Insurance Business 2.01

INSURANCEBUSINESSONLINE.COM.AU ISSUE 2.1

BILL SHORTEN "People know who brokers are, but not what you do"

FARM INSURANCE REAPING A HARVEST FROM THE GROUND UP

PROPERTY INSURANCE BUILDING AWARENESS AND BUSINESS

RECRUITMENT THE HARD WORK IS KEEPING STAFF

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CONTENTS AND EDITORS LETTER / 2.1

8

COVER STORY

Bill Shorten The view from the hill on brokers, sales changes and industry evolution

NEWS ROUND-UP 4 | The big five The biggest stories in insurance broking 6 | ASIC watch What has the regulator been up to lately?

COVER STORY

22

Farm Insurance Does a big country equal big opportunity?

8 | Bill Shorten On raising awareness of broker benefits

FEATURE

FEATURES

Property Insurance Market builds for sound cover

14 | Farm Insurance How can brokers profit in this space?

20 | Farm Insurance Change is taking place and at pace 22 | Property Insurance Awareness grows in a stable market 46 | Spoken or Implied?

What you don’t say or know may cost you

BROKING INTELLIGENCE 32 | Business strategy: recruitment Hiring is one thing, keeping them is another 36 | Business strategy: sales Sales mistakes you should avoid 40 | Business planning The what, how and why of making and running a plan 42 | Social Media Plans Taking those baby steps into a new world

2 | FEBRUARY 2013

14

FEATURE

INSURANCE INSIDERS 28 | Anthony Day Suncorp’s CEO on challenges to commercial insurance 48 | Katherine Simmonds Ironshore Australia executive director talks mergers and acquisitions 50 | Stats How are brokers embracing technology?

52 | Social life Women in Insurance wrap up 54 | Favourite things Broker Adam Korth on cool beer, cricket and making a difference.

56 | The final word Innovation will be the game changer in 2013

WEEKLY INVESTIGATIONS NOW ONLINE: Supermarket giants sharpen pencil on insurance Put policies online for greater client take-up?

Warning given on online branding insurancebusiness online.com.au

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A GOOD STORY WELL TOLD? COPY & FEATURES ACTING EDITOR Jason Spits SENIOR JOURNALIST Robin Christie CONTRIBUTORS Cameron Brown, Tarquin Taylor PRODUCTION EDITOR Carolin Wun

ART & PRODUCTION DESIGNER Ginni Leonard

SALES & MARKETING NATIONAL SALES MANAGER Peter Smith COMMERCIAL DEVELOPMENT MANAGER Tom Neville COMMUNICATIONS MANAGER Lisa Narroway MARKETING EXECUTIVE Anna Keane TRAFFIC MANAGER Abby Cayanan

CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Jason Spits tel: +61 2 8437 4789 jason.spits@keymedia.com.au Advertising enquiries Commercial Development Manager Tom Neville tel: +61 2 8437 4766 tom.neville@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, Toronto 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

In a former role as a journalist I wrote about life insurance from time to time and was once publicly challenged at an industry forum as to why I seldom had lead stories related to life insurance but plenty related to investments.

The answer to that question was easily stated – life insurance lacked the ‘zing’ of investments. It is not that insurance is the hidden sister of financial services – often it’s the ugly sister.

Insurance pays out when things go wrong and few people like to think of their livelihoods wiped out, their businesses crippled, houses destroyed or even their own health and wellbeing in jeopardy from an adverse event.

Insurance is not attractive, necessary yes, but attractive – no. As Mark Bouris stated so well in the last edition of Insurance Business “insurance is a grudge purchase”.

In the wake of the recent natural disasters across Australia there are lots of grudges – against insurers for having the audacity to offer a service and then knock back claims because the people chose not to purchase the service they actually required.

There is also a lot of work being done by those insurers to help where they can with many brokers on the ground doing extraordinary amounts of legwork to prove the benefits of insurance advice.

Yet there is also a lot of work to be done around educating people regarding the perils of underinsurance and non-insurance.

In our cover story, the Minister for Financial Services and Superannuation Bill Shorten says the federal government has done some work in providing greater education around insurance including clarifying flood definitions.

He also claims that brokers are not the only option for providing insurance cover and other channels have their role to play. This is consistent with government not advocating for any part of the industry and brokers accept this as part of our free market system.

The question that follows is would as much work around education – both before and after major events – be necessary if good advice was part of the insurance purchasing process?

The direct and online worlds are here to stay and so is the provision of insurance products through them. The challenge for brokers is how to promote the value of insurance advice and make it cost effective so that consumers will come through the door.

Jason Spits, Acting Editor, Insurance Business

CONNECT

Contact the acting editor: Printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

jason.spits@keymedia.com.au FEBRUARY 2013 | 3

NEWS / ROUND-UP

THE BIG

LEVIES

DISASTER INSURANCE DISCUSSION REQUIRED

FIVE

The biggest news stories from insurancebusinessonline.com.au HELPING HAND

CLAIMS

OMBUDSMAN: ‘INSURERS GOT IT WRONG’

The Financial Ombudsman has claimed insurers erred in not paying some claims, following the 2011 floods, and have overturned two-thirds of the cases heard against insurers.

After the disaster, 59,000 claims were lodged and of those rejected by insurers, only 2% (or 1,182)appealed to the ombudsman of which two-thirds have since been overturned.

BROKERS GET ONLINE CHAMPION

A former broker has promised to paint brokers as “knights in shining armour” via a new website and online social media campaign.

Get Informed director Kate Fairley says the site aims to change consumer perceptions of the general insurance industry after consumers have been conditioned to believe they don’t need a ‘middle man’ any more.

“Get Informed wants consumers to be insured – adequately – through general insurance brokers, because that’s where they’re going to get the best products, the best advice, and the best coverage in the event of a claim,” Fairley says.

REBUILDING

QUEENSLAND GOVERNMENT WANTS INSURERS TO PAY FOR FLOODS

Queensland Community Recovery and Resilience Minister David Crisafulli responded to ICA chief executive Rob Whelan’s call for more to be spent on flood mitigation by stating there was a role for the ICA, and that he would approach the ICA about contributing to the cost of building levees.

However, the ICA has rejected this stating that protecting communities was the role of all levels of government who should be meeting the costs of mitigation, and not looking at passing these on to the insurance sector.

Despite the difference in how mitigation would be funded, the ICA says it “is pleased Queensland Premier Campbell Newman and his government see permanent flood mitigation infrastructure as crucial to ensuring the future of many flood-prone towns, including those hit twice in the past two years.”

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AUSTRALIANS’ STARTLING DISTRUST OF INSURERS REVEALED Many Australians believe insurers avoid paying out after natural disasters and underpay when they do agree to a claim.

UMR Research surveyed 1,000 people, with 69% agreeing that insurers avoided paying and 61% saying they underpaid when agreeing to a claim.

The survey also found that about half did not know if their home was covered for disasters such as bushfire and cyclones, stated UMR managing director John Utting. ‘’People know more about their phone bill than their home insurance policy conditions.’’

Comments by Queensland Federal Member for Parliament Warren Entsch for the federal government to underwrite disaster insurance to reduce premium costs in disaster-prone regions prompted brokers to call on a wider discussion on disaster insurance.

Enstch said the scheme would be funded via a levy and used to help insurers negotiate cheaper rates with re-insurers, while also providing for the first $500m in damages in the event of a natural disaster.

Dennis Keating from Lea Insurance Brokers says the recent repeated flooding in Queensland and bushfires in Victoria highlights the need for a national discussion on insuring people who live in areas that are disaster prone.

Northwest Insurance owner David Coe says the recent disasters also highlight the need for a national disaster levy to deal with natural disasters across the country, which could replace the terrorism levy but provide for relief in the event of such an attack.

NEWS / ROUND-UP

ASIC

WATCH The latest insurance industry meddling from the government’s corporate wrist slapper

some websites there was insufficient disclosure relating to website operators who were related to the issuer of the insurance brands being compared and the operators of websites are not appropriately licensed or authorised to provide financial services.

ASIC ACCEPTS ENFORCEABLE UNDERTAKING FROM BROKER

ASIC has accepted an enforceable undertaking (EU) from Paul Meier of Findon, South Australia to permanently refrain from providing financial services following an investigation into his conduct as a director and responsible manager of Barker Meier Insurance Brokers Pty Ltd (BMIB). In offering the EU, Meier acknowledged the views held by ASIC as a result of its investigation that on 16 occasions he submitted loan applications containing false information and was advanced the loan funds which were used by Meier to meet the business expenses of BMIB. Meier was a director and 50% shareholder of BMIB which held an AFSL and engaged in insurance broking in both Adelaide and Melbourne.

ASIC STRIKES BLOW FOR BROKERS IN ONLINE BATTLE

The industry regulator has warned operators of insurance comparison websites to be compliant with their obligations under consumer protection laws. ASIC has already identified a number of concerns with some comparison websites, such as a limited number of brands/products from a limited number of providers. This may not be clearly disclosed which creates the impression that the extent of comparison is much broader than it actually is. ASIC’s focus on insurance-specific comparison websites found that on

VICTORIAN INSURANCE BROKER PLEADS GUILTY TO THEFT

An insurance broker has pleaded guilty to three counts of theft totalling more than $660,000 of clients’ money.

Bruce Wickett of Frankston, Victoria, the sole director of Wickett Investments Pty Ltd and Wickett Insurance Broking Pty Ltd pleaded to three counts of theft totalling $662,198.39 between August 2010 and March 2011.

The stolen funds were insurance premiums being held on behalf of 228 clients.

FORUM FORCES “Not before time this was uncovered. I have noticed how one goes around and around and around only to come back to the fox guarding the hen house.“ Mark Thomas on ASIC warning insurance comparison website to be compliant with consumer protection laws.

“The biggest worry/stress being a broker is the continual negative publicity insurance brokers get through the media, and the continual competition from direct insurers such as Allianz and QBE direct.”

Chris Caldicott on work-related stress on the rise.

“I would love an insurance company to ask a brokerage ‘what do you, as our customer, want?’ and once they have the answers set about delivering. If the brokerage then delivers on their promises and the

6 | FEBRUARY 2013

insurer delivers on theirs, surely we have a very healthy and hopefully profitable business relationship.”

Graham Gulliford on 10 things insurers can do to help their brokers.

“So insurers got it wrong ? Out of almost 59,000 claims, 1,182 appealed to the Ombudsman... only 2% in total ! If you ask me, insurers got it right.”

Ian on the Financial Ombudsman claiming insurers erred in not paying out on some claims made after the 2011 floods.

“Nothing like lots of competition to keep prices down and encourage more innovation. Not a reason to worry at all.”

Robert Cooper on brokers concerned about the levels of industry competition and the difficulties of keeping staff.

INTERVIEW / BILL SHORTEN

ARE NOT THE ONLY OPTION A man touted as a future leader of Australia, finance minister Bill Shorten sits down with Insurance Business to discuss the role of brokers, how they can raise their awareness and the importance of remembering that brokers are not consumers’ only choice

8 | FEBRUARY 2013

Insurance Business: How would you review 2012 as a year for you and your office? What achievements are you most proud of?

IB: How effectively have the benefits of the National Disability Insurance Scheme been relayed to state governments and the wider public?

Bill Shorten: 2012 was a year in which we made a lot of significant and at times difficult reforms in the financial services portfolio. We moved to improve consumer rights in the insurance sector by establishing the legislative framework for a standard definition of flood and the provision of a key facts sheet. Through FOFA we are creating a more competitive, client-focused market for financial products and advice, to ensure Australians can access good quality financial advice and give the financial services industry a stronger foundation for future growth.

BS: The Commonwealth, and all state and territory governments have been and will continue to work closely on the NDIS. At the meeting on the 28 July 2012, the Council of Australian Governments agreed that, as a first step to settling the design of the NDIS, consultation should occur with people with disability, their families and carers, the workforce and disability sector and peak bodies. These consultations occur through a number of mechanisms established across the Commonwealth and States and Territories.

Five formal engagement mechanisms are being used to enable participation of stakeholders, including

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“While I believe that consumers generally understand what insurance brokers are, consumers are not fully aware of the important role that insurance brokers play in the market” Bill Shorten

FEBRUARY 2013 | 9

INTERVIEW / BILL SHORTEN

people with a disability, their families and carers in the decision-making process and at key points in design and implementation.

IB: You claimed the recent Insurance Contracts Amendment Bill will mean less red tape for insurers and better disclosure for consumers. Why is that is the case?

Lindi Heap Photography, lindiheap.com.au

BS: The Insurance Contracts Act 1984 is now close to three decades old. At the time of the Act’s commencement, products offered by insurers and the state of market were vastly different from today.

Today we see an increased reliance on electronic communication and a more diverse range of insurance product offerings. These changes, while generally beneficial, pose challenges for both consumers and insurers. The Insurance Contracts Amendment Bill addresses these challenges by

introducing measures to give effect to reforms that improve the operation of the Act. The measures will reduce complexity and provide certainty.

The Bill makes changes to enable insurers to provide statutory notices and documents to consumers electronically. This will not only reduce compliance costs for the insurance industry, but will also bring the insurance industry in line with other industries.

It will also provide life insurers with additional flexibility in the types of remedies they can use when they are dealing with situations where an insured has made an innocent misrepresentation or fails to comply with the duty of disclosure.

Lastly, the Bill will ensure consumers provide better disclosure before entering into contracts, reducing the scope for disputes when a claim is made.

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IB: How are you helping to solve Australia’s underinsurance problem?

BS: There are problems with both non-insurance and underinsurance in Australia.

For non-insurance, where consumers do not hold insurance for some of the risks they are exposed to, the government is helping to provide better information about risks, so that people can make better decisions about getting the insurance cover they need. One example of where we’re doing this is through the introduction of the National Flood Risk Information Portal.

The government is also looking at ways to address affordability issues, for example by reducing risk through mitigation. For underinsurance, where consumers do not hold adequate cover for the losses they suffer, the government is improving transparency so people are better aware of the level of cover under their policies. The introduction of the Key Facts Sheets will draw attention to the difference between concepts such as ‘sum insured’ and ‘total replacement value’.

IB: How have you seen the insurance industry evolve since the impact of the 2011 floods? Is it somehow a better industry for that tough period?

BS: Following the 2011 floods, the government has undertaken a series of reforms to make flood insurance simpler and more effective. The government has enacted regulations that give effect to the standard definition of flood to which all insurers must comply. This policy makes it easier for people to know what they are covered for, and what they are not covered for. If they have flood coverage, they now know that it covers events that fall within the terms of the standard definition. The government has enacted regulations to require the provision of Key Facts Sheets for home building and home contents insurance policies. Providing consumers with easier access to key information will help ensure consumers are able to make more informed decisions about their insurance policies.

The government has recently launched the National Flood Risk Information Portal to assist the community, planners and insurers to access important flood information about their local area. This portal provides more information for consumers

“An insurance broker may be able to assist consumers to find insurance for flood coverage that best suits their needs” Bill Shorten and helps them make more informed choices. The portal is part of the $12m, four-year National Flood Risk Information Project initiated by the Australian Government in response to the Natural Disaster Insurance Review.

The insurance industry has also been improving its own flood information database to assist insurers to better assess a property’s flood risk.

After the floods of 2011, the government asked the Insurance Council of Australia to publish data on flood insurance take-up rates, on a state-by-state basis, setting out the number of policies that include flood cover. The number of policies which include flood insurance has increased significantly in recent years, from only 3% in 2006 to an estimated 81% today. The increasing take-up of flood cover is a sign that consumers are better informed about its availability than ever before.

The Insurance Council has made some significant improvements to the General Insurance Code of Practice since the 2011 floods. Since those floods, the National Insurance Broker’s Association has developed an online tool for consumers to find a broker close to them.

IB: How do you view the role of insurance brokers in the Australian market? Are there any changes afoot that could impact insurance brokers?

BS: Insurance brokers play an important role in the Australian insurance market. The government made two significant reforms to the Insurance Contracts Act, the introduction of a standard definition of flood, and the requirement for insurers to provide an Insurance Key Facts Sheet.

These reforms will ensure that consumers have access to key information when making their insurance decisions.

FEBRUARY 2013 | 11

INTERVIEW / BILL SHORTEN

NDIS’ FIVE FORMAL ENGAGEMENT MECHANISMS

“Following the 2011 floods, the government has undertaken a series of reforms to make flood insurance simpler and more effective” Bill Shorten In recognition of the fact that an insurance broker’s role is to assist their clients in securing appropriate insurance cover, insurance contracts entered into by consumers through insurance brokers are generally exempt from these reforms.

The exemptions provided to insurance brokers recognise that insurance brokers are under a duty to determine what their clients’ insurance needs are and whether they want to be covered against flood when arranging insurance on their behalf.

Insurance brokers will also be subject to the FOFA reforms that commence on 1 July 2013. This includes the requirement to act in the best interests of the consumer and the ban on conflicted remuneration.

These reforms will result in consumers being at less risk of receiving advice that is influenced by the payment of commissions.

However, in recognition of the different nature of insurance (as compared to an investment product) and the need to avoid introducing barriers to consumers obtaining adequate levels of insurance, the application of these requirements have been modified in relation to insurance, and therefore this would extend to insurance brokers. For example, an alternative best interests duty may be utilised by insurance brokers when advising on general insurance products. In addition, an exemption from the ban on conflicted remuneration has been provided for general insurance and life insurance products. The government provided these concessions for insurance products to ease the burden on the industry to help address the problems of underinsurance.

While, it is important to recognise the role that insurance brokers play in the insurance market, insurance brokers are only one of many options open to people when they are seeking information on or making decisions in respect to their insurance needs.

12 | FEBRUARY 2013

NDIS ADVISORY GROUP...

provides independent advice to the Select Council on Disability Reform from expert groups, bilateral meetings with state-based advisory groups and peak bodies and the NDIS Your Say Forum.

EXPERT GROUPS...

provide technical advice to the Advisory Group on Choice and Control; Eligibility and Assessment; Quality, Safeguards and Standards; and Workforce and Sector Capacity.

NATIONAL DISABILITY AND CARERS ALLIANCE...

is leading grassroots engagement across the country, through forums with people with disability, their families and carers and service providers on the design of the NDIS, reporting to the Advisory Group monthly.

‘NDIS YOUR SAY’...

online forum which commenced in June 2012 seeks feedback from the wider public on key questions.

NDIS LAUNCH TRANSITION AGENCY...

is undertaking a co-design process on operationalising the high level scheme design. This is being supplemented by a range of other engagements at the local level.

IB: Do consumers fully understand the role of insurance brokers? Can more be done to raise awareness of the benefits of using an insurance broker?

BS: While I believe that consumers generally understand what insurance brokers are, consumers are not fully aware of the important role that they play in the market. In June last year the government was pleased to see the National Insurance Brokers Association (NIBA) announce a service to provide advice to consumers through the establishment of a 1300 phone number and the enhancement of its ‘need a broker’ website. These services will enable consumers to access valuable information about insurance and what services a broker can provide.

These initiatives are raising consumer awareness of the role that brokers play in the insurance market.

In addition to raising awareness of the benefits that insurance brokers may provide, NIBA has also released a revised Code of Practice, setting voluntary industry standards. NIBA has indicated that, after an extensive program to promote the Code, the Code will come into force from 1 January 2014.

FEATURE / FARM INSURANCE

DOWN ON THE Farm and agriculture insurance is a massive market in rural dominated Australia. So how can brokers profit from the space?

Across the 7.6 million square kilometres of land we call Australia, the farm and agriculture industry remains not only one of the country’s most important and profitable industries, but also one of the most iconic. There is a pride that every Australian takes in its farm industry, noted by most local product being emblazed with an ‘Australian produce’ label of pride.

Farming matters to Australians. As with all forms of industry, its sustainability is in the hands of a competent insurance infrastructure. And as with many insurance issues, the space plays well into the hands of insurance brokers who have the knowledge to navigate clients through the options and implications of their cover.

Before we evaluate the broker opportunity, what trends and patterns are defining the Australian farm and agriculture insurance space at the moment?

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“The space is relatively competitive with several new entrants trying to establish market share but most still offering only standard or vanilla-style products,” says Peter Book of Primacy Underwriting Agency. “Like most sectors, there has been pressure on rating and efficient use of capital which has caused some insurers to take another look at their probable maximum loss (PML) estimates and seek more information on the precise location of the risks they are insuring.

“Previously you could be forgiven for thinking that some insurers were using crop insurance as a way to access a growers farm insurance package but the wider results on farm pack insurance have not been that good, with many insurers pushing through significant rate increases. On that basis we expect to see more and more that insurers will require crop insurance to stand on its own as a sustainable

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product line and this may see some insurers review their rating approach,” says Book.

Andrew Beer, head of sales and distribution, broker and agency, CGU Insurance, says it has been a challenging time for both customers and insurers of late. “As the frequency and intensity of severe weather events have increased, insurers have had to adjust the way we view and price risk,” says Beer.

“Finding that balance between affordability and availability is something we continue to work on.

“Farmers understand the importance of having a robust insurance policy to protect their livelihood in the event of an incident. Our policies have been developed by underwriters with knowledge of the risks and challenges faced in the country. In periods of drought and low commodity pricing, insurance is still vital for farmers to protect their assets in times of uncertainty. Equally, insurance provides the

protection required to enable financing and purchase of high value assets to enable expansion in the good times,” says Beer.

Heath Amber, managing director of Millennium Underwriting Agencies says farm, rural and agricultural insurance is being reduced to a few speciality underwriters while rates are increasing.

“With underwriters withdrawing representation from rural areas and relying on brokers and agents to procure business and to source appropriate rural markets for clients, these markets are reducing,” says Amber.

CHALLENGES AHEAD So how well are brokers performing in farm and agriculture insurance?

“There is no doubt our brokers are doing it tough,” continues Amber. “In recent times, rural

FEBRUARY 2013 I 15

FEATURE / FARM INSURANCE

Australia has been hit with the force of mother nature. There have been drought, fire, flood, and storms. The impact of events not only effects insurance and brokers alike, but take a massive toll on communities economically and emotionally.

“Loss of life and destruction to property, livestock and businesses is a very present reality.

Millennium’s network of brokers are all entrenched

“Farmers understand the importance of having a robust insurance policy to protect their livelihood in the event of an incident” Andrew Beer, CGU Insurance

CGU’S FARMING AND AGRICULTURE OFFERING

in local community, making this a very real personal and professional challenge. Our brokers in my opinion have a huge responsibility locally when it comes to farm and rural insurance to help rebuild business, property, families and lives. From where I sit at Millennium, our network of brokers have done a great job and continue to do so,” says Amber.

“Farm and agricultural insurance continues to be an attractive line of insurance for our brokers and authorised representatives,” says Beer. “As Australia’s largest regional and rural insurer, CGU has a strong network of experienced insurance advisers that provide the right advice for their customers.”

SHOWING VALUE Book says brokers in the agricultural space face similar challenges to those in the wider industry.

“The critical factor seems to be in getting a quality relationship with your client whereby you can get

Andrew Beer of CGU Insurance says the insurer’s suite provides:

FARM INSURANCE Domestic Building and Contents; Farm Property; Agricultural Machinery; Theft; Hay, Fencing & Livestock; Business Interruption; Liability; Machinery Breakdown; Personal Income; Road Transit.

FARM MOTOR INSURANCE Sedans & Wagons; Goods Carrying Vehicles; Agricultural Vehicles; Farm Motorcycles.

CROP INSURANCE Including broad acre, cotton and sugar cane.

LIVESTOCK INSURANCE Including cattle, sheep and horses.

EQUINE AND RECREATIONAL HORSE INSURANCE VITICULTURE INSURANCE “Our Countrypak product combines 10 different sections of farm and agriculture insurance ensuring brokers and authorised representatives can offer the essential insurances for their customers, under one easy pack,” says Beer. “It also prompts consideration of cover including income protection, an invaluable addition for farmers who rely on their physical health to operate their businesses.”

16 | FEBRUARY 2013

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AUSTRALIAN FARMING OVERVIEW

$3

135,996

BILLION

Australian farmers spend $3bn on natural resource management, managing or preventing weed, pest, land and soil, native vegetation or water-related issues on their properties Australian Bureau of Statistics, Natural Resource Management on Australian Farms

$28.5

BILLION

Australian farm exports earned the country $28.5bn in 2009/10 ABARE Australian Commodity Statistics 2010

There are 135,996 Australian businesses with agricultural activities

93% Australian farmers produce almost 93% of Australia’s daily domestic food supply

Australian Bureau of Statistics, Agricultural Commodities

373,560 There are 373,560 people directly employed in Agriculture, Forestry and Fishing

Australian Bureau of Statistics, Labour Force Australia

Australian Government Department of Agriculture, Forestry and Fisheries, Australian Food Statistics

past the point where the insured only looks at the price of the insurance and they start to look at the quality of the insurance they get for their dollar,” he says. “Many of the brokers we deal with have stories of growers making decisions off the back of 30-second phone calls that start with ‘what’s your rate in ____shire’ and if you don’t have the lowest number the call ends rather abruptly.”

Book says once brokers are able to get the growers to understand the differences in the various cover types and show that a five or 10% difference in premium can potentially double a claim payment the whole basis of the conversation changes. At this point they can have a genuine discussion about how much risk the grower is willing to retain and at what cost to their bottom line if they do take the cheaper insurance option.

“We know from other product lines that one of the bigger challenges brokers have is dealing with massive rate changes from one year to the next and we try and cushion these in crop insurance and spread changes in rating approaches over several seasons,” says Book.

“The other challenge seems to be access to underwriters and prompt turnaround of documentation. These are some of the reasons we have moved to employ a business development manager and commit resources to the development of an improved online system for the broker fraternity.”

But is agricultural insurance something that a more general broker can move into? Or is it only specialist brokers who can succeed in this space?

“Before a broker tries their hand at crop insurance they have to understand that it is different to other types of insurance,” continues Book. “Particularly when it comes to the insurance of annual crops like wheat or cotton which in many respects is more akin to business interruption insurance than property damage insurance. These coverages generally respond using the cumulative effect of the insured perils over the course of the growing season and exclude losses from any uninsured perils that occur to try and achieve a genuine state of indemnity. This is important because if an uninsured peril destroys a crop after it has been affected by an insured peril then the policy may respond with a nil claim – even if the insured peril had not occurred the crop would have been lost.”

Book says insurance for the annual crops tends to be written over a short time period with a great deal of activity in August and October, and brokers need to very familiar with the product offerings of their different markets prior to this busy period.

“It really is important that the wordings are well understood and that brokers have example claim scenarios in their heads or at their fingertips to help growers understand what they are buying with their hard-earned dollars,” says Book. “Obviously, dealing

FEBRUARY 2013 I 17

FEATURE / FARM INSURANCE

“Our brokers in my opinion have a huge responsibility locally when it comes to farm and rural insurance to help rebuild business, property, families and lives” Heath Amber, Millennium Underwriting Agencies with a specialist crop insurance underwriting agency can be a big help as they should be ready to assist brokers and provide supporting documentation and assistance if and when required.”

OPPORTUNITIES ABOUND If you are a broker with the right skills, why should you be keen to look towards farm and agriculture insurance? What’s the opportunity?

“There are many differing covers available,” says Amber. “A broker has the knowledge and local experience to advise clients on the right type of cover for them in a similar way the client may rely on his agronomist, lawyer or accountant for advice.

Insurance to a person involved in the rural sector is a form of risk management.

“To borrow the tag line from one of our major broker networks ‘We work for you’, brokers work for the client and provide advice accordingly. The insurable risks in rural Australia haven’t reduced and are becoming a lot more sophisticated with the next generation. A broker offering this class of business in these areas has a huge opportunity.”

What does the future hold for farm and agriculture insurance? Where is the space heading?

“From our perspective, Millennium’s broker market is selected from Australian broker networks who operate in regional Australia,” continues Amber. “Millennium’s rural product offering has exclusivity to these broker networks. Our network of producing brokers is fast becoming a specialty area, with those brokers who understand the rural sector gaining a greater share of the rural market as they can offer better advice to the clients.

“I believe the insurable risk and physical property in the rural sector has not changed, unfor18 | FEBRUARY 2013

WHY OFFER FARM INSURANCE? Andrew Beer, head of sales and distribution, broker and agency at CGU Insurance offers five reasons why brokers should be offering farm insurance:

01 02

Australia has a large regional and rural market with approximately 134,000 farm businesses

03

griculture is a major component of the national A economy, and provides plenty of scope for good brokers and authorised representatives here tends to be more loyalty with rural business T when a customer is comfortable with the service and advice provided by their broker. Some customers have been insured with CGU through the same broker for several decades

04 05

pportunity to play a role in securing the ongoing O financial stability of the nation’s farms through providing appropriate policies

pportunity to up-sell additional rural classes such O as Motor, Crop and Livestock, but also opportunity in other areas such as Travel, Pleasure Craft & Workers Compensation

tunately the number of farmers, block owners, pastoralists, graziers, etc, is reducing as it becomes a matter of economies of size in the rural sector. The smaller farmers are being bought out by larger operators, and in some classes of the agriculture industry larger corporate operators are taking over smaller holdings. It is becoming harder for the smaller rural operations to remain viable.

“As pointed out, the upside remains; the larger operators still require insurance to protect their assets so there will still be a demand for this class of business into the future. The insurance industry must continue developing more flexible products to cater for change and shift in the rural and agricultural sector,” adds Amber.

“The spate of severe weather events in regional Australia during the past few years has highlighted the importance of insurance and the need for professional advice to ensure cover is adequate and placed with a safe and reliable insurer,” says Beer.

“CGU works to improve its product and service offering for its brokers and authorised representatives. We’re also working to adapt some of our existing policies to better suit the needs of our regional non-commercial farm properties.”

Q&A / FARM INSURANCE

FARM INSURANCE:

THE DIRECT VIEW

Jon Fox, general manager of QBE’s direct arm Elders Insurance, offers a view from the opposition to brokers on the current state of farm insurance in Australia. What can you learn from these direct approaches?

Insurance Business: What types of farm and agricultural insurance do you offer?

Jon Fox: QBE offers a range of rural and related insurance products through both their intermediary distribution channels and the Elders Insurance Agency network. ‘Elders’, in particular, is synonymous with serving the needs of regional and rural Australia. It offers a range of flexible rural insurance products that can be individually tailored to meet the specific insurance needs of rural producers including Farm, Stud Stock, Equine and Crop Insurance.

What general trends and patterns are you seeing in the farm and agriculture insurance space at the moment?

JF: As consolidation in the farming sector continues, we are seeing an increase in intensive farming production techniques and the adoption of new technologies as a result of the continued drive to maximise output. This includes development of more sophisticated farm machinery and equipment, and the use of satellite technology to guide and control spraying and cultivation equipment.

The farms that have invested in valuable infrastructure, plant and machinery, and that have spare capacity, are looking at contracting to supplement the cost of the investment in these assets. This can have a significant impact on both the property and liability risk exposure for these assets. Conversely, there is an increasing trend towards lifestyle 20 | FEBRUARY 2013

properties and there is a prevalence of these on the fringes of major metropolitan and regional centres.

These properties aren’t usually working farms and this presents a number of unique considerations in relation to insurance exposures. While farmers have always looked for multiple income streams, we are witnessing a move beyond the traditional mixed farming enterprises of cropping, livestock and agistment. Many farmers have begun smaller, boutique activities involving branding, marketing, on-farm packaging and product distribution. In terms of reducing the significant overheads of a commercial farm, more farmers are also hiring contractors, machinery and equipment rather than directly investing in these assets themselves. These expanded operations and changing practices add a further dimension to a farm’s insurance program.

Underinsurance continues to be a significant issue industry-wide and Elders Insurance works diligently with its farm customers each year to ensure sums insured are comprehensively reviewed and updated where needed.

What are the biggest external influences that can impact farm and agriculture insurance?

JF: Climatic variability. The extreme natural disasters that have occurred in recent years have highlighted the severity of extreme weather events in Australia. These natural disasters have resulted in rising insurance premiums in certain segments

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of the market, reflecting a reassessment of risk and rising reinsurance costs. With the potential for more frequent extreme weather events, it is reasonable to expect that farms will increasingly seek to understand, develop and adopt risk management strategies to manage uncertainty, spread risk and maintain business viability. It is important that we continue to maintain strong engagement with government at all levels, especially in relation to flood risk mitigation. As an industry, we can fill the gap by offering a product, but this must be supported by a range of mitigation activities implemented by governments.

What does the future hold for farm and agriculture insurance? Where is the space heading?

JF: A key challenge for the industry and the government is to increase awareness of insurance options as part of a broader role in building capacity to manage risks. This could include farm risk management training programs with a specific focus on issues such as farm safety, hay cutting and baling practices, haystack management, property

maintenance and bushfire risk reduction.

We will continue to see innovation in farming practices to further boost yields, use water more efficiently and reduce production costs. This includes the development of large and more sophisticated farm plant and machinery, and also the use of satellite technology to guide and control spraying and cultivation equipment.

We are seeing an increase in intensive production processes including growing crops in controlled commercial sized “hot houses”. By growing in these controlled environments, farms are reducing the risk of loss due to extreme weather conditions such as heat waves, hail and cyclones. This practice is allowing farmers to increase their production to multiple crops per season. In response to this changing landscape, and working closely with Elders Insurance, QBE has made a significant investment in technology to allow more granular profiling and pricing of farming risks. These systems have been designed to reward farmers for investments in infrastructure that lower their exposures to some insurable events.

“With the potential for more frequent extreme weather events, it is reasonable to expect that farms will increasingly seek to understand, develop and adopt risk management strategies to manage uncertainty, spread risk and maintain business viability” JON FOX, GENERAL MANAGER OF ELDERS INSURANCE FEBRUARY 2013 I 21

FEATURE / PROPERTY INSURANCE

BRICK BY

BRI

As awareness of the importance of property insurance grows, brokers need to be poised to profit from the huge market needing cover and advice

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CK Property insurance is a contentious issue in Australia.

It is a vital piece of cover but, from residential clients to large corporates, from issues around flood cover to strata insurance disputes, it is a minefield of information and expertise. As ever, this leaves brokers in a good position. Clients, particularly in the commercial end of town, know they need comprehensive cover in place. Educated brokers can use this desire to their advantage and ensure clients feel knowledgeable about the cover they have taken out. So what is the lie of the land for property insurance in Australia today?

“In a country which has been known to be consistently and heavily underinsured, we have been seeing a growing awareness in owners to have their property adequately insured,” says Julie Cavallo from St George Underwriting Agency.

“The recent spate of natural disasters, including the Queensland storms and floods, tropical cyclones, storms in Victoria and the outbreak of bushfires in parts of Western Australia as well as this year’s fires in the eastern states has caused property owners to rethink their levels of cover.

“The flow-on effect of these natural disasters has seen general price rises as claims costs rise with demand for property insurance still remaining quite strong despite the increase. A large part of

these price increases has been to cover the rapidly growing cost of catastrophe reinsurance for the insurers,” says Cavallo.

Tony Jackson from St George Underwriting Agency adds: “There’s been a tendency by insurers to remove cross-subsidies between territories.

These cross-subsidies are manageable when things are going well, but become untenable when they are not. The highest profile effect of this adjustment has been the rate at which insurance pricing in North Queensland has increased.”

Darren O’Connell, executive general manager, commercial portfolio & underwriting management with Suncorp Commercial Insurance says there have been significant price rises in property insurance premiums since the string of catastrophic weather events that hit Australia and New Zealand in recent years.

“The rise in property premiums appears to have slowed in the last six months, but increases are still running ahead of the consumer price index (CPI) despite values being relatively flat,” says O’Connell.

“The rise in property insurance premiums has emphasised the gap between businesses that have sound risk management practices and those that don’t. Business owners with property assets that have an inherently higher-risk profile and who are

FEBRUARY 2013 | 23

FEATURE / PROPERTY INSURANCE

not implementing best-practice risk management are likely to see that reflected in higher premiums.

There continues to be sufficient capacity in the property insurance market and plenty of competition,” O’Connell says.

Brooklyn Underwriting general manager David Porteous adds that the price rises have combined with a drop in the number of insurers willing to take risks in trouble-prone areas.

“What we have seen in the past 24 months is a combination of a couple of major trends in the property insurance space, the first of which is the steady increase in the property insurance rates across the board and massive spikes in rating for catastrophe-exposed locations,” Porteous says.

And this is unlikely to change in the short term with Porteous stating there is a ‘floor’ underneath property insurance rates which will hold for at least a year or two and may even be strengthened by major property losses in Queensland and Tasmania.

TYPES OF PROPERTY INSURANCE

DARREN O’CONNELL, EXECUTIVE GENERAL MANAGER COMMERCIAL PORTFOLIO & UNDERWRITING MANAGEMENT WITH SUNCORP COMMERCIAL INSURANCE: “There’s not much Vero doesn’t do when it comes to property insurance, from specialist packages through to Industrial Special Risk (ISR) policies. Vero’s risk appetite has expanded over recent years and continues to grow in size and scope. Increased involvement with the mining industry, manufacturing and small to medium sized wholesalers are a few examples. A recent area of focus from Vero is an improved offering for mid-sized businesses.

Property insurance is often the largest single insurance spend for a business after Workers Compensation, so having a solid offering and market-leading claims service is a priority for Vero. The relationship with Lend Lease allows Vero to reinstate damaged property quickly and with minimal disruption to the client and broker.

The Lend Lease model is a distinct advantage for Vero in the marketplace.”

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“Secondly, we’ve seen a massive retraction in the number of insurers generally willing to consider risks in catastrophe-exposed areas. Strata insurance in North Queensland is a perfect example where a few years ago the choice of insurers was probably triple the number available today. The difficult thing is, with the recent flooding events in Queensland and Northern NSW, available capacity for insurance in these areas may reduce even further!”

BEING PROACTIVE So what of the influence of brokers in property insurance?

“Brokers have had to deal with price rises for their clients, although we have found these rises were not as significant as some clients had expected given the string of catastrophic events and extensive publicity of the upward pressure on premiums,” continues O’Connell. “This is particularly the case for large businesses that exercise sound risk management practices.”

O’Connell says brokers are increasingly taking a proactive role in the risk management of a client’s business and looking to their insurer to be more directly involved.

“The trend is for brokers to place greater emphasis on forming a tripartite relationship with their client and insurer so that the risks that a business faces can be holistically examined and addressed.

“An insurance policy is an important component of a business continuity plan but there are other aspects that also require attention. Bringing the combined expertise that comes from a genuine partnership between a business, broker and insurer is the best way to ensure a business survives and thrives into the future,” he says.

O’Connell states there has been a rise in the degree to which brokers are tailoring cover to match the specific needs of the clients. For example, if a business has a particular reliance on a specific customer or supplier, the broker is able to ensure that an extension is in place that adequately addresses that risk.

“With property insurance having lower margins than the bigger commercial lines for brokers, being able to transact business quickly with reduced

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paper handling and administration time is important,” says Cavallo. “With this in mind, we have developed an on-line quoting and cover placement system which is drastically reducing the handling time for brokers. We are also seeing an increasing number of brokers using our ‘Fleet’ style of policy where individual investors can have a portfolio of multiple properties on the same policy. For many brokers, when handling residential property insurance, the pay-off comes in having the ability to handle larger volumes of business with minimal administration.”

Cavallo says the property insurance market is one of the largest areas of insurance in Australia with growth being fuelled by fear created by uncertain weather events. Demand for well-priced,

“The trend is for brokers to place greater emphasis on forming a tripartite relationship with their client and insurer so that the risks that a business faces can be holistically examined and addressed” Darren O’Connell, Suncorp Commercial Insurance

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FEATURE / PROPERTY INSURANCE

“In a country which has been known to be consistently and heavily underinsured, we have been seeing a growing awareness in owners to have their property adequately insured” Julie Cavallo, St George Underwriting Agency TYPES OF PROPERTY INSURANCE

JULIE CAVALLO FROM ST GEORGE UNDERWRITING AGENCY: “St George Underwriting Agency (SGUA) is a niche market underwriter that specialises in products for residential investment properties.

Our four main products are: 1. Landlords Protection Policy – includes cover for the building and owner’s contents, with the option to add cover for deliberate damage and/or rent default by tenants. The cover is flexible and can be tailored to suit an owner’s individual needs.

2. Property Owners Extra Protection insurance – a fixed-price-per-state product that includes covers for rent default and tenant damage. This policy has the advantage of nil excess on all tenant damage and default claims and is priced well below an average week’s rent.

3. Holiday Home Insurance – includes building & contents, loss of rent, and damage by tenants cover. Suits owners with a weekender, short-term holiday homes or a second home they rent out occasionally. This product is also flexible with choices in levels of cover.

4. Holiday Unit Insurance – this package is a fixed-price-per-state product and is suitable for owners with a property in a strata complex or resort, or a holiday home if the building is insured elsewhere. Offers cover for owner contents, liability, loss of rent and tenant damage.”

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reliable products for residential properties will continue to see growth for those well-placed to offer the capacity.

“The specialist advice and individually-tailored cover that a broker is able to provide their clients remains central to a broker’s value proposition,” says O’Connell. “Larger business can often have dozens of extensions to their property insurance policy and this requires guidance from experienced professionals.

“In an environment of rising premiums, brokers have the opportunity to work directly with business owners and insurers to reduce the risk profile of the business operation. As property is a significant component of a business’ insurance spend, addressing fire and storm damage risks can reduce premiums.

Vero’s underwriters and risk managers are increasingly partnering with brokers to lower the risks in a business’ operations, which puts downward pressure on insurance premiums,” he says.

According to Porteous, the brokers he deals with are becoming more thorough and better prepared when presenting property accounts for consideration by underwriters.

“I think this is in part being driven by the ‘hardening’ of the property market where the placement of the more difficult risks is certainly not a walk in the park and every cent of commissions is being earned,” he says. “The better-prepared broker and more informed underwriter can only be a good thing for all stakeholders in the property insurance purchasing system. “

GOING FORWARDS So what does the future hold for property insurance and how can brokers prepare for this?

“Technology continues to play an increasing role in how the insurance business is transacted and how claims are processed,” says O’Connell. “Insurers are standardising and simplifying underwriting questions to make it easier for brokers to transact business. The demands of customers are for greater speed and greater quality when it comes to claims processing, so insurers need to be innovative in

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order to respond to these demands.

“Whilst technology will be an increasingly important tool, the fundamental elements of human relationships and trust will remain central to the future of the insurance industry,” adds O’Connell.

“During these turbulent times, we have seen the broker support for our products increase faster than in any previous period,” says Cavallo. “We believe this is due to our stability, fair and flexible underwriting approach, and competitiveness. We have found that brokers like to talk to people when they need to, provided the people can say more than ‘computer says no’.”

Porteous says brokers need to dig deeper in regards to what they can do and what they can offer to clients. “The opportunity for brokers lies in their ability to specialise in a certain property class where they can provide a value-add for their client on top of simply obtaining cover at the right price. I would also encourage brokers to come to grips with the benefits of business interruption covers for all commercial property accounts.

“We see this as one area in particular as being the least understood but perhaps one of the most important areas of cover when the unthinkable does occur.”

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FEATURE / SUNCORP

INDUSTRY CHALLENGES FOR 2013 Anthony Day, CEO of commercial insurance at Suncorp, takes a look at the challenges facing the insurance industry – and brokers – in 2013 ECONOMIC While weather conditions look benign compared to past years – although adverse weather events can never be discounted – the economic outlook for 2013 still remains stormy for the commercial insurance industry and the industry in general.

Consequently, the major focus – and challenge – in 2013 for the insurance industry is investment markets and the domestic and global economies, with the drop in bond yields in recent years putting unavoidable upward pressure on premiums.

This is especially evident with long tail products and particularly pronounced for the personal injury classes of Compulsory Third Party (CTP) and Workers Compensation.

Not only is the bond market a challenge for the industry, but also to regulators of personal injury schemes, especially when containing the cost of living is a priority. The balancing act for governments and insurers is becoming a real issue in ensuring personal injury schemes are viable and sustainable.

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It is important to act before the market is distorted to the extent that every time an insurer writes a CTP policy they’re losing money. Clearly that would be unsustainable and industry must continue to have dialogue with governments to find an appropriate solution.

There are very early signs the world economies are slowly recovering and, with the US due to introduce a raft of legislated tax increases and spending cuts early in 2013, there seems to be a glimmer of hope on the global horizon.

Domestically, the continued economic outlook is on the lower side of the long-term trend, most notably the impact on asset values, turnovers driven by lower consumer confidence, high net savings and the very high Australian dollar.

From a commercial insurance perspective, the subdued economy has put pressure on SMEs, with underinsurance a real threat to small businesses.

To counter the poor investment market, commercial insurers are likely to be looking at ways to

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COMING NEXT ISSUE...

Insurance Business sits down with XXXXX XXX XXXX XXX XXX XXX

FEATURE / SUNCORP

“Brokers should not ignore technology, including social media, to attract customers” Anthony Day

reduce their costs through simplifying their businesses and reviewing premium levels.

COMPETITION The Australian commercial insurance industry faces increased competition, particularly in specialised market niches, with Lloyd’s and like syndicates looking to the more benign Australian market in response to unhealthy markets elsewhere.

There is also growing competition through vertical integration, with reinsurers moving to insurance and brokers acquiring agencies.

Increased capacity will remain a large factor in a competitive market and possibly exacerbated by new entrants. The counter to this is the need for acceptable returns following a number of poor years and the economic environment’s impacts.

Suncorp remains committed to its expertise in risk selection and pricing and will not be swayed by any irrational pricing in the market.

PEOPLE A challenge facing the industry is rewarding and retaining specialist skilled staff. Previously, specialist achievers were rewarded by promotion to managerial roles. Some are not comfortable in such roles and insurers may find they are losing skilled specialists who are bogged down in administrative duties. The industry needs to move away from the traditional promotional pathway and look to rewarding such staff in a more meaningful way.

DISTRIBUTION Commercial insurers will need to ensure in 2013 and onwards they have the ability to match their channel focus to the preferences of their customers, be it direct or through intermediaries, such as brokers and authorised representatives.

Technology will increasingly play a role in the distribution of commercial insurance products to 30 | FEBRUARY 2013

customers in 2013. Some are ‘shopping around’ online, particularly smaller SMEs, while others require specialised needs and will continue to turn to brokers to help them.

Brokers should not ignore technology, including social media, to attract customers. Likewise, brokers should ensure they use technology in conjunction with insurers to make it easier and faster to deliver the end product.

There remains the challenge of commercial insurance becoming commoditised. However, brokers should not see this as a threat but as a reason for their existence. The broker has an opportunity to explain the need for tailored insurance to suit the needs of the customer – not one size fits all.

The impact of the bond market and the global economic climate should also be seen by brokers as an opportunity to explain how this impacts on the customer’s insurance and ensure they provide the customer with appropriate cost-effective cover within a subdued economy.

UNDERINSURANCE Despite renewed efforts by the industry and the impact of weather catastrophes, SMEs continue to be underinsured, through ignorance of the risks and covers; denial; or economic pressures. Recent research shows many small businesses believe they are adequately insured, until disaster strikes and realise too late their business may not recover.

Brokers and the industry as a whole must continue to play a key role in ensuring customers are adequately insured and understand how insurance is an integral part of their day-to-day business.

CONCLUSION While the industry faces a number of challenges, it is well placed to respond and grow in 2013.

Its resilience has been clearly demonstrated after the major catastrophes in recent years. It has shown its ability to quickly recover from adversity and surge forward.

The year 2013 gives the insurance industry the opportunity to build on the many lessons it learnt from the various cyclones, floods and earthquakes – to be there for its customers.

2013 should be the ‘Year of the Customer’ where the commercial insurance industry can clearly focus on ensuring it provides its customers and the community with a variety of products and services tailored to their needs.

BUSINESS STRATEGY / RECRUITMENT

STAFFING FOR THE LONG HAUL

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Recruitment isn’t about finding the right people. It’s about keeping them.

Insurance broking can be a lonely occupation. Many brokers run small, one-man operations. But when the time comes to bring new staff onboard, it’s important to make certain you find recruits who fit your business.

Company culture is a bit of a nebulous concept, but Hays Insurance director Jane McNeill says cultural fit both from an employer and employee perspective is one of the most important criteria when it comes to hiring or joining a company.

“By considering not only a candidate’s technical skills but their cultural and team fit, an organisation is far more likely to get recruitment right the first time. There are countless cases where a potential candidate may look impressive on their resume and excel in the required technical skills, but ultimately fails to fit in with the team or align with the organisation’s way of doing business, its values and its belief system,” McNeill says.

“In these cases, their actual on-the-job behaviour is inconsistent with the values and expectations of the team they are working with and the organisation as a whole. They are then not able to make the best possible contribution and this can be costly to the organisation.”

CANVASSING FOR CANDIDATES

recruitment agency specialising in brokerage industries, says brokerages have unique needs when it comes to new hires that traditional recruitment agencies may not understand.

“I’ve produced a fact find document that asks what they’re looking for in terms of clientele, the business they’re expected to write, the stress levels involved. The placement of those brokers is really important. I fact find right down to the nitty gritty of what people are looking for rather than, ‘I’d like a broker please’.”

Pibworth, a former broker herself, focuses on thoroughly screening applicants to ensure she only delivers qualified candidates to brokerages. She says she helps potential brokers tick all the administrative boxes – including association membership, training and licensing – before trying to place them with a brokerage.

“The time used for going away and doing their training, and then taking a few days to do their courses and assessments is all time taken away from writing business. So if I can deliver candidates to the interview process who already have those essential qualities, then they can start being trained in terms of client time, product knowledge and accreditation, and they can be sitting in on interviews as opposed to more training,” she says.

Finding any candidates – let alone the right ones – can be a task in itself. Sorting through CVs can seem like an onerous task. After all, anyone can make themselves sound good on paper. This is where a recruitment agency can help separate the wheat from the chaff. Carla Pibworth of Pathways, a

Personality testing can be a vital part of ensuring the staff you hire both fit the culture of your company, and stick around for the long haul.

Recruiting employees who are the right fit for your

FINDING THE RIGHT FIT

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WHY EMPLOYEES LEAVE The latest report from recruitment company Robert Walters found that:

80% of those surveyed would leave a role if there wasn’t sufficient career progression available – and 79% of hiring managers had been given a lack of career progression as a reason for leaving a role.

75% of those surveyed ask specifically about career progression during the interview process.

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More than half (55%) of those surveyed actively search for job advertisements that promote career progression – yet only 37% of organisations address it in their job adverts.

65% of organisations only address career progression in the later stages of the recruitment process.

company is easier said than done – so it is not surprising that the use of psychometric testing to screen job applications is on the increase, even for non-client facing roles.

Understanding how to optimise personality – or psychometric – tests can help you find employees with specific traits that are best suited to the position you’re trying to fill, Paul Forti, from USbased PCM Management Consultants, said in a recent interview. He listed the following points as essential to keep in mind to ensure the effective use of psychometric tests: Make sure they’re legal: Not all tests are equal in the eyes of the law. If a test is not properly created or administered, it could be considered discriminatory.

Hiring an experienced personality testing firm or consultant can also mitigate your risk, but that can end up costing a lot of money – depending on the scope of the testing, number of employees, and type of test administered.

Create a detailed job description: It’s critical to understand the job for which you’re hiring before you apply the test. If you need a salesperson who is 34 | FEBRUARY 2013

outgoing and good with people, you’re going to be looking for a different personality type than someone who works with numbers in the office all day.

Choose the test that measures what you need: There are many different personality tests available to employers, measuring everything from ‘morality’ and ‘integrity’ to whether a person is an introvert or extrovert. Be sure that you’re measuring the criteria you need for the position you wish to fill – or you’re wasting your time.

Be aware of the test’s limits: While reputable tests can tell you what personality traits a person has, the tests can’t tell you whether the person will succeed in the job. Work environment, management style, corporate culture, practical experience and training all have significant impact on the performance of an employee. A test can tell you some things about an individual, but it should not be used in place of extensive interviewing and reference-checking.

McNeill says while many employers are turning to psychometric testing to explore a candidate’s ethical behaviour, preferences and motivation, it is important to remember they are not a cure-all solution. Rather, a person’s track record remains one of the best predictors of their future performance and is something that can be explored in face-to-face behavioural-based interviewing.

“Behavioural interviews allow you to see how a candidate approaches various work situations and whether their behaviour matches the way your organisation conducts business. You can also then see if the candidate’s attitudes and behaviours are shared by your business,” McNeill says.

“We recommend behavioural-based interviewing in order to determine how a candidate acted in a previous role, which gives an indication of their future performance. This provides deep insights when attempting to uncover their integrity and standards of business conduct.”

“These interviews can also help determine the ethics of a candidate and identify not only the technical skills you want but also their integrity and standards of business conduct. Pay attention to any

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red flags during an interview, such as if a candidate is evasive, tries to control the interview or is argumentative. This provides an insight into their professional conduct.

KEEPING QUALITY PEOPLE Finding good staff is of little use if you can’t keep them. Staff retention can be tricky in mortgage broking, with brokers looking to strike out on their own as they gain more skills and build up their own client contacts. But Richard Manthell of recruitment company Robert Walters says providing a path for career progression can keep new recruits around for the long haul.

“Organisations need to recognise career progression as a major motivator, and make the most of every opportunity to promote their brand as an employer of choice throughout the recruitment process. Not doing so is a wasted marketing opportunity.”

Research from the company suggests that the best professionals want to join organisations where good career progression is offered, Manthell says. “So, from the moment a potential employee reads a job advertisement through to when they sign their employment contract, they should feel that their future career progression is a priority for your organisation.”

If this is done successfully, not only will it be easier to source quality professionals but also easier to retain them, Manthell adds.

A recent Robert Walter report offered the following key lessons for companies looking to retain quality staff: Recognise career progression as a motivator: Having something to aspire to and achieve is a major personal motivator for many. Presenting pathways to progression is just as important as any other aspect of a role.

Make first impressions count: The job seeking process is often the first contact with a brand, and the first impression is formed by the job advertisement. Ensure your job advertisement presents a persuasive, accurate reflection of a role and what the organisation can offer. Not taking the time to

“By considering not only a candidate’s technical skills but their cultural and team fit, an organisation is far more likely to get recruitment right the first time” Jane McNeill, Hays Insurance

include some basic information on what progression opportunities are available is a wasted branding opportunity.

Career progression is not always a promotion: Education, training and professional development is the most sought-after career progression offering – so ensure they are articulated and on offer from the start.

Don’t overpromise: Overpromising and not delivering leads to staff disengagement, and also damages your employer brand. Being honest about what you can offer and what candidates can expect, as well as following through on progression opportunities will ensure you recruit and retain the best candidate for longer. Make sure expectations are aligned from the beginning of the recruitment process.

Set consistent organisational standards and development programs: Career progression programs should include one or more of the following – development planning, talent identification, performance feedback, internal mobility, and training and development.

Provide tools to manage career progression: Give your employees the opportunity, and encouragement, to take control of their own careers. Give them the necessary tools and feedback to progress and support their goals. Performance reviews and development planning are vital to this process, but ensure goals are measurable and that the individual is accountable.

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BUSINESS STRATEGY / SALES

SALES STUFF-UPS YOU CAN

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AVOID Doug Mathlin explores how avoiding common missteps can boost sales and energise your business DOING SHORT-TERM NEEDS ANALYSIS AND PROVIDING SHORT-TERM SOLUTIONS The average rate of client advocacy is low in many industries and the insurance broking industry is no different. Clients can come to realise in the first few years that their arrangements are not right for them in the long term (or their situation changes). Unfortunately, this can create doubt about the value/worth of the original broker and many clients ‘walk’ as a consequence. Brokers should understand the short- and long-term goals of each client to ensure that they can provide the best structure at the outset and for the future. They should also ensure that the client understands that if their circumstances change, they should meet with their broker to discuss new strategies.

NOT EDUCATING CLIENTS THAT YOU’RE SELLING RELATIONSHIPS AND ADVICE, RATHER THAN TRANSACTIONS Most clients contact a broker because they’ve decided they need to examine their insurance needs. Brokers don’t really need to ‘sell’ product; the client has already bought into that. Clients will often only focus on what they need now and not even think about what brokers really do. The broker’s job is to fully understand their clients’ needs, provide advice where appropriate, and educate their client on how they will assist them with insurance for the long term. I hear some brokers tell their clients that they are their ‘personal broker’ – which hopefully means that the client will turn to the broker first when they next want to insure.

ONLY MEETING CLIENT NEEDS RATHER THAN EXCEEDING THEM Experienced brokers are often guilty of just doing enough to complete the transaction and not finding a way to do the 1% extra. Client

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“Experienced brokers are often guilty of just doing enough to complete the transaction and not doing the 1% extra”

someone help the client complete the fact find and you will more likely have a very pleased client who is willing to recommend your services.

Sending a high-level fact find to identify the client and to ensure that they are a serious buyer is fine – but not using a 10-plus page questionnaire.

Doug Mathlin satisfaction comes from needs being met; client loyalty begins when client expectations are exceeded.

Top performers will often check to make sure that they over-deliver to every client.

EXPECTING THE PROSPECT/ CLIENT TO DO THE WORK FOR YOU Sending a detailed needs analysis to a prospect who doesn’t know you and expecting them to complete it is not a good way to engage with them.

Firstly, some people will not be willing to complete it due to the personal nature of the questions, while others won’t have the information required at their disposal. Most brokers’ value propositions are about saving clients time and money. Brokers should make it easy for people to do business with them. Have

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NOT HAVING A SYSTEM OR PROCESS TO FOLLOW AT THE POINT OF SALE OR BEYOND IT ‘Winging it’ is never a good presentation plan. Salespeople need to be professional communicators who can articulate their message clearly. Many brokers turn up to client appointments and ask ‘how can I help?’ and make it up from there. Take control of future meetings by setting the agenda and keep clients on track with what you are doing. You are the one being paid for this meeting, therefore you should control it.

Great salespeople have anecdotes to back up their experience and to sell their knowledge. Top performing salespeople have a sales presentation plan and structure that they follow and have the ability to adjust it to the differing personality styles of their prospects.

Keep a record of the questions that you need to ask each client. Prepare to deliver your key messages

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(eg, your value proposition, your personal experience, your referral program) and anticipate any unasked questions.

NO URGENCY TO PERFORM One of the things that brokers can do to outperform the competition is to provide a truly personal service to each client and referrer. The energy and enthusiasm of the salesperson are the things that the client will remember well beyond the premium rate. Quickly reacting to client needs (and anticipating them) is a great way to demonstrate your care and commitment to them.

Set yourself a benchmark to respond to all client enquiries in less than an hour on average. Answer all inbound calls where possible. These are the little details that clients will remember.

NOT MANAGING CLIENT EXPECTATIONS One of the things that clients get annoyed/frustrated or confused about is ‘not knowing what’s happening with their policy/claim’. Brokers are engaged in this work all the time, whereas clients tackle this a few times in

their lives. As this is a really important process for the client and is a stressful time, the least the broker can do is to keep them informed about what is happening.

It’s important to provide clients with a flow chart on how things will progress in taking out a policy or making a claim. It’s also important to stay in contact with the client directly (by phone or email). In the early stages, it will pay dividends to call the client almost every day to let them know what is happening, to explain the next steps, and to ask this question: ‘when would you like to hear from me again?’

THE INABILITY TO SELL YOURSELF AND YOUR REFERRAL PROGRAM If you rely on repeat and referral business from clients, it is critical that you tell your clients about this. I’m always staggered by the number of brokers who ‘hope’ for referrals and recommendations rather than being direct about it.

Tell your clients why you are going to do the best you can for them and tell them how you generate business (ie, client referrals). Don’t ask for specific names of people that you can call but make sure they know how to repay you for your great service!

FEBRUARY 2013 | 39

BUSINESS STRATEGY / THREE ELEMENTS OF PLANNING

THE 3 KEY ELEMENTS

By combining bravery and ambition with a measurable and strategic approach to business planning, this year can be your most successful to date. Elixir Consulting managing director Sue Viskovic explains all When writing your business plan there are three vitally important ingredients that will ensure your plan is effective. Let’s call them the ‘three key elements of business planning’.

THE ‘WHY’ This is not ‘why should we create a business plan?’

– I’m assuming you’re reading this because you already know that the most successful businesses have an effective business plan, and you’re looking for some insight or inspiration to help you create your own effective business plan.

Simon Sinek has articulated the importance of ‘why’ before ‘how’ and ‘what’ in his book Start with Why. One of my favourite quotes from his book is when Sinek notes that, “[Martin Luther King Jr.] gave the ‘I have a dream’ speech, not the ‘I have a plan’ speech.”

In order for your business plan to be truly effective, you and your team must connect with it on an emotional level. The alternative is to just write one because you think you should, and for your staff to look at it/learn it by rote because you told them to.

Which option do you think will achieve better results? If you’re not clear on the overall vision of 40 | FFEBRUARY 2013

your business, you’ll be hard placed to create a business plan that delivers beyond what you’ve achieved previously.

Remind yourself why you started the business, what it stands for and why you’ve taken the risk to create it rather than go out and get a job… share that with your team and complete the next two steps with this vision and purpose firmly in mind.

THE ‘WHAT’ Now get specific – what is it exactly that you want your business to achieve in this period? We recommend thinking both in quantitative and qualitative terms.

• Quantitative ‘whats’ will typically be the financial measures you’re looking for – your annual turnover, your net profit figure, the average income per client (and therefore number of clients), etc.

• Qualitative ‘whats’ will be more about the quality of your business experience – perhaps you want to move offices, or you’d like your team to implement a community service of some sort – or the principals want to cut back and enjoy more time away from the office.

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In order to generate true power, your ‘whats’ have to be measurable and definable. ‘Increase our recurring income’ will not work nearly as well as ‘lift our recurring income to 45% of total revenue’.

Your qualitative ‘whats’ by definition may be harder to quantify, but you still want to be specific.

For example, ‘principal(s) to play golf once a week’.

Be brave when setting your ‘whats’! Don’t limit yourself – cast off the shackles of self-doubt and go for it! At this point, don’t allow external forces to limit your expectations of what you can achieve.

We have worked with many businesses that surpassed their previous highest annual growth figures during the GFC. You’ll get some reality when you look at your ‘how’, but at least start by aiming high. The worst that can happen is that you fall short of achieving the targets you’ve set – but you will likely find that by aiming high, you’ll still achieve more than what you would have had you set a more modest target.

THE ‘HOW’ Get specific about the activities required to achieve the targets you’re aiming for. It is at this point that you can have the greatest impact on achieving extraordinary things.

It’s one thing to set a BHAG (big, hairy, audacious goal) but the true value is in figuring out – and then implementing – what you’ll need to do in order to get you there.

An ambitious target can sometimes appear exciting on one day, yet overwhelming on the next.

As the saying goes – ‘how do you eat an elephant?

One bite at a time!’

There is a reason that the ‘what’ and ‘how’ steps are interconnected. You can start with either one – and revise each one after refining the other – until you get to a point where you believe that it is indeed possible to achieve what you’re aiming for. No doubt, you’ll want to be working smarter than you have in the past – but ultimately, you can see a clear path to achieve your ‘whats’.

First, determine your new client revenue target, work out the average amount you charge each new client, then determine the number of clients you need to achieve that figure. Divide this by the number of months that you actively see clients (allowing for holidays, and lead time from enquiry to implementation) and you have your monthly target. Then consider your conversion rate to determine the number of new enquiries you need to generate, and determine your enquiry target.

Then consider the marketing activities you can implement that will generate those enquiries.

Now you have some real information you can work with. Your ‘hows’ on your business plan will now be specific.

When you break it down to this level of specifics, you can now see each bite-sized portion of your elephant, and your target becomes much easier to swallow. What is really important is to then determine what you will do to enact the ‘hows’, and note these activities as specifics on your business plan. If you’re working to a one-page business plan you may need to simply state ‘implement marketing plan’, and dig into the detail in a separate document that is your marketing plan.

“Remind yourself why you started the business, what it stands for and why you’ve taken the risk to create it” You might find that, when you break it down, the activities aren’t all that onerous at all and you have the capacity in your current team to handle the additional workload with ease. At this point you might revise up your revenue target (one of your ‘whats’). Alternatively, if you simply don’t have the manpower – or the ability to generate the number of enquiries you need – then you can tinker with a few things: Perhaps you need to start attracting clients more suited to your offer, or perhaps it’s time to add a staff member (considering the impact this will have on net profit and therefore the income target).

Ensure you articulate the ‘hows’ to achieve each one of your ‘whats’ – including your qualitative ‘whats’. If you decide, for example, that your principal wants to cut back to four days a week, what has to happen to achieve that? Don’t forget to include the ‘what’ activities you will need to complete in order to maintain or service the existing/recurring income you’re generating. There’s no point working hard to bring in new clients if your existing clients are walking out the back door!

If you start at the right place – your ‘why’ – and define what you want to achieve and how you will get there, your business plan will hold meaning for you – and will be an effective blueprint to deliver the results you’re seeking in your business.

FEBRUARY 2013 | 41

FEATURE / SOCIAL MEDIA

HOW TO DEVELOP A SIMPLE

SOCIAL MEDIA PLAN

You might be daunted by the prospect of getting social media right for your brokerage. Muhammad Yasin presents a simple guide to get you on your way

42 | FEBRUARY 2013

Feeling overwhelmed by the world of social media is easy, especially if you have yet to take part in it.

Many businesses use it, have amassed hundreds of thousands of followers, built brand loyalists, and even generated sales leads.

Yet without any prior experience with social media, it might get frustrating as you ask yourself the many questions necessary to start up your social media plan: Where do I start? Which social media platforms are right for me? What is the right balance?

Social media is a cog in your marketing plan and should align with your other marketing goals, your branding, and with the way you engage your customers offline. You must have goals you want to reach before you actually begin the process.

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FIRST STEPS

REACHING OUT

Reserve your accounts An obvious but important first step, register the name of your business and the names of your products. Consistency is important through social media as a whole, but here particularly. If you use an anagram or a shortened spelling of your business on one account, you should use it on others as well.

Use a handle that will allow people to find you when they go searching. When you start registering accounts, sign up for every social media site you know of. Start with well-known sites like Facebook or Twitter, but do not neglect the sites such as YouTube, Pinterest, LinkedIn, and others. You likely will not produce content for all of these accounts, but it is a good idea to secure your company/brand names to ensure that others do not register, and use, them for negative purposes.

Find your following Different people prefer to interact using different types of social media. If you know that your customers focus on specific sites, go to those first.

Spending your time and content on Pinterest while all of your customers are on Twitter means you will lose valuable time in front of your audience. Search for the platforms with the most interaction, and go to that audience. Never completely neglect the smaller audience from the other sites, but spend your time where you stand to gain the best ROI.

Monitor conversations Imagine yourself at a party. How likely are you to jump into a conversation between two people without knowing what the conversation is about?

Hopefully, not very likely. The same should be true for social media conversations. Know what is being discussed through social media before jumping into conversations. Monitor what others are talking about. Use the search functions of the social networks to find out what people are saying about your industry keywords and your business and products.

Create benchmarks Your marketing plan brings in customers, attracts people to work for you, and says a lot about your business. Social media is part of your marketing and public relations. Any goals that are set as part of a social media plan should be relevant to your marketing and PR, as well as your customer service and sales initiatives. Once you begin interacting, check your performance against the benchmarks you have created. Using analytics tools, measure the engagement of your content, your brand consistency, and return on investment (ROI). You can adjust your plan as necessary.

Valuable content Content is one of the most important parts of social media. While a large part of social media is interaction, another large part is learning. People take to social media and follow different people because of their expert status. As a business, you are the expert, and the content you share should reflect that.

Blog your expert ideas and share them via social media. Remember, though, that sharing information via social media is not for the purpose of making sales. Instead, you are sharing information to establish a relationship with your followers. If your followers value your insight and expert opinion, they will come back to see you as a customer.

Muhammad Yasin is a public speaker, e-book author, and director of Marketing for HCC Medical Insurance Services.

In his role, Yasin is responsible for the brand building and lead generation strategy of several dozen social media accounts with over a quarter of a million followers

Response Again, social media is about building relationships, and your main goal when using social media should be growing those relationships. People reach out via social media because they want a response, so you should provide them some kind of response in return. Any reply from you will strengthen the tie between you and the customer. Once you have loyal

“Your social media plan should align with your other marketing goals, your branding, and with the way you engage your customers offline” FEBRUARY 2013 | 43

FEATURE / SOCIAL MEDIA

5 TOP SOCIAL MEDIA TIPS

1

RESERVE YOUR SOCIAL MEDIA ACCOUNTS

Register your business name and any brands that you own. There is no need to produce content right away, but do not let a competitor snap up your accounts. Start with the well-known ones (Facebook, Twitter, and YouTube) and expand from there.

2

MONITOR SOCIAL MEDIA CONVERSATION

It is to your advantage to monitor what others are saying about your brand and industry. Search your company names, brand names, and industry keywords using search functions. This is what you will need to talk about.

3

SET GOALS

Planning is vital. Social media should be integrated into your marketing efforts. Make a plan that supports the existing marketing goals and set

customers and brand evangelists, reward them through promotions. Mention and thank anyone who blogs about you. Keep track of your followers and note who is and who is not a customer. Remember that every person who interacts with you is a potential customer.

Generating leads Just like you use marketing to generate leads and help the sales team, social media should be used to drive revenue as well. Unless you are bringing in, or at least learning about, potential customers, then the time you spend on social media is wasted.

However, when you generate leads, different tactics are required for different social media platforms.

Facebook With over 1 billion users, Facebook is a powerhouse in social media platforms. Share your expertise on Facebook by linking to blog posts, articles, or other relevant information that your followers would find interesting and pertinent. Customers can ‘Like’ you and your business, and then your posts will appear in their feeds. Be careful about the amount you share, though: share too much, and you will bog down newsfeeds, which may lead to you getting “Unliked.” If your customers like your content, they can share it and make it appear on their own pages, and link back to yours, expanding your network into theirs. Facebook is a great medium for contests and other promotions, and that is a great way to reward your following.

44 | FEBRUARY 2013

benchmarks. Your actions in social media should support those goals, and the goals of the marketing plan overall.

4

INTERACT!

5

MEASURE PERFORMANCE

Creating and sharing relevant and interesting content is very important, but it is also very important to interact with your followers. Social media is about building a community on a personal level and building relationships. Building relationships can help your business’ bottom line.

As with any part of marketing, measuring your performance is vital to becoming more efficient and better overall. Set checkpoints to measure growth.

Divide tools into four categories: Content, Diagnostic, Monitoring, and ROI. Each will help you improve and adapt your social media plan overall.

Twitter Yes, the 140-character limit on each Twitter post is not a lot to work with, but used correctly it can capture the attention of your reader for just long enough to drive them to content or even to your website. Describe yourself well in your bio to give a better idea of who you are. Your Twitter icon should be an up-to-date head shot of you or your branding, so followers can identify you or your business. Stay relevant to your industry when you tweet. You should share a variety of content, but also engage in conversations. Make your tweets public, and use keywords and hashtags that will allow customers to find you. Twitter should be a natural conversation.

Pinterest Many people think that Pinterest is full of recipes and home decorating ideas, but there is so much more to it than that. If you leave out Pinterest, you are missing out on a world of potential followers.

Create boards that are relevant to the many aspects of your industry, and find great content you can pin to them. With Pinterest, you can gather some of the most creative pieces of content in the world all in the one place.

As you generate leads, ensure that you continue to engage your current customers. Focusing on leads is certainly important, but your established relationships will pay dividends if you keep them solid. Social media boils down to building relationships, and if you give it the right attention, your business will soon see great results.

FEATURE / LEGAL INSURANCE

LESSONS ON A BROKER’S LEGAL DUTY John Dillon, senior associate and Lauren Fieldus, solicitor at Wotton Kearney highlight how a recent court case involving Austbrokers provides lessons for all insurance brokers Do the implied terms of a retainer between an insurance broker and a potential insured compel the broker to particular actions? In Strategic Property Holdings No. 3 Pty Ltd v Austbrokers RWA Pty Ltd [2012], Justice Stevenson of the Supreme Court of NSW considered the matter and found that it is the duty of a broker to give advice as to the availability of different types of cover; the nature of any exclusions and limitations; and the material risks associated with the level of cover proposed, having regard to the value of the insured property.

BACKGROUND Strategic Property Holdings No. 3 Pty Ltd (Strategic) brought a professional negligence claim against Austbrokers RWA Pty Ltd (RWA) in relation to an industrial special risks policy (the Policy). While the declared value of the relevant property insured under the Policy was $22m, the sub-limit of liability for “accidental damage” under the Policy was only $200,000.

The roof of the property collapsed, causing significant damage. The Insurer admitted liability to pay under the Policy, subject to the accidental damage sub-limit. This left an uninsured loss of approximately $1.9m.

THE DECISION Justice Stevenson found that RWA had breached its retainer and duty of care, causing loss to the Insured.

It was common ground that RWA’s retainer included implied terms that in providing insurance46 | FEBRUARY 2013

broking services, RWA would: exercise all reasonable skill, care and diligence follow the instructions of the Insured The main issue to be determined was whether RWA’s retainer also included an implied term that RWA would advise the Insured on: the availability of different types of cover the nature of any exclusions and limitations the material risks associated with the level of cover proposed, having regard to the declared value of the insured property.

Justice Stevenson found that this term should be implied. In reaching this conclusion, His Honour considered expert broker evidence to the effect that a broker should: gain an in-depth knowledge of a client’s business and its risks draw to a client’s attention those areas where the client might be exposed satisfy himself that the client understands the policy being offered go through the various sub-limits with the client His Honour considered the circumstances and knowledge available at the time of the policy renewal. The wording of the sub-limit was standard. Furthermore, it was generally known within the broking industry (although apparently not by the broker concerned) that “accidental damage” was capable of causing significant damage. It was also common knowledge that accidental damage sub-limits above $200,000 were available, albeit at an increased premium.

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Ultimately, Justice Stevenson did not need to decide whether a broker’s duty includes the aspects suggested by the expert evidence; however, His Honour found that RWA was required to, at the very least: read the policy and see what it said about the sub-limit advise Strategic that the sub-limit meant that if the insured property suffered “accidental damage”, the insurer would only pay up to $200,000, despite the declared value of the property being $22m Here, RWA gave the insured no explanation of the sub-limit. RWA was of the opinion that Strategic should read the Policy schedule and work out the significance of the sub-limit for itself. Furthermore, the Broker had never read the definition of “accidental damage” under the Policy and had a flawed understanding of what it meant. The Broker was also unaware of alternative types of cover that offered much higher accidental damage sub-limits.

His Honour was satisfied that if the Broker had properly advised the Insured, the Insured would have requested that the Broker obtain cover with a sub-limit of $2m, and found the Insured would have paid the substantially increased premium.

The Broker alleged the damage should have been excluded under the faulty designs exclusion of the Policy or, alternatively, that the sub-limit did not apply. His Honour found that the Insurer had made the correct decision under the Policy but, regardless, this was irrelevant and did not affect the outcome of proceedings. Rather, the relevant question is what actually happened as a result of the Broker’s conduct.

Finally, the Broker alleged that the Insured had failed to mitigate its losses by declining to participate in proceedings brought by the Insurer against the engineers involved in constructing the faulty roof.

Justice Stevenson rejected this argument. The Insured had already unsuccessfully challenged the Insurer’s decision under the Policy in the ACT Supreme Court so, in these circumstances, it was not unreasonable for the Insured to decline to participate in these costly proceedings.

Ultimately, the Broker was held liable. The Insured was entitled to damages that are likely to be at least $2m.

“Duty does not just exist for ‘new business’; simply ‘rolling over’ policies at renewal without proper consideration is not good enough” LESSONS FOR BROKERS This decision provides useful guidance on the terms likely to be implied into the retainer between a broker and its client. These are likely to include obligations to: advise the intending insured about policy sublimits and their effect ensure the client understands the cover being offered advise the client about the terms, exclusions, limitations and risks associated with the proposed cover advise of the availability of alternative types of cover This case related to a renewal of an existing policy and reinforces the risk management message: that brokers must always carefully consider the terms of the policy being renewed and their application to the client’s business. This duty does not just exist for ‘new business’; simply ‘rolling over’ policies at renewal without proper consideration is not good enough.

In the context of risk management, it is also important to note that: in light of this judgment, brokers should consider their standard documents and any ‘template’ advice regularly given about policy sub-limits the Broker’s case in this matter was not assisted by the apparent absence of any file notes or written confirmation of the advice given. The Broker had no record of conversations with the Insured where it expressed a preference for breadth and quality of cover over the cost of the premium.

Because the Broker had nothing in writing, the Court preferred the Insured’s evidence. Brokers must take care to file notes or confirm in writing their dealings with clients.

John Dillon

Lauren Fieldus

FEBRUARY 2013 | 47

Q&A / IRONSHORE

Insurance Business: Can you outline what M&A insurance covers?

Katherine Simmonds: Mergers and Acquisitions Insurance (or Transaction Liability insurance as it is sometimes called) covers risks associated with the warranties that are given by a seller of a company, or business, to the buyer. The warranties are contained in the Sale and Purchase Agreement. In a typical Sale Agreement, a seller of a business will be liable to the buyer for the buyer’s loss arising as a result of any warranty not being true and accurate. Such liabilities are long tail and often run for a number of years post-transaction. A lot of sellers are not aware that the proceeds from their sale of the business are not 100% ‘safe’ until the expiry of time periods for liability under the Sale Agreement.

As an insurer, we insure the warranties in a policy known as a ‘Warranty and Indemnity Policy’.

It covers the economic loss arising as a result of a breach of a warranty. In other words, in the event a warranty is breached, we will indemnify the insured party for the loss associated with that breach. It’s a great product for family business owners who are looking to sell, or for buyers who are not sure of the financial viability of the seller after a transaction. This is often the case where a

Katherine Simmonds, Executive Director of Ironshore Australia, unpacks the benefits of M&A insurance for brokers

INSURING A SMOOTH TRANSITION 48 | FEBRUARY 2013

INSURANCEBUSINESSONLINE.COM.AU

founder holds his shares in a business through a family trust, or superannuation fund, or even has plans to move overseas. In such circumstances, it would be very difficult for a buyer to recover loss from a selling entity that is no longer of any substance. And again, a Warranty and Indemnity insurance policy is helpful as it allows the buyer to bring a claim under the policy against the insurer instead of chasing after a seller of no substance.

Under the policy, any known breaches of warranty are excluded from cover. Such known issues are typically disclosed to the buyer of a business during the due diligence phase of a transaction. As an insurer, we look very closely at the disclosure process among other aspects, before agreeing to insure the deal.

M&A insurance also covers tax liability insurance. Similar to the Warranty and Indemnity Policy described above, a tax policy is usually put in place in connection with a transaction and it covers a specific tax risk.

Why is this important cover?

KS: It’s a great product for a number of reasons: 1. The policy acts as a deal facilitator – sometimes buyers and sellers are in deadlock over the purchase price, and/or the residual liability associated with the transaction. A transaction liability policy can assist the negotiation by breaking the deadlock and allowing the parties to progress their commercial negotiations.

2. For a Buyer Insured, the policy provides peace of mind by giving a buyer recourse against a reliable entity of substance, that being the insurer.

3. For a Seller Insured, peace of mind is granted by the knowledge that their proceeds of sale are secure for the future. In other words, the seller achieves a ‘clean exit’ from their business.

4. The policies also act to provide sellers with a ‘clean exit’.

5. The policies offer a practical solution where it would not be practical for a buyer to seek recourse for loss. For example, where there are multiple shareholders located in numerous, different locations, it would be difficult for a buyer to seek to recover loss from each of them.

Or where the seller entity is a family trust, a buyer may be uncertain as to the financial viability of the trust post-transaction.

6. For offshore investing into Australia or making

an acquisition in a sector or industry for the first time, the Warranty and Indemnity Policy provides an additional layer of risk management.

How well are insurance brokers performing in M&A insurance?

KS: Previously, the product has been dominated by one or two big name brokers, and only one local carrier. It was essentially a monopoly on both sides of the coin and it did not necessarily create the appropriate dynamics for growth of the market overall. 2011 and 2012 saw an influx of new brokers into the M&A insurance sector. At Ironshore, we have worked closely with numerous brokers across all states of Australia and in New Zealand during 2012 to grow the market for M&A insurance. As a result, we are seeing submissions and enquiries from all capital cities, New Zealand and Asia on a regular basis. While our largest producers are still based in Sydney and Melbourne, we are excited about the number of new brokers in other locations who are thinking about their clients and how this product could work for them.

Why is it a good area for brokers to offer?

KS: We aim to grow the market overall – not just for M&A insurance but for all our specialist products. We see cross-sell opportunities across the whole transaction and we aim to partner with local market participants to achieve greater diversity of capital, including an increased availability of Lloyd’s security in this local market.

It’s great to see brokers across Australia who share that same vision and are keen to work with us.

M&A insurance products offer a fantastic solution for many clients involved in a transaction and it’s an opportunity for brokers to work closely with clients on identifying insurance needs and adding real value.

What advice would you give to brokers on how they can get clients to invest in M&A insurance?

KS: Read this article! Log onto the Ironshore website and read up on M&A insurance generally.

Then, armed with the basics, speak to clients who are involved in transactions and raise awareness of the benefits of such insurance. At Ironshore, we are very happy to work closely with a broker for the purpose of ultimately growing the market.

FEBRUARY 2013 | 49

BROKING INDUSTRY

INSURANCE

STATS

HOW ARE BROKERS EMBRACING SMARTPHONES AND TABLETS

TECHNOLOGY SMARTPHONES

87 %

13 19

% 70 of brokers

% % of brokers own of brokers own a BlackBerry an android phone

own an iPhone

87

% of brokers own a smartphone

TABLETS

44%

of brokers own a tablet

21%

of brokers intend to buy one in the next 12 months

34%

*

of brokers do not own a tablet

“Australian average as per Nielsen in April 2012: 18% of the population own a tablet” Zurich survey, September 2012

TABLETS ARE VIRTUALLY SYNONYMOUS WITH IPADS...

% 88 own an iPad % 8 own an Android % 4 other

ERS...

ET OWN L B A T G AMON % ntly for st freque a le t a it use ing the web brows

86

5are8p%rincipalsg/edrsirectors/ ana senior m

3us0e it%as the sperethdoemwinebant row tool to b

INSURANCEBUSINESSONLINE.COM.AU

THE COMMUNICATION REVOLUTION? DIGITAL MEDIA AND

BROKERAGES COMPANY’S DIGITAL PRESENCE respondents rate their company’s 55%ofwebsite as at least good if not excellent respondents rate their company’s 38%ofwebsite as average or below average respondents report their company 4% ofdoesn’t have a website

*

*

COMPANY USE OF SOCIAL NETWORKING SITES*...

41%

56% not at all

33%

63% not at all

18%

78% not at all

11%

84% not at all

of brokerages use LinkedIn at least monthly

of brokerages use Facebook at least monthly

36 respondents finds their company’s social 35% ofmedia activity average or below average respondents rate their company’s social 23% ofmedia activity as at least good if not excellent %of respondents say their company doesn’t have social media activity at all

of brokerages use Twitter at least monthly

of brokerages use YouTube at least monthly

DIGITAL MEDIA AND

INDIVIDUALS SOCIAL NETWORKING ACTIVITIES PERSONAL USE OF SOCIAL NETWORKING SITES*...

66% use Facebook at

least monthly - 33% not at all

51% use LinkedIn at least monthly - 47% not at all

WHY SOME BROKERS DON’T USE SOCIAL MEDIA...

49% use YouTube at least monthly - 48% not at all

20% use Twitter at least monthly - 76% not at all

SOCIAL NETWORKING ACTIVITES...

% 71 use social

media for personal use

% 43 use social

media for business networking

% 20 use social

media for business prospecting

% 20 use social

% 18 don’t use

media for social media business at all communication

11% no access at work 15% privacy & data concerns 9% don’t like it 25% not interested 13% no time 3% in progress 10% lack of understanding 14% don’t see value

Source: GI Marketing, Zurich. Survey was sent out to insurance brokers in Australia in September 2012. 702 responses were received, 672 of those were from brokers. Figures are based on 672 completed interviews. *Where percentages don’t add up to 100%, some respondents didn’t answer the question.

FEBRUARY 2013 | 51

SOCIAL LIFE

The Women in Insurance rounded out an event-packed 2012 by hosting their Christmas champagne breakfast in Sydney’s Dockside. Australian author, actor and comedian Anh Do was the guest speaker.

WOMEN IN INSURANCE / SOCIAL

FEBRUARY 2013 | 53

FAVOURITE THINGS / ADAM KORTH

Favourite things...

Adam Korth, Roderick Insurance Brokers Food: I find it hard to beat a really nice kebab. Or if going out for a meal, I enjoy a steak

Vacation spot: I haven’t travelled overseas much so I might be biased towards Australia, but I love the Murray River area for a golfing holiday. Weather is perfect at this time of year. Otherwise, when it is cold in Victoria, Queensland is always a safe bet

Place to be: I would say the

books but I generally stick to something sports-related.

Autobiographies are good

place to be is down the coast at a beach house on holidays. But from a working point of view, I think we are well placed in Victoria

Drink: Can’t go past a nice

Celebrity: This won’t be a

Book: I don’t read a lot of

cold beer on a summer’s day

popular choice, but I have always been a Shane Warne fan. One of the world’s greatest ever cricketers and always entertaining

Music: I’m not a huge music follower either, but I like to listen to whatever is on the commercial radio stations – until they wear the songs out by playing them five times a day! If I had to pick a band I would say The Script

Working in insurance:

Movie: The Hangover movies are my favourites. Especially the original

54 | FEBRUARY 2013

I like the variety and constant challenges. It is great to be part of a sustainable industry with a lot of good people. As a broker, I enjoy the challenge of making a positive difference in our clients’ lives

Sport: For me it has to be cricket, the summer sport of Australia. Whether I am playing on a Saturday in the backyard, or watching for hours on TV, I love the game

GUEST COLUMN / IVAN MICALLEF

INSURANCE BROKING IN

2013

What is driving the industry forward? And what do you need to do to capture the next generation of insurance brokers?

The current state of the insurance industry is bi-polar in the sense that some areas are doing better than others. Natural disasters such as floods and fires that have hit Australia in the last 18 months have affected the area of general insurance, leading to a somewhat slow growth period. The general insurance industry is therefore much the same as it has been in previous years and we expect this will continue in 2013.

At the other end of the spectrum, there has been a rampant increase in the investment in technology in the life insurance space due to organisations responding to a very competitive market. Activities which focus on the customer have proven to be the focus in 2012 and will continue to be the drivers for investment in 2013.

“Innovation plays a huge part in the insurance industry’s ability to maintain and keep top talent on board whilst being engaged and interested in their work”

IVAN MICALLEF is a recruitment consultant working exclusively within the insurance Industry. He can be reached at imicallef@ talentweb.com.au

56 | FEBRUARY 2013

Since the GFC, individuals are increasingly becoming aware of the benefits of a strong superannuation scheme and there has been a solid shift towards self-managed super funds.

This awareness of the ‘where all the money goes’ issue is prompting people to consider other financial matters and appropriate cover more seriously.

We are in the age where knowledge is more powerful than ever and having information on demand instantly can prove to be the difference

between retaining and losing a customer. Insurance as a whole isn’t as appealing as other FMCG industries so it will need to continuously and closely follow innovative trends in banking and other FMCG initiatives to keep up with the pack. The banking arena is leading the way in interacting more efficiently with its customers through the digital gateway and mobile strategies.

We need to reconsider the options we are providing and assess our methods of engagement with our customers/members/clients through various activities focused on increasing market-facing capabilities. Insurance as a whole is trying to re-think these options and we will see more and more capabilities in this area in 2013–14.

If we are able to capture the Gen Y market early and provide a service that is accessible, agile and interactive, the insurance industry will be able to endure long-term brand loyalty with its customers.

From an IT perspective, there will be a continual push to create innovative, easy-to-use technical applications with short response times that help customers and stakeholders see the value of our products and services more clearly. Providing a mechanism for people to purchase policies, get quotes and make claims on the go may be once again the game changer in the industry.

Innovation plays a huge part in the insurance industry’s ability to maintain and keep top talent on board whilst being engaged and interested in their work. Candidates want to walk away at the end of the day having made an impact. Hiring managers within insurance need to assess the expectations/ responsibilities given to their staff and offer support to realise their potential and set them up for success.

Managers who are in tune with the needs of their staff and provide them with the tools they need to succeed have proven to be most successful.