face arise from breaches of privacy and security. Such breaches can have devastating consequences for businesses, for example: • Loss of income due to operational interruption • Damage to reputation particularly with the increasing media focus on cyber incidents and the meteoric rise of social media influence • Fines and penalties imposed by government regulators such as the Privacy Commissioner, and • Legal costs associated with regulatory proceedings and investigations.

Organisations should be aware that cyber threats

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DIGITAL DISRUPTION can be both internal, arising from actions of employees or contractors, as well as external from sources such as hackers.

How critical is it for organisations to obtain cyber insurance?

I believe cyber risks present real exposures for business now. There is a misapprehension that cyber insurance will only become relevant when the Privacy Act 1988 (Cth) amendments concerning mandatory notification of data breaches come into force.

Employee errors, internal sabotage and cyber extortion by external hackers are certainly not waiting around for that legislation to be passed.

Losses arising from interruption to business operations, reputational damage and regulatory investigations are significant exposures for organisations that exist now.

What should organisations be doing to protect themselves other than obtaining insurance cover?

Information security is not just the domain of the IT department within an organisation. It should flow across the entire organisation through all departments and have buy-in from the most senior levels of management.

Risk management should encompass both IT systems and procedures, such as managing physical security, security of paper files and access controls for employees and any third parties coming onto the insured’s premises.

Mapping out the chain of custody of data which an organisation has provided to third parties, such as cloud operators, is beneficial. Where are the third parties located? Do they operate to Australian privacy law standards? Do those third parties provide the data to other service providers located in countries that do not have comparable privacy laws? These are all questions that should be asked to help an organisation manage privacy and security risks.

How can brokers convince clients that they need cyber insurance?

Brokers should illustrate how traditional insurance policies provide limited cover for losses that arise from cyber incidents. For example, brokers should provide clients with real examples of the types of losses an organisation can face as a result of a cyber incident and compare how the client’s existing insurance policies and a cyber insurance policy

Cyber risks are often summarised through the acronym “CHEW” – crime, hacktivists, espionage and war. But there are other risks in cyberspace which could have systemic impacts.  For example, a large cloud provider could suffer an Enron or Lehman-style failure, a foundation of the real economy on Friday and gone – with its data – on Monday.  A lot of industrial processes are controlled remotely over the Internet. Such interfaces are not always protected adequately and could provide attackers access points for sabotage.  Supply chain interruptions due to unplanned IT and telecommunication outages have become more frequent. Supply chain incidents lead to a loss of productivity for almost half of businesses along with increased cost of working and loss of revenue.  Another case is power blackout. The vulnerability of the power supply industry is high due to the interconnectedness and dependency on many levels. Whereas short-term power blackouts are experienced frequently on a local level around the world (eg caused by natural catastrophe events), societies are not familiar with large scale, long-lasting, disruptive power blackouts. Traditional scenarios only assume blackouts for a few days. But if we are considering longer lasting blackouts, which are most likely from space weather or coordinated cyber or terrorist attacks, the impacts on society and the economy might be significant.

Source: Zurich

respond to the cyber incident. The gap in coverage is likely to concern organisations.

The media often reports on organisations that have suffered a cyber incident. Those reports can be used to help organisations identify key exposures.

What are the standout features of your cyber product?

LIU’s cyber insurance policy contains very broad first party cover. For example, the policy provides cover for losses suffered as a consequence of a cyber incident that has interrupted the insured’s business activities or damaged the insured’s data caused by: 1 External sources; or 2 Internal threats, such as actions of employees and contractors, both accidental and malicious.

The policy also provides cover for losses the insured suffers due to reputational damage arising out of a cyber incident, such as loss of customers, which is a unique offering. Importantly, LIU has the capacity to provide meaningful policy limits to insureds.

Why should brokers/clients choose your product instead of others?

In addition to LIU’s unique product features, LIU can offer insureds a quality risk assessment, underwriters with specialist and global experience in cyber risks and an efficient claims service.

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SPECIAL REPORT / CYBER RISK

CYBER RISK AND PRIVACY:

THE LEGAL VIEW The current boom in cyber insurance policies is at least partly due to new cyber privacy laws being enacted in March. Andrew Moore, Jane O’Neill and Jack Geng investigate the new legal landscape As Australian commentators continue to debate the relative merits of mandatory reporting of serious data breaches, the recent hacking attack on US retailing giant Target serves as a timely reminder of the risks faced by many businesses in the digital age.

On 19 December 2013, Target announced it was the victim of a coordinated and systematic hacking attack carried out on its computer network between 27 November 2013 and 15 December 2013. Target has subsequently confirmed that the attack compromised the credit and debit card details of up to 70 million individual customers.

The potential losses faced by Target are enormous with reports indicating that at least two separate class actions have been commenced by customers.

In the meantime, many businesses probably breathed a sigh of relief when mandatory reporting of serious data breaches was not incorporated during the recent tranche of privacy reforms in Australia. Any celebrations are, however, likely to be premature, as businesses come to terms with the full effects of reforms to the Privacy Act 1988 (Cth) (the Privacy Act).

THE PRIVACY ACT On 12 March 2014, the newly amended Privacy Act comes into operation through the Privacy Amendment (Enhancing Privacy Protection) Act 2012.

These amendments herald two significant changes for all affected businesses, including: • Imposing additional regulatory obligations, and • Conferring significant enforcement powers on the Office of the Australian Information Commissioner (the Commissioner).

The amended Privacy Act incorporates the newly created Australian Privacy Principles, which provide significant privacy enhancements for the collection, handling and use of private information by businesses.

36 | MARCH 2014

The main changes include: • Restricting the purpose and manner in which private information can be collected and used by a business, including the requirement that any private information collected must be reasonably necessary to the business’ functions or activities • Unless exempted, any sensitive information must be obtained with the express consent of the individual • Taking reasonable steps to notify the relevant individual that their personal information is being collected, and to ensure the private information being collected is accurate and accessible by the relevant individual, and • Taking reasonable steps to protect any personal information held by the business.

These changes apply to businesses with an annual turnover of $3m or more, and to any prescribed businesses as defined under the Privacy Act, such as those providing health services.

The Commissioner has also been granted significant powers under the Privacy Act to: • Investigate any complaints received in relation to breaches of the Privacy Act, or to investigate any breaches on its own initiative • Accept enforceable undertakings from businesses against further breaches of the Privacy Act, and • Impose civil penalties for serious or repeated breaches, including fines of up to $1.7m for businesses and $340,000 for any individuals.

The Commissioner will maintain its pre-existing power to award monetary compensation to complainants for any losses or damages as a result of any breaches (enforceable via the Federal Court or Federal Circuit Court).

INSURANCEBUSINESSONLINE.COM.AU

Businesses should be taking steps now to ensure they have a compliant privacy policy and are aware of the changes. The consequences of failing to adequately protect customer data will be significant.

MANDATORY REPORTING In 2013, the then Attorney General introduced the Privacy Amendment (Privacy Alerts) Bill 2013 (the Proposal). Under the Proposal, if any business believes there has been a serious data breach, it must notify the Commissioner and take reasonable steps to notify the affected individual/s.

Serious data breaches include: • Any unauthorised access to, or disclosure of personal information (including where personal information is lost), and • Where there is a “real risk of serious harm” to the individuals affected by the breach.

Under the Proposal, ‘harm’ includes harm to reputation, economic and financial harm.

The Proposal was passed by the House of Representatives, but has since lapsed in Parliament.

Despite a change in government, the issue of mandatory reporting still looms on the legislative agenda. In June 2013, the then shadow Minister for Justice indicated in principle support for the mandatory reporting: “…the Coalition supports the broad principles in this bill [mandatory reporting]; there are still some concerns that require thorough investigation… the coalition will wait for the Senate committee’s report into this bill, and we reserve the right to propose appropriate amendments”.

It is clear that the Privacy Act will not include any mandatory reporting requirements, but only time will tell whether the Coalition government intends to revisit this issue.

REGULATORY AND LITIGATION RISKS While mandatory reporting has not been introduced, businesses still face significant regulatory risks caused by data breaches as the amendments to the Privacy Act require businesses to take reasonable steps to protect any personal information and the Commissioner has the power to investigate and impose civil penalties of up to $1.7m.

The failure to notify any affected individuals of serious data breaches may also increase litigation risks for any affected businesses.

It is important to remember that had the Proposal been adopted, the obligation to notify would only be required in circumstances where there is a “real risk” that

an individual may suffer serious reputational damage or suffer serious economic/financial harm. Accordingly, in circumstances where a “real risk” exists, it is likely that an individual who has suffered harm may have separate legal causes of action, and the failure to notify may simply exacerbate their losses. Whilst for large scale data breaches, the spectre of potential class action proceedings will also loom large on the horizon.

In association with

RISK MANAGEMENT It is also important to bear in mind that, although there are no requirements for businesses to report serious data breaches to the Commissioner or to any affected individuals at this point in time, the changes to the Privacy Act most certainly increase the regulatory, reputational and litigation risks to businesses.

Due to the increasing threats emanating from data breaches, businesses need to consider appropriate

“Cyber risk insurance is the next big thing in financial lines. In view of the increased exposure in the digital age and by virtue of reforms to the Privacy Act, it is not hard to see why” risk management strategies, including holding appropriate cyber insurance cover for common first and third party liabilities for costs relating to: • Forensic computer investigation and data recovery • PR management • Business interruption • Breach notifications • Third party losses, including settlements and judgments, and • Defence costs, including litigation, regulatory investigation and fines.

Large-scale data losses tend to dominate media headlines, and potentially cause enormous losses for any affected businesses. However, the everyday reality of most cyber risks tends to be less spectacular, but no less real or devastating, as many small and medium businesses have discovered to their detriment.

Nevertheless, as the fallout from the Target data breach unfolds, it may be only a matter of time before we see similar large-scale data breaches in Australia.

When such losses occur, any affected businesses must deal with the inevitable public backlash, and the full regulatory fall-out under the Privacy Act.

About the authors Andrew Moore is a partner, Jane O’Neill is a senior associate and Jack Geng is a solicitor at Wotton + Kearney.

MARCH 2014 | 37

FEATURE / PREMIUM FUNDING

SPLASHING THE

CASH Premium funding is becoming an increasingly important income stream for brokers. Insurance Business sat down with the heads of two funders to discuss industry trends, innovation and how to boost take-up THE STATE OF THE MARKET Ross Hayward: It’s a terrific market to be competing in. People are turning to Premium Funding due to consolidation.

From an industry standpoint, it’s a good environment too. We’re not seeing an increase in defaults, which is keeping our end rates down.

Debt levels are still tight and people are still experiencing cash flow issues, so when we offer them some cash flow assistance we jump at it.

We’re very optimistic.

However, margins are decreasing and players trying to pick business up by cutting on profit and competing on rate. It’s better for brokers and consumers, but margins are being eroded.

At the smaller end of town, there’s not much of a rate war. Brokers are happier to pick up a funder based on service and product offering. I can under-stand that you go looking for the very best rate if you’re funding a $400,000 premium, but at the lower end of town there’s still good margins available.

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FEATURE / PREMIUM FUNDING

“Some brokers are generating up to a quarter of their income from premium funding in the form of override and commission” Jurgen Rammesmayar

Jurgen Rammesmayer: There’s more concentration of power in the broker channel due to consolidation, plus more emphasis on premium funding – but at the same time expecting funders to cut their rates. It’s challenging premium funders’ business models to be sustainable. In response we’ve seen competitors respond by cutting service costs, having fewer BDMs – almost a call centre approach.

Two elements to service: front end where BDMs have relationships with brokers, educating them about how to sell into their client base.

Second is where the client has a unique need the broker can pick up the phone and talk to someone they have a relationship with. Knowledgeable back-end staff, low error rates, and flexible credit staff.

We’re not uncompetitive on rates. We look at brokers on a portfolio basis and reward them and their clients for the business they give us. We compete across all price points.

THE BENEFITS FOR BROKERS JR: If you survey brokers, they will always tell you that premium funding has to be a low-hassle product that’s an add-on. It’s not core to their business – it’s a value-add service. Even so, there’s more acknowledgement that premium funding is a key source of income; indeed some brokers are generating up to a quarter of their income from premium funding in the form of override and commission, and in some places profit share. It’s a lucrative revenue stream.

RH: Brokers can make a hell of a lot out of funding – perhaps more than funders do.

For example, a broker can get an override of 2% out of a 5% rate, plus adding 3% commission.

The overall rate can be 8%, from which the broker keeps 5%.

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Brokers stand to make a heap of money, and that’s something funders did to get turnover. It’s sustainable to a point, but eventually rates have to go up or shareholders will start to ask whether this is an efficient use of capital.

O

N

… IN SERVICE AND SYSTEMS

…

RH: We concentrate on systems. We have three full-time programmers in-house and we’re constantly coming up with innovative products that assist brokers.

This year we’ll write 33,000 loans. You can only do that with efficient systems at our end which feed into broker systems so they’re fully automated. A major innovation from our end has been autoreconciliation of settlements. That saves an enormous amount of time, especially at group level.

The other ‘big thing’ is behind-the-scenes integration into broker websites. As it becomes more about selling insurance online, we’ve got a product that presents the paperwork, funding options, etc, with the broker’s branding. The client just hits ‘pay monthly’ and off they go.

They don’t even know they’re dealing with premium funders in the background. That’s a huge innovation, especially as brokers go down the track of closing more business online.

JR: There’s always innovation. We’ve seen some innovation around mobile devices, but it’s largely been restricted to brokers being able to obtain a quote rather than transact, or import information onto a mobile device and generate a contract.

That will change within 12 months, easily.

The real innovations will come with big data – the ability to obtain data from multiple sources, analyse it and get meaningful insights into customers. That potentially puts you in the position where you can tailor a premium funding product to a client’s seasonal cash flow situation, reducing the number of defaults and making funding more affordable.

A lot of innovation will be incremental, too.

What will set premium funders apart is being able to have an intimate relationship with brokers and their clients, as well as having a flexible, responsive platform.

For instance, we run automated customer satisfaction surveys with brokers and clients.

We get a lot of data and real-time feedback from those, which allows us to identify trends and

FEATURE / PREMIUM FUNDING

THE COMMENTATORS Ross Hayward is managing director of Premium Funding. Premium Funding has been established since 1992, making it one of Australia’s longest established premium finance companies. Premium Funding strives to employ high levels of innovation with use of state-of-the-art technology.

Jurgen Rammesmayer is general manager of Wesfarmers Premium Funding.

He has worked in a number of countries across a broad range of industries. His experience over the past 10 years, prior to joining Wesfarmers Finance, has been in providing financial services to small and medium business customers.

respond to them.

For example, we used to send clients a letter if there was a default. The problem was that they may not receive that until a few days later, when we’ve already attempted a second drawdown.

Then the payment falls over again, brokers get involved, you start getting coverage cancellation issues, and so on. That was a big source of friction.

Now, we send an SMS to clients when there’s a default so they can speak to their accountant and make sure the money is in their account for the next drawdown.

In addition, where there are clients where there’s perceived to be a higher risk, we’ll send them an SMS four or five days before the drawdown. That’s an additional service to help clients manage their cash flow.

… IN PRODUCTS RH: Funding-wise, it is a fairly simple product; there’s not a lot more we can do with it. We may eventually go into additional funding, not just funding premiums. If there’s a market for it, we might be open to it, assisting with cash flow.

JR: We’ve seen some extensions to product. For example, two years ago we launched a foreign exchange product, where clients can fund premiums in another currency.

The second area where we could see innovation is domestic funding, Admittedly, it’s a different ballpark due to credit licensing, but some funders were able to negotiate exclusions and can offer funding.

After all, a lot more brokers are losing smaller SMEs and domestic clients to direct underwriting offers. In response, we’ve got brokers setting up their own websites to offer a brokered solution.

They need to offer an ability to pay by the month.

That’s what we can do.

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EXPANDING THE MARKET JR: Our BDMs work closely with brokers to identify the parts of their client base who could benefit from premium funding. Market penetration is between 30% and 40% on average. Could we go from 40% to 80%? I’m not sure it could grow that much.

We have various programs to help brokers.

Two years ago, we developed a sales tool to help brokers convert clients to premium funding. It works out the cost/benefit of premium funding, the return of the client’s business, and the opportunity cost of using their capital resources to pay premiums rather than reinvest in the business versus premium funding cost. That’s been quite successful in helping brokers convince clients who don’t traditionally premium fund that there are benefits to it.

After all, cash flow is always an issue for SMEs – what might make sense today suddenly becomes a problem four months down the track. Premium funding helps them keep those cash reserves and bank facilities free for later down the track when another working capital requirement comes your way. It’s all about the opportunity cost.

Amongst a number of brokers, there’s a low knowledge base of the benefits of premium funding. There’s a huge opportunity to improve education. That’s why we recently developed a NIBA-accredited ‘premium funding 101’ training module. It’s educating brokers so that premium funding becomes more top of mind, what instances it makes sense to offer it to a client, how to overcome objections and how to show it makes economic sense.

RH: It’s all about making it easier for the broker and the client. You’ve got to get that contract in front of the client. Therefore, anything we can do to make that process easier helps. We know some brokers can have 60–70% take-up rate because they put a contract in front of every client.

The flip side of that is educating the client that premium funding is a payment option which isn’t expensive when compared to other forms of funding. It frees up capital. It doesn’t impact existing debt arrangements.

It helps that premium funding has lost its stigma as a product you use when you can’t afford insurance – it’s purely a cash flow management tool. The majority of businesses that use us are flush with cash, but they see premium funding as a better use of their capital.

MARCH 2014 | 43

FEATURE / INCOME PROTECTION

5 brought to you by

MUST-KNOW FACTS ABOUT

INCOME

PROTECTION Income protection insurance is becoming an increasingly important part of super funds’ and employers’ offerings.

Jason Potter-Rose and Aaron Stokeld highlight the big changes taking place

1

PROACTIVE CLAIMS MANAGEMENT

A growing trend in income protection – and one that we’re proud to say Windsor Income Protection is at the forefront of – is proactive claims management. As super funds in particular jostle with each other for the same members, the whole end-to-end insurance experience offered is becoming more and more important.

Part of that is a drive for providers to be claims managers rather than processors. A processor’s job is just about paying claims, and very little more (if anything). A true claims manager’s job isn’t just to send the cheques, however; it’s to be empathetic in a member’s time of need and to help them get back to work.

To do this, early and regular intervention, assessment and discussion

with claimants is essential. You need to talk to people to find out what’s wrong, what their priorities are, and recommend the best course of action.

For example, if a claimant needs a knee reconstruction and doesn’t have private health, it may be more beneficial for ‘us’ to pay for the operation. It may seem like a big upfront expense; however, paying $10,000 for a knee operation and getting the employee back to work in three months is more beneficial than having them sit on the sidelines for two years getting paid up to 90% of their salary while they are on the public waiting list. That helps the worker, the employer and the insurer.

It’s not just the employer who wants their worker back at work. By speaking to claimants early, and every two weeks after, you can assess their appetite to return to work and potentially find them alternative duties. The insurer might be paying 75% of a wage, but many people want to get back to work because they need that other 25%. We had a chef who was desperate to get back to work, so we got in touch with the employer and found him admin duties earning full pay. That was a win for all parties.

2

PRICING AND PSYCH CLAIMS

Group insurance premiums are increasing. This is a result of greater awareness among members, leading to increased claims exposure across the board. A significant claim type has also emerged, related to mental 44 | MARCH 2014

INSURANCEBUSINESSONLINE.COM.AU

health conditions such as depression, stress and anxiety. This is due to greater education about mental health, and the fact that members are no longer hiding their conditions.

The issue with ‘psych claims’ is twofold: they now account for a larger part of the claims portfolio and are often long term in nature. In comparison, physical injuries like fractures usually resolve in a matter of weeks or months. Those rising costs mean it is critical to ensure that policy design both provides the required benefits and is affordable. It also means that proactive claims management is essential to manage claims exposure.

For example, our claims staff undergo training on avenues for rehabilitation, and we ensure that the claimant is referred to an appropriate specialist for that condition. We also ensure that every claim is handled in an empathetic manner. After all, our aim is not to make the claimant even more stressed.

3

FRAUD

Fraud is ever-present where income protection is concerned. We’ve all heard apocryphal tales of claimants calling from Bali.

There are more ways than ever to detect fraud now, particularly through social media surveillance.

However, we believe that proactive claims management, experience and quality training is the best way to detect and deal with fraud.

First and foremost, we authenticate the claimant’s and medical practitioner’s identities and the claimed condition. We prioritise early contact and establishment of a relationship with the claimant. This helps us ‘get in early’ and identify any areas of concern.

4

CHANGING POLICY DESIGN

The changing nature of the workforce has implications for income protection policy design. More and more workers are employed through casual, part-time or contract arrangements, which means they can fall foul of minimum-hour requirements in many policies.

Windsor Income Protection is proud that none of our policies contain such work restrictions.

Another area in which claimants can get stung is the claim waiting period. Some policies have up to 180-day waiting periods, whereas Australian saving patterns suggest many Australians have just three to four weeks’ savings.

When arranging cover it’s critical to look at the profile of potential membership and their requirements, and seek a bespoke product if needed.

5

THE TECHNOLOGICAL REVOLUTION

Technology is providing new ways to improve the design and operation of income protection. For example, we SMS members to say we’ve received or advanced their claims, to advise details of claims managers, and signal when claim payments have been made. That cuts down on incoming calls to claims personnel, and allows them to concentrate on establishing relationships and managing the expectations of claimants.

More data also means providers can better serve claimants and clients. By looking at claims data we can see trends for specific injuries and conditions.

For example, if we can see that someone’s broken a bone, we can look at similar claims, assess how long they’re likely to be out of action for, and recommend the most effective course of action straight away.

Better-quality data also means policy design and pricing can be more effectively tailored to employer requirements. For example, after segmenting the data we advised a client that there was a great expense associated with claims from injuries related to off-road recreational biking. We asked if they wanted that covered, and were able to adjust pricing accordingly. Also, if there are injury patterns, we can highlight potential health and safety issues, and work with employers to improve these.

ABOUT WINDSOR INCOME PROTECTION For a company that was only formed in 2011, Windsor Income Protection has made big waves in the group income protection market. Windsor Income Protection’s innovative product design around member retention allowed one of their clients to be twice voted Best Insurance within Superannuation (2013, 2014) by Money Magazine.

Windsor Income Protection’s innovative approach to policy design and claims management makes it a true alternative to established insurers.

Windsor Income Protection works closely with clients, including brokers, corporate entities, and employers, in building valued workplace benefits such as enterprise bargaining agreements and superannuation funds, to construct bespoke, cost-effective products underwritten by Lloyd’s of London syndicates. Windsor Income Protection

TELLTALE SIGNS OF FRAUD • Dates mentioned verbally and stated on a claim form don’t add up • Claims last significantly longer than the amount of time suggested on condition guidelines • Medical certificates are signed off by the same doctor repeatedly

also has full third-party authority to run claims management.

As well as group income protection, Windsor Income Protection’s products and services include: • claims management services • insurance consulting • tender management • health insurance consulting • member engagement consulting • accidental death • broken bones • death by any cause (reinsurance only) • funeral • journey cover • top-up (workers’ compensation) • total permanent disablement • trauma • travel • other products as discussed with clients or on a needs basis To find out more and to get an obligation-free quote on your portfolio, visit www.windsorip.com.au or call 1300 547 966.

MARCH 2014 | 45

BUSINESS STRATEGY / SUCCESSION PLANNING

SUCCE PLA When it comes to succession planning, there are some essential points to bear in mind to ensure that you maximise the value of your business and achieve a successful exit, explains Craig West

Most business owners go into business planning to maximise the value of the business and extract that value (most often by selling) when they exit. But the research tells us most don’t have a plan or strategy around how to do this and therefore often fail to either maximise or extract the value or both.

Achieving a successful outcome is really about focusing on two areas: internal and external.

INTERNAL AREAS When it comes to internal areas, the question to ask is ‘what are the key things we can focus on to ensure our business is valuable, attractive and saleable?’

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INSURANCEBUSINESSONLINE.COM.AU

SSION NNING In my experience, there are eight key areas to focus on when answering this question:

1

Size Simply put, ‘size does matter’. There is plenty of research supporting the fact that businesses with a turnover of $5m or more nearly always sell at higher multiples than their smaller counterparts.

While I am not in favour of growth for growth’s sake, designing your business to grow to at least this level of turnover will maximise value.

2

3 4

Revenue Recurring revenue is vital. Do you have clients on long-term retainers, extended contracts, or some type of residual income trail?

Sales and marketing Your business needs to be able to generate new business, leads, enquiries and, ultimately, sales without relying on either your or a key person’s skill and sales ability. All businesses need a sales and marketing machine.

5

Business model Is your business operating under a boutique or scale model and, even more importantly, is every aspect of your business aligned with your model? This includes:

Systems Save yourself time, effort and money: not only are systemised businesses far simpler to run, far less stressful and generally far less risky, but they are also more valuable.

customer service online presence the people you employ your pricing strategy your marketing materials: I met a financial adviser recently who told me he looked after high-net-worth individual clients, was extremely good at what he did and as a result charged a premium. But he then gave me a business card on very flimsy paper that looked like it had been printed as cheaply as possible

Employees Do you have an employee incentive plan whereby employees are rewarded based on performance? This could either be a profit share-based plan, or ideally an employee share ownership plan. This substantially reduces one of the key risks for buyers – that your employees will exit when you do!

    

6

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BUSINESS STRATEGY / SUCCESSION PLANNING

7

Corporate governance and compliance Corporate governance and compliance is often ignored by business owners as either something only large businesses need to worry about or something that’s simply too hard and far too boring.

Focusing on this area can add considerable value (particularly when we look at attracting the right type of buyers), as well as reducing risk.

8

Owner dependence The business must be able to run independently of your involvement.

For example, you must be able to leave for two months for a holiday in Europe without contacting the office, while the business maintains, continues and even improves its performance in your absence.

EXTERNAL AREAS When it comes to external areas, the question to ask is ‘what do we need to prepare to attract the right buyer (who will pay more)?’

Having bought and sold several businesses over the last 15 years, there are several factors that stand out to me when answering this question:

1

Strategic buyer For every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers.

The most common example of this is complementary products and services.

Craig West is the president of the Australian chapter of the Exit Planning Institute. He is a strategic accountant who has over 20 years’ experience in advising business owners. His practice, Succession Plus, provides mentoring, advice and strategy for clients looking to prepare their business for a successful exit.

He is currently working on a PhD in Business Succession and Exit Planning. Visit successionplus.com.au for more information

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2

Information memorandum (IM) document It is amazing to see the number of businesses, which are otherwise quite valuable, whose owners are prepared to sell up on the basis of a cheap, home-made flyer-style document. A wellprepared IM will be able to attract and convince the right buyer.

3

Tax planning Every exit has several different elements of taxation; nearly always CGT, often stamp duty, and sometimes other taxes as well. Inadequate planning in this area can cost you a large percentage of the sale price in taxation.

4

Due diligence and documentation Many transactions fall over at this point, but this can actually be used to assist in

improving the value of the business. If all of your documentation is complete, accurate, up to date and demonstrates a well-managed business, it will support your value proposition, not detract from it.

The business must be able to run independently of your involvement

5

Negotiation Being in a position to create some competitive tension by attracting several of the right buyers is a good start, but the conduct of the negotiations and discussions leading to the actual sale is a very important aspect of the process.

6

Legal agreements Often business owners are concerned that legal agreements will ‘scare off the buyer’, but this is very rarely the case.

Far more importantly, legal agreements need to be structured to protect you after the sale, particularly around the key issues of any warranties, assurances provided, and also any event or finance included as part of the sale terms.

7

Corporate advisers Business owners should not try to sell without the best advice. Well-represented businesses are generally taken far more seriously and are perceived to be far more valuable than those without representation.

A corporate adviser who has a reputation for selling good-quality businesses automatically positions your business in that category.

Importantly, post-exit you also need assistance with asset protection, estate planning and ongoing investment planning. The change from business owner to self-funded retiree is substantial.

KEY OUTCOMES The correct implementation of the items outlined above will achieve two key outcomes: maximise the value of the business and successfully extract that value upon exit.

THE WORLD’S

STATISTICS

BIGGEST RISKS

In January, the World Economic Forum produced a report examining the 31 biggest risks facing the world today. It was intended as a ‘stimulus for discussion’ for world and corporate leaders at the recent WEF event in Davos. It was put together with the assistance of Marsh & McLennan Companies, Zurich, Swiss Re, the National University of Singapore, Oxford University and the University of Pennsylvania.

Here are its conclusions Source for all data: World Economic Forum Global Risks Report

TOP 10 GLOBAL RISKS OF HIGHEST CONCERN IN 2014

1

2

3

4

5

6

7

8

6

Fiscal crises in key economies

Severe income disparity

Global governance failure

10

Profound political and social instability

Structurally high unemployment/ underemployment

Failure of climate change mitigation and adaptation

Food crises

Water crises

Greater incidence of extreme weather events

Failure of a major financial mechanism/ institution

The decline of trust in institutions, lack of leadership, persisting gender inequalities and data mismanagement were among trends to watch, according to survey respondents. Experts added further concerns including various forms of pollution, and accidents or abuse involving new technologies, such as synthetic biology, automated vehicles and 3-D printing.

IBIS

The global risks landscape

Fiscal crises Climate change Unemployment and underemployment

Water crises 5.0

Biodiversity loss and ecosystem collapse

Critical information infrastructure breakdown

Extreme weather events

Cyber attacks Political and social instability Weapons of mass destruction

Failure of financial mechanism or institution

Income disparity

Global governance failure Pandemic

Natural catastrophes

Food crises

Average 4.56

Antibiotic-resistant bacteria

Liquidity crises

4.5

Data fraud/theft Man-made environmental catastrophes

State collapse Terrorist attack

Oil price shock

Interstate conflict

Economic and resource nationalisation Failure of critical infrastructure

Corruption

Impact

4.0

Chronic diseases

Decline of importance of US dollar

Mismanaged urbanisation

Organised crime and illicit trade 3.5

Likelihood

4.0

4.5

5.0

5.5

4.31 Average

The risks considered high impact and high likelihood are mostly environmental and economic in nature: greater incidence of extreme weather events, failure of climate change mitigation and adaptation, water crises, severe income disparity, structurally high unemployment and underemployment and fiscal crises in key economies.

MARCH 2014 | 51  

The social side of the insurance industry isn’t just about networking evenings and swanky parties – professionals from across the spectrum also spend a lot of time and effort raising money for charity. Here’s a small snapshot of some recent (and upcoming) events featuring members of the insurance community

SOCIAL LIFE

TOT

ANZIIF DOES FROCKTOBER The Institute’s team raised $1,033.50 for ovarian cancer research during Frocktober. Some particularly enthusiastic male staff members frocked up for the month’s finale celebrations.

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QBE FIGHTS CANCER THROUGH GENE THERAPY The QBE Foundation has announced a new charity partnership with The Kids’ Cancer Project that will assist one young cancer patient in their battle to overcome one of the most common, but least understood, childhood cancers.

Through a $100,000 grant from the QBE Foundation, The Kids’ Cancer Project will be able to support a child to

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D:

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undergo an innovative cancer gene therapy trial at the Children’s Hospital at Westmead in Sydney.

The Cancer Gene Therapy Program aims to find a way to better treat children with brain tumours and is the first trial in Australia to target bone marrow with gene therapy in an attempt to protect the cells to allow for an increase in chemotherapy dosage.

SOCIAL LIFE

THE DUAL AUSTRALIA 20KM CHALLENGE IN 2013, DUAL Australia employees and key brokers each committed to completing 20km – by any means – for charity. DUAL Australia donated $5 per kilometre run/walked, $2 per kilometre cycled and $10 per kilometre swam to the Make-A-Wish Foundation.

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MARCH 2014 | 53

WOTTON + KEARNEY GET ON THEIR BIKES Each year Wotton + Kearney identifies a charity to work with as part of the firm’s pro bono and corporate social responsibility program, ‘Community Footprint’. This year the firm is partnering with Royal Far West, an organisation which provides health services to children living in rural and remote New South Wales.

This month, Wotton + Kearney will support Royal Far West by participating in their ‘Ride for Country Kids’ – a three-day, 468km cycle ride from Dubbo to Wagga Wagga. Two teams of four cyclists from Wotton + Kearney will join four other teams for the ride with the aim of raising more than $50,000 for Royal Far West through various fundraising initiatives.

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SOCIAL LIFE

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BIZCOVER SUPPORTS NEW BUSINESSES BizCover has partnered with the National NEIS Association which administers the New Enterprise Incentive Scheme (NEIS). This program provides job seekers with accredited small business training and mentoring to help people turn a business idea into a viable business.

BizCover will provide financial support, special discounts for NEIS participants and insurance-related learning opportunities through speaker sessions, webinars, videos and other content. It also has a dedicated point of contact to assist anyone on the program with general advice.

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Favourite things...

Rhys Mills, Solution Underwriting What do Vitamin C, steamed dumplings and Ricky Gervais have in common? They all find favour with the MD of Solution Underwriting, Rhys Mills Place to be: New York – it’s everything people say it is and more. It’s great to see all the usual tourist spots but it’s even better to just go there for a couple of weeks and just hang out and live like a local.

Drink: I love a beer and a glass of red wine but if I honestly had to choose just one drink it’d be orange juice. I drink gallons of it a week.

Book: I love a good biography. I just finished reading Arnie’s [Schwarzengger, of course] and it was surprisingly good!

Food: I usually can’t go past a good steak but I’m addicted to steamed chicken and prawn dumplings from a little place near the Solution offices on Flinders Lane in Melbourne. They’re ridiculously good – it’s not unusual for me to down more than 20 in one sitting so I have to ration myself to only going once in a while.

Music: I’ll just say that I never offer up my iPhone at a party if music is needed.

Too embarrassing.

Celebrity: I’d have to say Ricky Gervais for The Office, Extras and his stand-up.

Comedy gold.

Vacation spot: Until last year I was probably one of the few Australians who’d never been to Bali and I had no great desire to go there.

After having to go there for a friend’s wedding I’ve completely changed my mind. I went back a second time last year and am even heading back there with my family for Christmas and New Year this year.

Sport: AFL. Collingwood. Let’s leave it at that.

Movie: I’d have to say The Godfather. It’s probably a pretty common favourite but it’s just such a perfect movie in every way.

Godfather Part 2 is also amazing, but let’s not talk about Part 3…

Best thing about working in insurance: It would have to be the people. I’ve met some of my closest friends working in the insurance industry.

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THE LAST WORD

Don’t call us

Darren Trott explains why proactive customer service is the biggest change insurance could make to improve its image

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Darren Trott is executive general manager of Claim Central

Our industry has a rather unique dilemma.

Unlike many other industries, our customers view the purchase of our products begrudgingly.

Insurance is often seen as a necessary evil. It’s one of those things they must have, rather than something they’d like to have.

That grouchiness about insurance is often compounded when it comes time for customers to make a claim. After all, a claim arises after something has gone wrong in their world. Their car has been involved in a smash. The roof has blown off their factory. A family member has been injured. It’s the time when our customers actually see something tangible from their earlier purchase. We know it as ‘the moment of truth’.

So what do our customers expect at this point?

What needs to happen to ensure their experience is a positive one?

• Our customers expect to be treated with respect, and to be shown empathy and understanding.

• They expect their policy to respond to the loss they’ve sustained.

• They want to understand the steps in the claim process and the timeframes involved.

• They expect to be kept informed of developments and to be consulted should things change.

It seems so straightforward when you read those four points. However, I believe our industry has struggled to consistently get on top of this. Can we honestly say we’re taking major steps forward?

Every day, brokers express their frustrations at the time spent on behalf of their customer, chasing an update from the insurer, or the loss adjuster, or other service provider in the claim chain.

Every day claims staff dream of making proactive calls to insured customers but instead find themselves resigned to the fact that their workloads prevent them from doing so.

Every day customers take to social media to tell their friends, and the rest of the world, of their negative experience after someone has stuck to

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their call centre script.

To be truly proactive with customer service, we need to solve the problem before the customer calls. How do we go about doing this?

First, we must identify and analyse the reasons why customers call, mapped against the customer experience life cycle.

We must then create solutions for each of the identified issues.

Traditional processes and rules need to be challenged, deconstructed and revolutionised around what the customer wants, rather than justified with excuses of “that’s our process and I’m sorry if you don’t like it”.

In today’s world, technology can replace labourintensive processes yet still keeps the customer informed – for example, an SMS message sent to the customer’s phone, advising of the next step in a claim, or an online portal allowing the customer or their broker to interact during the claim process in real time.

Even so, nothing can replace the voice of an understanding and compassionate industry professional, so we must also be sufficiently resourced to stay ahead of the customer curve. In these key areas the cost focus needs to shift away from ‘headcount reduction’, instead asking “what investment can we make to guarantee consistently exceptional service?”

Our industry continues to grapple with the concept that we’re an insurance service industry.

We’ve got hundreds of insurance products providing cover for almost any risk you can think of, but when the moment of truth arrives, it’s service which defines customers’ experiences.

We still have considerable ground to make up before our industry is widely recognised for delivering consistently positive customer outcomes.

There’s light at the end of the tunnel for those prepared to embrace this cultural change. For those who don’t embrace it, perhaps it’s a freight train instead.