INSURANCEBUSINESSONLINE.COM.AU ISSUE 2.5
Australia’s best-performing brokerages revealed
INDUSTRY LEADERS INTERVIEWED ROBERT KELLY AND DALLAS BOOTH SPEAK
TROUBLE AT SEA THE LATEST ON MARINE INSURANCE
CRACKING THE CODE CYBER INSURANCE – THE NEXT BIG THING?
INSURANCEBUSINESSONLINE.COM.AU
CONTENTS / 2.5
14 40
BROKING INTELLIGENCE
Data artistry Data science – the new ‘rock star’ business profession
NEWS ROUND-UP 6 | The big three The biggest stories to impact brokers 8 | Quote unquote Straight from the horse’s mouth
FEATURE
The big interview Robert Kelly, Steadfast
FEATURES 10 | Robert Kelly Steadfast’s CEO on the IPO and the future 24 | Dallas Booth The NIBA chief on FoFA, PR and social media 26 | Decoding cyber risk Logging into the next big growth area 30 | Trouble at sea Unfurling the sails on marine insurance 36 | Professional practice The latest on professional indemnity 38 | Profile Michael Pitt and Geoff Connellan of Moray & Agnew
BROKING INTELLIGENCE 40 | Data artistry: finding business value in data How to surf the tidal wave of information 44 | Small businesses and underinsurance Mind the gaps with our top five checklist
2 | NOVEMBER 2013
10
COVER STORY
Top 10 Brokerages The best brokerages in Australia revealed
46 | Client communication: digital vs analogue Where old-school communication fits into today’s digital world 50 | Stats The size of the broker market today
INSURANCE INSIDERS 49 | Favourite things Alan Mackay, Guardian Underwriting 52 | Social life The top events of winter and spring 56 | The final word Are we getting claims performance all wrong?
DAILY INVESTIGATIONS NOW ONLINE: Who’s buying and selling Big data and insurance The latest movers and shakers insurancebusiness online.com.au
EDITOR’S LETTER / 2.5
THE POWER AND THE PASSION
Kevin Eddy
Since taking over the Insurance Business editor’s chair, I’ve met a lot of insurance professionals – from all parts of the industry. As you’d expect, everyone has their own viewpoint on the challenges, the opportunities and the future of insurance, which often clash. However, every single person I’ve spoken to has something in common. They’re all utterly passionate about insurance. That’s a rare thing, and it’s made me wonder: what is it about insurance that makes people so dedicated to their work? I think it’s because insurance is ultimately about people. For better or worse, you have people’s livelihoods in your hands – and a doing a good job has a real, sometimes life-saving impact on a client’s life. That brings me neatly to our special report in this issue. Nowhere else is this passion for insurance displayed as strongly as within the 10 brokerages that make up our Top 10 Brokerages ranking. To find out who claimed the accolade of Australia’s best brokerage, turn to page 14. Elsewhere, we quiz Robert Kelly about Steadfast’s future, Dallas Booth about NIBA’s future, and ask whether cyber risk is the future star of financial lines. Add to that the usual mix of business strategy advice, news, behind-the-scenes insights and our new regular columnist Darren Trott, and it’s another packed issue to usher you through the spring months. Kevin Eddy, Editor, Insurance Business
COPY & FEATURES EDITOR Kevin Eddy SENIOR JOURNALIST Chinwe Akomah CONTRIBUTORS Darren Trott, Twain Abbott, Gary Gribbin, Tim Phillipps, Anders Sorman-Nilsson PRODUCTION EDITOR Roslyn Meredith
ART & PRODUCTION DESIGNER Jonathan Phillips
SALES & MARKETING GENERAL MANAGER Peter Smith COMMUNICATIONS MANAGER Lisa Narroway MARKETING EXECUTIVE Anna Farah TRAFFIC MANAGER Abby Cayanan
CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – AUSTRALIA & NEW ZEALAND Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Kevin Eddy tel: +61 2 8437 4793 kevin.eddy@keymedia.com.au Advertising enquiries General Manager Peter Smith tel: +61 2 8437 4740 peter.smith@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 • fax: +61 2 9439 4599 Offices in Singapore, Auckland, Manila, Toronto, Denver insurancebusinessonline.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Insurance Business magazine can accept no responsibility for loss
CONNECT
Contact the editor:
kevin.eddy@keymedia.com.au 4 | NOVEMBER 2013
Printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry
NEWS / ROUND-UP
THE BIG
THREE The biggest news from insurancebusinessonline.com.au ZURICH CHAIRMAN DEPARTS AFTER FINANCE CHIEF DEATH The tragic death of Zurich Insurance Group CFO Pierre Wauthier has also led to group chairman Josef Ackermann stepping down. Wauthier was found dead at his home south of Zurich, Switzerland, in late August in what authorities believe was suicide. Ackermann quit just a few days later, saying the family of the firm’s late finance chief felt he should shoulder some of the responsibility for the executive’s apparent suicide. “I have reasons to believe the family is of the opinion that I should take my share of responsibility, as unfounded as any allegations might be,” Ackermann said in the statement, adding that he was resigning to avoid any damage to Zurich’s reputation. Ackermann’s departure comes 18 months after he was appointed chairman at Zurich Insurance following roughly a decade running Deutsche Bank AG. The resignation and Wauthier’s death come on the heels of two consecutive quarters of declining profits at Zurich Insurance, as well as signs that it was facing further challenges. Zurich Insurance has confirmed that vice chairman Tom de Swaan will become acting chairman.
THE VIEW Wauthier’s death raises serious questions about the pressure placed on senior executives and whether they’re given the proper support to be able to cope with it. The loss of Wauthier and Ackermann won’t help Zurich face its current business hurdles either.
6 | NOVEMBER 2013
BY THE NUMBERS
STEADFAST PLANS POST-IPO LIFE Steadfast is pressing ahead with expansion plans after its successful initial public offering. CEO Robert Kelly revealed that Steadfast will revisit potential acquisition plans that were put on ice as it geared up to float. “When we were [getting to] float stage we had to stop negotiations with many of our shareholders who had an interest in taking the potential acquisition by our group further,” he explained. The cluster group also confirmed that it is in the process of consolidating a number of brokerages in Melbourne and Sydney. Kelly said it is merging four brokers in Sydney and three more in Melbourne, but the group declined to name names. The move is part of the cluster group’s ‘hubbing strategy’, whereby it merges certain Steadfast equity brokers or underwriting agencies.
$4.1bn
THE VIEW
Source: APRA
The Steadfast listing may have been the story of the year so far, but there’s still work to do after all the champagne corks have popped. To find out what Kelly and his team have planned, turn to page 10.
General insurance investment income for FY2012–13 – down 24% on the previous year
$15m
The amount car financiers will need to refund to consumers after mis-selling tyre and rim insurance premium financing Source: ASIC
$883m
Suncorp’s insurance division’s after-tax profits for FY2012–13, up from $493m in 2012 Source: Suncorp
1
The maximum number of hours it should take to deliver major fleet quotes to brokers from NTI’s new quoting system Source: NTI
FRAUDSTER BROKER ALSO VICTIM OF ONLINE SCAM A former insurance broker who was sentenced to 18 months’ imprisonment after stealing clients’ money was also the victim of an online scam. Bruce Wickett, director of Wickett Investments and Wickett Insurance Broking, was sentenced in the County Court of Victoria to 18 months in jail, with a non-parole period of eight months. He pleaded guilty to three charges of theft after an ASIC investigation found he stole $662,198 worth of insurance premiums between August 2010 and March 2011. ASIC alleged that Wickett sent the money overseas to his internet lover, Ms ‘Toby Lola Dallas’ – later found to be fictitious. The sentencing judge said Wickett had been “extremely naive”.
THE VIEW “On the internet, nobody knows you’re a dog” goes the old adage – but it will be cold comfort for Wickett as he contemplates his crimes from prison. It also shows that cyber risks extend further than hacking attacks or data loss and are a growing concern for all businesses.
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NOVEMBER 2013 | 7
NEWS / ROUND-UP
TALKING HEADS Uncensored opinions from Insurance Business TV... Get Informed CEO Kate Fairley says that brokers shouldn’t neglect domestic insurance in favour of more lucrative commercial deals
Mecon Winsure’s Glen Ross highlights the difference between contract indemnity and insurance indemnity in construction contracts
Claim Central’s Darren Trott lays out his ‘claims nirvana’. Darren is also Insurance Business’s new regular columnist: turn to page 56 to read his first article
“I think it’s still important that we don’t disregard domestic insurance. Pinpoint the key issues that are relevant to your client: sporting inclusions, for example. If you know your client plays golf on the weekend, just let him know he’s covered if he injures someone in the process under a brokered policy wording – and that it wouldn’t be covered by a direct policy.”
“In insurance, we talk about indemnity being replacement to its former state, whereas in contracts it’s a far broader thing. It’s a contractual responsibility. [This can be measured in terms of risk, which is] an all-encompassing factor. It can be narrowed down to the indemnity required in these contracts, less the insurance we provide.”
“Claims nirvana for me is a situation where the customer – the party that’s experienced the loss – is an advocate for your business because of the way you’ve helped them get back up and running again.”
...and your reactions on the issues of the day “I would amend the general advice rules and demand all direct insurers provide in writing the policy differences between their cover and the one they are trying to persuade the customer to move from. Further, they need to explain in summary form where their policy varies from the legislated prescribed contract of a motor or householder’s policy and have the client sign off on that. “As brokers, we have this duty: the direct insurers should have a similar duty of care.” Forum regular Robert Cooper on whether there should be tougher rules on direct insurance sales “I suppose if you are going to allow call-centres to rob their customers with poor advice from low-quality staff and shady sales practices then it probably
8 | NOVEMBER 2013
makes sense to call in the professionals!” Clive Price on the news that prison inmates in the UK are being put to work in insurance call centres “As long as the product offered has the very basic covers – no frills – they should be able to keep the price realistic. Just hope they realise consumers, rich and poor, view home & contents insurance as a bank account and thus they will have some unhappy customers at claims stage!” Graham Hughes lends conditional support to national community organisation Good Shepherd Microfinance’s plans to introduce personal insurance products for low-income consumers in 2015
Have your say on the burning issues of the day. See more at insurancebusinessonline.com.au/tv
THE BIG INTERVIEW / ROBERT KELLY
STRONGER
TOGETHER
Fresh from the cluster group’s IPO, Steadfast CEO Robert Kelly sits down with Kevin Eddy to lay out the next steps for the company
Insurance Business: The Steadfast IPO has been the (success) story of the year. Can you talk us through the IPO from your perspective – the buildup, the day of listing and the aftermath? Robert Kelly: The story really started back in 1995 when we first started putting this proposition together and the formation of the unlisted public company in 1996. As succession became a looming issue over the next 10 years, we looked at ways to encourage brokers to sell internally. But, as people from outside the group started making offers to take brokers out of the group, we thought it was appropriate to ask the shareholders what structure this business should take. The answer was that they wanted to find out what Steadfast would look like in the public arena. Unfortunately, the black cloud of the GFC meant we postponed everything, and it wasn’t until2010 that we decided that we would readdress this position. Again, the shareholders voted overwhelmingly to take Steadfast into the public arena. We also had a desire to acquire, and as stated in our prospectus we acquired 60 brokers. That acquisition allowed us to put together a strong, robust company that was appreciated by the stock exchange. The market liked the business fundamentals we built up over the prior 17 years, our shareholders liked it, and everyone shared in the 10 | NOVEMBER 2013
wealth that had been created in this organisation. I guess that’s why it’s been appreciated by the investment houses so far.
IB: Were you always confident that the listing would be as successful as it was? RK: I don’t think you’re ever fully confident when stepping into the water. We took a lot of advice – accounting, investment and legal – and we were assured we had a good proposition to put into the market. The only time I started to feel extremely confident was when I saw the reception we received in Hong Kong and Singapore. Of course, you’re in the hands of the market when it comes to arbitrage of your shares – when we set the sale price at $1.15 we thought there was potential for arbitrage on day one. It was quite exciting to see the building of bids as we got towards the 12pm kickoff, and at two minutes past 12 I knew it was a success.
IB: What difference has going into a listed environment made to Steadfast from a corporate perspective? RK: We’ve always operated as an unlisted public company, so we already had a regime of compliance within the group – we reported as if we were a public company. We did need to create an external board of independent directors, so some of the people who’ve helped build this business with me had to move out. We’ve since assembled a board chaired by Frank O’Halloran, who’d been a close associate of this organisation in his prior role at QBE. As soon as Frank came on board, it lifted the degree of respect the market had for this organisation. There are additional nuances of control required by the Australian Securities Exchange and ASIC in the public environment. We were ready and prepared
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for that, had great support from our advisers, and took their advice to the letter of the law. We had to change a few things internally, as well as keep our mouths shut for six months leading up to the float date. That was a change, because we’ve had a reasonable profile in the insurance industry. Subject to the float, we’ve found the running of the company is not quite as onerous as we’d suspected because we had a lot of the infrastructure in place beforehand.
“We’ll continue successfully sailing this ship we’ve been sailing for the last 17 years, and deliver the cargo we’ve been asked to deliver“
IB: What developments can brokers expect from Steadfast now that the IPO is over? RK: Nothing will change for our broker network. That was part of the undertaking we originally set out pre-listing. We’ll continue to do everything that made us successful: none of our services will alter and none of our brokers will see any difference, whether they’re equity or non-equity. We’ll continue successfully sailing this ship we’ve been sailing for the last 17 years, and deliver the cargo we’ve been asked to deliver. We’ll also continue to follow the acquisition trail and bring new people in in an appropriate manner.
IB: You’ve mentioned previously that you’ll be revisiting potential acquisitions. Are there any particular areas you’re looking to bolster? RK: We’ve had a long history of underwriting agency success and we now either control or have a stake in just under $120m of underwriting agencies. We’ll look to increase that footprint. We’ll continue to look for niche opportunities, for opportunities in market gaps where brokers are not being fed by our major strategic partners. We also have a chain of people coming to us that we’ve been involved with prior to the float who we had to stop talking to because otherwise we wouldn’t have floated until 2020. We’re about to re-engage with those organisations. We’ll continue engaging with people, ensuring our acquisition process is abided by, and we’ll look for opportunities. We have a balance sheet that has great capacity in it, and my intention is not to have a lazy balance sheet. I won’t be going to the next AGM in 2014 braying about how much spare cash I’ve got: I intend to use that capacity.
NOVEMBER 2013 | 11
THE BIG INTERVIEW / ROBERT KELLY
“We have a balance sheet that has great capacity in it. I won’t be going to the next AGM in 2014 braying about how much spare cash I’ve got: I intend to use that capacity” IB: Steadfast isn’t the only cluster group in the market, or the only listed cluster group or the only acquisitive cluster group. Steadfast clearly has the broker market share advantage over Austbrokers, but that organisation has been quite acquisitive this year – do you see them as an increasingly dangerous competitor? RK: I believe that competition is the most stimulating part of business, and we built this business on providing service reliability and deliverable product. We have a defined way we’ll do acquisitions. We’ll compete absolutely for acquisitions, as long as they comply with the way we want to acquire. Candidly, if someone has a deal that’s better than the way we acquire a deal, we’ll lose some deals. We won’t ‘do anything’ to get acquisitions; we’ll follow the protocols that have allowed us to have a successful public float. People will either come to us because they know what we’re like culturally, or if they can do better outside they’ll move outside our group.
IB: You’re arguing that, by making the cost of doing business lower, brokers can concentrate more on advice, which is their core competitive advantage? RK: Yes. Too much time is spent in a broker’s office duplicating processes that insurers should do, both in claims and placing business, and manually placing transactions that can be fully automated. If brokers can deal with the insurance consumer one-to-one, then give advice based on gathered information that’s uniform across every insurer at that particular time of risk, that saves time which can be used to evaluate risk and really connect with the consumer. It is a threat [to insurers], because it puts control into the brokers’ and ultimately consumers’ hands. Some current systems are antiquated in the way that insurance is provided and labour-intensive to get more than one position on a product. When you streamline processes, it enables you to get quotations from many insurers at the flick of a button. There are a number of insurers in our market who want to make sure that the product that’s sold stays with that insurer – the incentivisation programs that do that are not necessarily skewed towards what’s best for the consumer, but what’s best for the intermediary and ultimately the insurer. Our job is to act independently, in the best interests of the consumer. We’re legislated to do that. It’s not just a good idea: it’s not a maybe; we are bound under our financial services licences to act in that way.
IB: A couple of weeks ago, a broker IB: What’s the biggest challenge for brokers going forward? RK: The cost of doing business is expensive, and processes are sometimes antiquated and labourintensive. The industry has legacy systems that do the process of buying, selling and handling insurance. The challenge is to make sure those processes are digitally handled, and paper processes requiring manual intervention are overcome. The technology is there, but there are so many legacy operations that people are struggling to make the capital commitment to ensure things are done in a seamless way without huge amounts of labour to facilitate it. The consumer just wants to know what he’s getting and how much it costs. The intermediary needs to know his value proposition is recognised by the consumer, and the consumer values it. Advice overtakes price. We need to automate information, automate the process and still have the advice person at the front line talking to the consumer. 12 | NOVEMBER 2013
commented to me that the fully independent brokerage’s days were numbered. Do you agree? Is consolidation under cluster groups the only real option? RK: If you’ve got a niche product in a niche area, you don’t need to belong to anyone. However, if you’ve got a broad offering across a number of areas, the cost for a small broker for providing those services is prohibitive. So if you’re going to operate across a broad cross-section of products, you need to be aligned with someone. Whereas if you’re just offering a monoline product, you can stay independent. We are very concerned with the level of expertise in some areas. We’ve spent many millions of dollars training people up to ‘best-in-class’ advice in terms of what they do for their clients: without access to that, it’s potentially difficult for independents to survive. There are different ways to gain that information, but it’s very expensive. If you can cluster, that makes a big difference.
SPECIAL REPORT / TOP 10 BROKERAGES
The Insurance Business
PROUDLY SPONSORED BY:
14 | NOVEMBER 2013
2013
INSURANCEBUSINESSONLINE.COM.AU
For the second year running, Insurance Business has ranked Australia’s brokerages to find the top performer in the country. Who came in at number one? Welcome to the 2013 Insurance Business Top 10 Brokerages Special Report. Like our inaugural ranking last year, this year’s research has rated and ranked Australia’s independent brokerages to find the company worthy of the title of Australia’s Top Brokerage. It’s not just about the biggest gross written premium, though: our unique ‘handicap’ methodology means we can measure brokers large and small on a level playing field to find the nation’s best performer. As the second edition of the ranking, we expected to receive more entries, but we were overwhelmed with the response from brokers this year. Thanks to all who put themselves forward for consideration. So, without further ado, which brokerage is the best performer in Australia? Find out overleaf. – Kevin Eddy, editor, Insurance Business
A WORD FROM OUR PARTNERS As a company focused on intermediated distribution, Calliden is proud to support the Insurance Business Top 10 Brokerage ranking for 2013. Well done to every brokerage that has participated this year, and special congratulations to this year’s top 10 as ranked by Insurance Business. Calliden is an ASX-listed insurance group made up of one of Australia’s largest insurance agencies, Calliden Agency Services Limited, and an APRA-licensed insurer, Calliden Insurance Limited. Calliden delivers a choice of commercial, personal and specialist insurance options to intermediaries and third-party agency partners using a range of well-capitalised insurers. Mike Hooton Group Executive, Agency Services
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SPECIAL REPORT / TOP 10 BROKERAGES
TOP 10 THE METHODOLOGY Each brokerage was ranked in each of these measurements and the sum of all of their rankings was calculated. The brokerages were then placed in order of which had the lowest overall score (think of it as a golf score, where having higher rankings in each section means you have a lower total score). By ensuring that the majority of measurements rewarded business per broker rather than just critical mass, the very best brokerages were rewarded, rather than just those producing a large amount of business.
RO
B
The Insurance Business ranking system is an objective means of ranking the best-performing insurance brokerages in the country. Each brokerage was required to supply its own details to Insurance Business to be eligible. In total, there were eight criteria, covering: total revenue policies written revenue per broker policies per broker new clients per broker new revenue per broker company growth client retention
2013
KER AGE
TOP THREE – BY CATEGORY TOTAL REVENUE
NEW CLIENTS PER BROKER
BROKERAGE
BROKERAGE
1
MGA Insurance Brokers
1
Mega Capital
2
NAS Insurance Brokers
2
Bruce Insurance
3
Westcourt General Insurance Brokers
3
Elliott Australia Group Pty Ltd
POLICIES WRITTEN
NEW REVENUE PER BROKER
BROKERAGE
BROKERAGE
1
MGA Insurance Brokers
1
Mega Capital
2
NAS Insurance Brokers
2
Allinsure (IAA)
3
Westcourt General Insurance Brokers
3
IAA – Bresland Consultants
REVENUE PER BROKER
COMPANY GROWTH
BROKERAGE
BROKERAGE
1
IPS Insurance Brokers Pty Ltd
1
Elliott Australia Group Pty Ltd
2
Mega Capital
2
Trade Credit Risk Pty Ltd
3
IC Frith WA
3
Mega Capital
POLICIES PER BROKER
CLIENT RETENTION
BROKERAGE
BROKERAGE
1
IPS Insurance Brokers Pty Ltd
1
Elliott Australia Group Pty Ltd
2
Mega Capital
2
IC Frith WA
3
MGA Insurance Brokers
3
MGA Insurance Brokers
16 | NOVEMBER 2013
189,453 Total number of policies written by the Top 10 Brokerages between 1 July 2012 and 30 June 2013
Unity Insurance Brokers
IAA – Bresland Consultants
Last year’s ranking: 4
Last year’s ranking: 5
GRAHAM D’ARCY, CHIEF FINANCIAL OFFICER
RUSSELL BRESLAND, PRINCIPAL
(as Insurance Advisernet)
What’s your reaction to being named one of the Insurance Business Top 10 Brokerages?
What’s your reaction to being named one of the Insurance Business Top 10 Brokerages?
To remain in the top 10 is a great achievement and a rewarding accolade for all staff at Unity.
Second year in a row – we must be doing something right! But the support we receive from IAA has helped us to achieve this status.
What’s the most important thing a broker can do to develop their business? Look after your staff, enhance technology where it improves efficiency, and don’t neglect to service your clients’ needs on a personal level.
What’s unique about working in insurance? Russell Bresland
What’s the biggest challenge facing the industry today?
It is a most rewarding career. We learn a lot about all types of businesses. What other career gives such a wide experience?
What’s been the biggest challenge of the last year? Maintaining the current level of growth.
Direct market competition.
What’s been the biggest highlight of the last year? How would you change the industry to help brokerages flourish?
Being in the top 10 of these awards and also being for the second year a finalist in the IAA AR of the Year award.
The introduction of insurance [education] in high schools and university, which will lead to people entering the industry with qualifications and an understanding of the insurance industry as a viable career option.
What’s the most important thing a broker can do to develop their business? Provide honest and genuine service to their clients.
What sets your firm apart from your rivals?
What’s the biggest challenge facing the industry today?
With the size of our brokerage, we proudly maintain a culture that involves a hands-on relationship approach with our clients. This culture is willingly adopted by all staff at Unity and has served us successfully for 35 years.
Direct market deluding the public into thinking they are getting the same cover but at a cheap price. If it is cheap, there is only one way that is possible – reduce cover. The direct market does not generally provide advice to cover a client’s whole program. They only sell their own products, in some cases leaving the client glaringly uninsured but taking no responsibility.
What’s next? We are constantly looking to improve how we interact with clients, adopt a methodology of better using available technology, and enhance our reputation in the community.
“Don’t neglect to service your clients’ needs on a personal level” Russell Bresland
How would you change the industry to help brokerages flourish?
6
Brokerages are based in Western Australia
Make direct insurers responsible for their clients to ensure they have the correct cover and have the same responsibilities as a broker. If they wish to play in this field, then make it an even field.
What sets your firm apart from your rivals? Belonging to the IAA network, and the service level we provide to our clients.
NOVEMBER 2013 | 17
SPECIAL REPORT / TOP 10 BROKERAGES
8
7
Scott Winton Insurance Brokers Last year’s ranking: 8 RON TATARKA, MANAGING DIRECTOR
What’s your reaction to being named one of the Insurance Business Top 10 Brokerages?
Westcourt General Insurance Brokers Last year’s ranking: New entry JEFF HOLLANDS, MANAGING DIRECTOR
What’s unique about working in insurance? I think insurance gets in your blood. It’s great working with and getting respect from your clients. I have clients that have been with me for years and that trust is great.
It reaffirms that the hard work and dedication exhibited by every member of the team at Scott Winton results in client satisfaction, strong performance and long-term company stability.
What’s been the biggest challenge of the last year? What’s unique about working in insurance? It is a service that everyone needs. We must guide customers in identifying the best way to protect their assets, allowing them to concentrate on their core business.
Ron Tatarka
What’s been the biggest highlight of the last year? We increased the number of ARs who joined our network – some great people with excellent knowledge who share with others within our group. That’s always great.
What’s been the biggest challenge of the last year? With customers and revenues increasing, one of the biggest challenges over the last 12 months has been managing company growth while at the same time ensuring that clients continue to receive excellent service and insurance packages that are specifically tailored to their needs.
What’s the most important thing a broker can do to develop their business? The basics: do the hard yards; always be available; be professional; and constantly learn and mix with others in our industry.
What’s the most important thing a broker can do to develop their business?
What’s the biggest challenge facing the industry today?
Differentiate themselves from the competition, and give clients a reason to choose them and stay with them. Strong relationships lead to loyalty, and Scott Winton has a strong focus on building longterm relationships with its clients based on trust, confidence and open communication.
I think as Australians we are underestimating the future effect of the direct/online insurer. We need to offer existing and new clients more service. As brokers, we also need to be looking at what we can offer online.
What’s the biggest challenge facing the industry today?
How would you change the industry to help brokerages flourish?
The biggest challenge is competition from companies who have not traditionally operated in the mainstream insurance industry and the ever-increasing market for online insurance products.
I think we need to reduce the number of brokers within Australia. Brokers need to spend more time training and bringing people into the industry.
How would you change the industry to help brokerages flourish? Insurance brokers need to take steps to deepen their expertise and promote their value to customers. The ability to explore new opportunities and provide sound advice and strategic solutions for clients is key to a thriving sector. 18 | NOVEMBER 2013
We spent a lot of time working on the business: getting our systems better and our staff to be more effective in what they do each day.
What’s next?
8,887
Average number of clients per brokerage
We intend to continue to grow our network to double our size over the next few years. Next year we will hold our own offshore conference and we would like to have an involvement in an underwriting agency. For us, it’s all about growth and getting our name out there.
6
Elliott Australia Group
$79.8m
Last year’s ranking: New entry
Total revenue of Top 10 between 1 July 2012 and 30 June 2013
JOHN ELLIOTT, CEO
What’s your reaction to being named one of the Insurance Business Top 10 Brokerages? It was fantastic to see that for all the hard work our team has put in that we have been able to be in the top 10 brokerages in Australia in regard to growth.
What’s been the biggest challenge of the last year? We have had a new range of clients from the rural sector, which presented a range of challenges that we had not experienced before, including developing our internal systems in order to deliver the same high level of services our metro clients currently receive. Together with the head of our rural department, David Powell, we have been able to improve the
service offering to these clients to a level they have never experienced before.
What’s the most important thing a broker can do to develop their business? Develop your team. By focusing on the staff and ensuring they are happy, well trained, well rewarded and are a good mix with each other, your business will naturally develop.
What’s the biggest challenge facing the industry today? Price-focused clients, resulting in underinsurance. Getting the message across to our clients and future potential clients has a great deal of challenges, and it’s only when we have a large event such as the Queensland floods that the issue is highlighted. Clients understand that there is a great deal of difference between a Hyundai and a BMW. They would never expect to purchase a BMW for the price of a Hyundai. Unfortunately, in our industry we have clients expecting this every day. The challenge is how we educate our clients and potential clients without sounding like an ‘insurance salesman’.
NOVEMBER 2013 | 19
SPECIAL REPORT / TOP 10 BROKERAGES
5
4
IC Frith WA Last year’s ranking: New entry RICK PURSLOWE, MANAGING DIRECTOR
What’s your reaction to being named one of the Insurance Business Top 10 Brokerages?
Do as you say and do it when you say you will. Customers today are becoming more and more impatient, and delivering timely, accurate information – good old-fashioned customer service – is more important today in building and retaining clients who then become advocates for your business. What sets your firm apart from your rivals? Staying at the forefront of our market by consistent disciplined marketing and relationships with our suppliers. We have developed a mobile-savvy website for ease of use, and have communications including newsletters, surveys, updates, etc., going out frequently to our clients.
What’s next? Looking towards the future, our expansion goals may not be obtained through organic growth alone. We are looking at growth through acquisitions that complement and leverage our services and enable us to become more efficient in what we do. This will allow our staff a wider range of career opportunities, help reduce our cost base, and benefit our customer base. 20 | NOVEMBER 2013
MURRAY BRUCE, MANAGING DIRECTOR
Seeing my team develop new strategic ideas and having really good success upon implementing them. We have set a really good platform for growth, and the future is exciting.
What’s the biggest challenge facing the industry today?
What’s been the biggest challenge of the last year?
What’s the most important thing a broker can do to develop their business?
Last year’s ranking: New entry
What’s been the biggest highlight of the last year?
I am humbled by the honour. It really is a credit to our team. This is not just something that has happened by chance but was made possible by a number of people challenging the way we do things and ensuring we deliver for our customers.
Controlling costs of doing business, especially with the recent uncertain economic times and the regulations that govern the way we do business: it forces up costs for the end consumer. This has meant that now, more than ever, our customer service standards have really needed to show and reflect real value and advice to our valued clients.
Bruce Insurance
Overcoming the poor public perception our industry has. It is frustrating how often highly educated people make negative comments about our industry which I believe is a result of their lack of understanding of how important the insurance industry is and the great work people in it do every day.
18,945
Average number of policies written by a Top 10 Brokerage between 1 July 2012 and 30 June 2013
How would you change the industry to help brokerages flourish? Ban insurers from advertising based on the cheapest price. It reflects on the whole industry and teaches consumers that the only thing they should consider is price.
What sets your firm apart from your rivals? We have a really motivated and talented group of young professionals that have been together for a long period now. They have set themselves and our business up for success.
What’s next for your firm? Consolidating some of the things we have been doing over the past 12 months to hopefully take us to the number one position next year!
3
2
IPS Group Last year’s ranking: New entry FRANK CUSMANO, MANAGING DIRECTOR
MGA Last year’s ranking: 1 PAUL GEORGE, GENERAL MANAGER
What’s unique about working in insurance?
What’s been the biggest highlight of the last year?
Providing professional advice and protection in the event of an unforeseen loss. Building long-term relationships and friendships between clients and staff.
The highlight of our year would have to be our chairman, John George, being recognised for a number of awards. This including the Rex McKeown award, presented at NIBA in 2012. He was also awarded an Order of Australia on the Queen’s Birthday in June 2013 for his charity work with the Australia Cambodia Foundation after receiving a humanitarian award from the prime minister of Cambodia, Hun Sen. Quite a year for our chairman and all well deserved.
What’s been the biggest challenge of the last year? Political instability. Competitive rates in a tight market, causing the business market to slow. Finding good-quality staff that fit in with the IPS family.
Frank Cusmano
What’s been the biggest highlight of the last year?
What’s been the biggest challenge of the last year? In general terms, retail, home, contents and private motor have become challenging. Despite the fact that this is not a preferred line for most brokers, we are the experts in these areas and will always have a requirement to do this line of business.
Being part of the Steadfast listing. We also had very good growth for the 2012/2013 year despite the competitive marketplace.
What’s the most important thing a broker can do to develop their business?
Paul George
Education and development of staff; maintaining strong and long-term relationships with clients.
What’s the most important thing a broker can do to develop their business? I would say a good strategy – targeting areas that you have expertise in, in a vibrant and growing industry; good relationships with both the client group and the insurer who will write the business. Provided all these things line up, with some hard work, it should lead to success. I believe that we also need to be wary of technology and to make sure that it is actually helping us. Sometimes it can complicate things. As we move into times where there are going to be more and more options, I think we will need to say no more than yes when it comes to new systems and technology.
What’s the biggest challenge facing the industry today? Expectations of service from underwriters. We feel there is extra pressure on brokers to perform more of the underwriting role, brought on by technology. A more traditional broking/underwriter relationship would allow brokers to focus on client relationships rather than underwriting.
What sets your firm apart from your rivals? What’s next?
The IPS Group offers a variety of services. We have three divisions: general insurance, financial services (life and income protection) and finance brokers. This way our staff have a responsibility to provide outstanding service to clients across all three divisions.
What’s next? The IPS Group is going through a growth phase of expansion and always looking to evolve our business in the current market, all whilst providing and maintaining an excellent level of customer service.
$7.9m
Average revenue of a Top 10 Brokerage between 1 July 2012 and 30 June 2013
Our group currently has 27 offices around Australia. We would like to continue our growth and we have strong plans for further acquisitions. We would like to achieve 30 offices by the end of June 2015. We are also rolling out our new pay-by-the-month initiative which will allow our offices to offer free monthly instalments on retail and SME business up to a certain premium.
And Australia’s top brokerage is... NOVEMBER 2013 | 21
SPECIAL REPORT / TOP 10 BROKERAGES
1
Mega Capital
position ourselves as the professional lines specialist to the 280 brokerages in the Steadfast group. We see this as a key strategy to continue our growth ambitions.
Last year’s ranking: 2 MICHAEL GOTTLIEB, MANAGING DIRECTOR
TOP 10 B
RO
2013
KER AGE
What’s the most important thing a broker can do to develop their business? In my view, brokers need to ensure they continue to add value to the supply chain by providing high-value advice or innovating around delivery. If broking becomes an information and transactional service with limited or no advice, there is no value in this service and it is likely over the medium term these business models will be under threat from direct distribution.
What’s the biggest challenge facing the insurance industry today?
What’s your reaction to being named the number one brokerage in Australia? I am delighted that our brokerage has placed first this year after just missing out last year when we came second. The award affirms our innovative business model and the quality of the personnel at Mega Capital and our corporate AR BizCover.
What’s been the biggest highlight of the last year? We have recently brought on Steadfast as a shareholder, which gives us tremendous opportunity to
Distribution of insurance products will change considerably over the next 10 years and brokers need to adapt their business models to ensure they continue to provide value to the supply chain. In my opinion, brokers need to become knowledge leaders, by specialising along industry or product verticals, or innovate around delivery of product by leveraging technology. Brokers who continue to act as general practitioners without adapting their delivery capability will become commoditised and face significant competition from an online delivery channel.
How would you change the industry to help brokerages flourish? The most valuable service a broker provides to clients is advocacy. However, brokers too often do not act as strong advocates for their clients when procuring insurance and during claim time. We could change the perception of insurance brokers if we could: improve the level of professionalism improve our level of specialisation unequivocally look after the clients’ best interests
What sets your firm apart from your rivals? We have created a business model which caters to both high-value clients – who require a tailored solution, advice around complex issues, and high levels of advocacy – and small businesses, who have less ability to tailor their policy but require choice, transparency and ease of purchase. Our staff are all extremely knowledgeable, client focused and provide a terrific client experience.
What’s next for Mega Capital? To win the Insurance Business Top Brokerage award again in 2014! 22 | NOVEMBER 2013
NOVEMBER 2013 | 23
THE BIG INTERVIEW / DALLAS BOOTH
NATIONAL interest The National Insurance Brokers Association’s CEO, Dallas Booth, tells Insurance Business about the past and the future of insurance broking Insurance Business: What’s the big picture? What are the big issues for NIBA and brokers? Dallas Booth: I started as NIBA president in mid2011, right in the middle of the Future of Financial Advice (FoFA) reforms. Even though the issue was financial planning and investment advice, insurance brokers were being caught up in FoFA, and NIBA had already been doing a lot of work to explain to the government that insurance brokers are very different to financial planners. The other major issue in recent years has been natural disasters and the challenges that produced for insurance generally. Brokers were on the ground working very long hours – in some cases struggling to find time to repair their own buildings. However, while natural disaster-related insurance complaints to the Financial Ombudsman Service numbered 1,500 generally, only eight related to brokers. That really shows the quality of work that brokers are doing.
IB: How is the FoFA implementation going? What’s been the feedback on the aspects that do affect brokers? For example, there has been some dissatisfaction over a perceived disparity between broker and direct channels over the ‘best interest’ duties? DB: There’s a big difference between the general advice obligation on insurance companies and the personal advice obligations on brokers. Even so, we are still developing an understanding of what the best interest duty actually means. The best interest duty on brokers is really no different to what it was pre-FOFA. There was a statutory obligation pre-FOFA – the words under FOFA are slightly different but the underlying legal duty is very similar. 24 | NOVEMBER 2013
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IB: What about other regulatory issues? What’s on NIBA’s horizon? DB: There are some regulatory areas which will require attention, particularly around areas such as workers’ comp and builders warranty. NIBA is likely to do more work in those areas in 2014.
IB: Such as? DB: Currently brokers are discouraged from being involved in workers’ comp in other states due to the way it is structured. In Western Australia, however, workers’ comp is private sector. It’s privately underwritten; brokers act as intermediaries and advise clients on employment risk. They do what brokers do, essentially. They’re highly regarded in the role they play in making the system work. We believe that’s a good example of what could occur elsewhere in Australia, and want to take that message to eastern state governments. The other quasi-regulatory issue is industry professionalism. That’s something the NIBA board has been strong on for 30 years and our new code of practice will take effect from 1 January. The feedback on that has already been well received.
IB: Does the new code of practice dovetail with ICA’s General Insurance Code review? DB: It does, because sometimes a broker will act on behalf of the insurer. The broker is bound by the General Insurance Code where that happens, so we need to ensure the whole thing fits together. We will be having discussions with ICA as they develop their code. In any event, we will probably review the broker code in two to three years and make any necessary refinements. We’re also looking at competency training requirements. ASIC has just put out two discussion papers on this topic. We will be meeting with and providing submissions to ASIC on those issues. Again, most of the attention is on financial planning advice, and we need to be careful that solutions prepared for that sector do not necessarily apply to broking. Time and again, we get caught up in this ‘one size fits all’ approach and we need to ensure that regulation is properly targeted.
IB: Is there an argument that insurance brokers shouldn’t be under AFSL at all? DB: I was recently reviewing two reports on insurance law that came out of the Australian Law Reform Commission in the early 1980s. One led
“Time and again, we get caught up in this ‘one size fits all’ approach and we need to ensure that regulation is properly targeted” to a reform of insurance law contracts; the other put in place a core regulatory framework for insurance agents and brokers. When financial services reform [FSR] came along in 2001/02, brokers became caught up in the broader reforms despite the fact they already had their own regulations and there was nothing demonstrably wrong. You do scratch your head. Where insurance broking is concerned, is Australia seriously better off due to financial services reform in 2002? That’s an interesting question.
IB: What’s your take on it? DB: There are some aspects of business operations which are far better. FSR did introduce a clear obligation for training and competency... It also clearly establishes the relationships between licence holders and their representatives. However, the challenge for this and next year is to work with ASIC on training requirements to ensure these are appropriate for insurance brokers and the advice they give to their clients.
IB: The public profile of brokers is seen as either negative or as no profile whatsoever. What are your current thoughts on that situation? Can more be done? DB: The challenge to promote the role of brokers is that it’s a really big topic. It could be as big as you want it to be – and you can read that as ‘expensive’. My recommendation to the board is that we need to identify our target audience – are we talking to the entire world through TV, or specific audiences? Once we’ve identified that, what are our messages? We’re determining those two things at the moment. When we’re clear on our message, we’ll talk to marketing agencies to put programs in place. Saying that, we have scored some quick wins. We’ve rejigged our ‘Need a Broker’ service and the call centre has gone from around 500 referrals a month to 2,000. The website gets 4,000–5,000 hits a month. It’s also now linked to the MoneySmart website, one of the most popular sites in Australia for financial information, and the Foreign Affairs Smart Traveller site.
NOVEMBER 2013 | 25
FEATURE / CYBER RISK
DECODING CYBER RISK It’s the next big thing in financial lines, but what is cyber risk and how can brokers profit? Kevin Eddy investigates
If the last century was the age of oil, this century is the age of data. Look around an office, cafe or typical street scene, and a large percentage of the people you see will be jacked into the internet in some way, shape or form, whether that’s via desktop computer, tablet, smartphone or Google glasses. However, this reliance on technology also brings with it new risks. Organisations now store, share and transact more data than ever before – and much of that information is sensitive, confidential or private in some way. The loss of that data – whether through accident or crime – can have serious financial and reputational consequences for organisations. This is where cyber risk insurance comes in.
WHO’S AT RISK? The short answer is ‘everyone’. The digital revolution has affected almost every industry, meaning that organisations in every sector are at risk. Verizon’s latest Data Breach Investigations Report suggests that 855 data breaches took place across the globe in 2012, compromising 174 million data records. And that’s just the breaches we know about. Some sectors are more likely to be targeted by criminals or hackers than others, especially those whose business models are particularly reliant on technology. Stephen Bonnington, Zurich Australia’s Head of Financial Lines, comments that online retailing, healthcare and banking tend to be more likely targets than, say, more traditional industries like agriculture. 26 | NOVEMBER 2013
INSURANCEBUSINESSONLINE.COM.AU
BY THE NUMBERS
855
data breaches in 2012
174m
58%
97%
compromised records
98%
were attacks from external parties
of data theft was tied to activist groups
of breaches could have been avoided by instituting simple or intermediate controls Source: Verizon Data Breach Investigations Report 2012
Security threats come from two sources, he adds – inside and outside. Internal threats can include both accidental sources (eg leaving a laptop on a train) or the malicious activities of a disgruntled employee. External threats typically take the form of hacking and related activities like cyber extortion.
COVERAGE The first area of confusion that emerges around cyber insurance is what it covers. “People’s understanding of cyber liability can vary. Insurers are really talking about confidential and private information – being hacked or losing a laptop on a bus,” explains Craig Claughton, NSW FINPRO manager at Marsh. While risks around the storage of private information are not new, and have been covered to some extent by other policies in the past, the ease with which online information can be accessed means the risk has increased exponentially. It’s only with a tailored cyber policy that organisations are fully covered, says Allianz global head of fidelity Nigel Pearson. “The cyber world presents a perfect opportunity for a fraudster: you can act remotely, the risk of attribution is tiny, and rewards are potentially huge,” he says. “As a result, cyber is becoming better defined as a separate segment. There have been elements of cover for a long time – so on the liability side, there have been elements of cover in general liability or D&O policies. Similarly, there have been elements of first-party cover in property or crime policies. However, there have been huge gaps in coverage, and cyber covers those.” Typically, a cyber policy covers clients against a range of first-party and third-party liabilities,
including the costs of notifying customers that their data may have been compromised, legal fees and costs associated with any third-party action as a result of a cyber incident (see boxout for more information). Policies don’t typically cover reputational damage, nor do they cover the cost of software and system damage. Another important aspect of cyber coverage is business interruption, adds Pearson. “Traditional business interruption coverage needs to be triggered by physical damage,” he says. “With cyber, there is no physical damage – it’s more likely that a system’s been affected by a virus or employee error. Cyber extends business interruption to cover this too.”
UNDER THE RADAR If the risks are so significant, why do so few Australian firms have cyber insurance? The answer comes down to regulation, says Pearson, namely the requirement to tell customers or clients if you’ve lost their data. The US has been the undisputed trailblazer in this space. “Just over a decade ago, the US introduced mandatory data breach notification in California, and most other states followed suit. That kickstarted
“The cyber world presents a perfect opportunity for a fraudster: you can act remotely, the risk of attribution is tiny, and rewards are potentially huge” Nigel Pearson, Allianz NOVEMBER 2013 | 27
FEATURE / CYBER RISK
ESSENTIAL COVER Breach notification: The cost of writing to customers if a breach has taken place, taking out advertising, and associated costs like monitoring customers’ credit ratings following a breach
Third-party liability: Legal costs if the insured is sued for another’s financial loss as a result of a breach. This is particularly important with the risk of class actions increasing Business interruption: Covers loss of profit if a company is unable to trade as a result of an incident. Unlike conventional business interruption cover, cyber policies are not triggered by bodily injury or property damage What’s not covered: Reputational damage Damage to software and systems
the drive for coverage – if you lose three million people’s data, that’s a lot of notifications, and costs build up very quickly. The legislation also gives regulators more powers to fine companies: when you combine that with the growing reliance on IT, that’s driving the insurance market.” While similar laws are in place in the UK and several European states, Australia to date does not have mandatory breach notification laws. But they’re coming, says Claughton, although no one is sure exactly when. “Several changes to privacy laws are due to come into force in March 2014,” he says. “However, they don’t include mandatory breach notification, which was due to be passed into law in the last session before the federal election. “Unfortunately, it didn’t happen and we don’t know when it will happen [as a result of the change of government].” Even so, Claughton is confident that it’s only a matter of time before Australia catches up with the US and UK – and clients know it. “This topic is on the minds of all of our clients – we don’t have a strategy or planning meeting without this being high on the agenda,” he says. “Some of our large clients have cyber as their number one or number two operational risk.”
PART OF THE SOLUTION However, while the desire for insurance is clearly bubbling under, it’s only part of an effective data 28 | NOVEMBER 2013
protection policy. While 98% of the breaches identified by Verizon stemmed from outside sources, 97% of those could have been avoided by instituting simple or intermediate controls. Brokers can therefore play a critical role in educating clients about basic IT security, says Robert Cooper, director of Cooper Professional Risks. “Employees are the first line of defence against cybercriminals; however, they are also potentially a large security risk,” he says. “Passwords are a good starting point. Clients should have a system in place so they are changed regularly by yourself and staff. Implement good password policies with rules such as at least eight characters with at least one number and one capital letter, with a requirement to change passwords every two months.” Cooper adds that clients should educate employees on basic security measures, such as how to recognise potential threats. “A security plan without active participation by your employees is like an alarm system that’s never switched on,” he says. A critical element for brokers to assess is whether senior management understands all the issues, and whether the IT department is fully engaged with the risk manager. “How well the IT department is integrated into the business is a key indicator of business maturity. The companies who understand their security risks acknowledge that no IT system is foolproof, and also understand the way that technology and the human element interact,” says Zurich’s Bonnington. Bonnington adds that brokers can offer various services to assist clients in assessing potential risks, and gaps in current insurance programs. “Brokers can provide broad advice on cyber risks, and conduct analysis to highlight the way existing coverages may/may not respond to specific loss scenarios. A broker’s primary role is to act as a catalyst for debate, and soliciting appropriate input into the risk analysis process. Buying insurance is the final step of the process, once the key exposures are understood.” There’s no doubt that this market is set to soar. “At present the size of market in the US alone is worth between US$800m and $1bn,” says Pearson. “Currently, the rest of the globe is worth less than a tenth of that in total – but it’s growing rapidly. The threat will not go away. It’s here to stay. In five years, the cyber risk market could be worth hundreds of billions of dollars worldwide.”
FEATURE / MARINE INSURANCE
Marine insurance of all shapes and sizes is heading into choppy waters. Chinwe Akomah explores the state of the market
Y M R O T S The marine insurance market is in a state of flux. From the tragic events of the sunken Italian cruise ship Costa Concordia to Australian billionaire Clive Palmer’s bizarre plans to recreate the Titanic ship, the sector is facing an ocean of challenges, but opportunities are present as well. The calamitous event involving the Costa Concordia highlighted one of the biggest issues facing brokers and underwriters in marine insurance – the frequency and severity of catastrophes. There were at least 35 recorded disasters at sea between January and August this year, according to Map Report. The most recent of those occurred in the Philippines in August. Around 38 people were killed and 82 unaccounted for following a collision
30 | NOVEMBER 2013
between the Dona Paz ferry and a cargo ship, MT Victor. This disaster served yet again as a sobering reminder to brokers and underwriters of the challenges of sourcing and writing such risk for both pleasure craft and commercial marine.
THE BROADER CATASTROPHE CRISIS Natural and man-made maritime catastrophes have led to a constant battle by brokers in the marine space to provide their clients with sufficient cover at a price they can afford in the face of rising premiums, forced up by natural catastrophes. “The main challenge is to ensure that clients are not disadvantaged by large ‘across the board’ rate increases,” says Alan Wilkins, practice leader at OAMPS Gault Armstrong in Sydney. “It is up to brokers to work with clients to ensure that their risk management techniques and processes are robust,
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SE AS
and to pass that knowledge on to underwriters so that they can take the good practice into account when assessing their terms.” Catastrophes have also caused serious problems for the pleasure craft sector, according to Trident Marine managing director Rick Wolozny. He suggests premiums are likely to continue to rise as a result. “Pleasure craft has experienced some challenging times due to the number of catastrophe events over the past five years, combined with substantial increases in repair costs. This has resulted in increasing premiums and the tightening of underwriting of some of our competitors, such as withdrawing from insuring vessels on swing
moorings or insuring vessels in cyclone-prone areas, as an example. This trend is likely to continue until the market performance of this class is satisfactory.”
PLEASURE CRAFT Pleasure craft, much like home and motor insurance, is facing another crisis: uninsured boat owners. “Non-insurance continues to be a major issue, with a large number of boat owners choosing not to insure their boats, particularly in the lower-value pleasure craft segment,” explains Michael Winter, acting CEO of Club Marine. “This can result in quite crippling financial implications in the event of a claim; for example, a liability claim arising out of injury.” NOVEMBER 2013 | 31
FEATURE / MARINE INSURANCE
THE SALVAGE SQUAD Reselling salvageable material from settled claims has traditionally been an ad hoc task – but one insurer is taking a more structured approach. It’s often the case with marine claims that what’s being claimed for can also be salvaged – like the apocryphal tales of luxury goods that wash up on a beach after a cargo ship incident. But while insurers are well acquainted with reselling salvage to lower the cost of claims, Suncorp is taking a more structured approach than most. Since July 2012, Suncorp has operated a dedicated salvage team with the sole remit to get the best price for salvaged goods. “Salvage has traditionally been done by assessors, but it’s always been an add-on to their core role,” explains Jamie Dobbs, executive manager, professional and industry claims. “We wanted to optimise the return.” When a salvage situation is identified, the team steps in, assesses the potential buying channels and likely sale price, and liaises with preferred resellers. The team’s sole objective is to get the best return possible, and to that end it has formed extensive links with a network of resellers, ranging from traditional auction yards and industry specialists to online marketplaces and even eBay.
32 | NOVEMBER 2013
One example highlighted by Dobbs was 220 metric tonnes of scaffolding originally destined for a gas project but which had been contaminated by cosmetic white rust. Rather than being sold for scrap at $200 per tonne, an online tendering process meant that the lot was sold to a scaffolding company for $640 per tonne. Another successful salvage involved a $1.6m purpose-built mining engine that was damaged during transportation. With only three potential buyers in Australia – none of whom could use the engine – the team mounted a global search and eventually found a buyer in the UK. While the sale price was only 10% of the original value, the other option would have been the scrapyard and a $20,000 transport bill. The team is managing 40–50 cases per month, and is expected to take on more from all parts of the business over the coming months. It’s playing a key role in reducing the cost of claims for Suncorp, and is benefiting clients too. “It enables our claims people and assessors to focus on customer without distractions,” says Dobbs. “In addition, being able to extract value and lower the cost of the claim can also help reduce premiums at renewal time.”
However, the pleasure craft sector is not without its opportunities, Winters notes, as boat sales and boating participation events, such as youth sailing and fishing, are on the rise. “These, combined with warmer weather, should create opportunities across the board for higher participating in boating activities and sales of pleasure craft, all of which of course should be insured,” he adds. Wolozny believes the biggest market shift is yet to come, leaving behind the days when big players monopolised the marine market. “Like the US and European markets, there are likely to be more niche specialists and a larger spread of business in the market,” he says. As a result, the role of the broker will be just as important in the future as it is now. Winter adds that when brokers seek out cover for their clients, they must consider the insurer’s experience and expertise in meeting the pleasure craft needs of their clients across all elements the value chain. He also urges brokers to take note of the stability and commitment of the insurer to the pleasure craft market.
CARGO/COMMERCIAL Like most dilemmas in business, the plight of marine cargo insurance boils down to the stuttering economy, at least in part. Reduced turnover, revenue, freight rates, charter hire fees and import/ export activity has resulted in reduced earnings, says Ric Clarke, of OAMPS Gault Armstrong in Perth. “This impacts margins against which employment costs come under pressure,” he notes. “The challenge therefore is maintaining experienced and talented employees to capitalise when the economy (client activity) recovers.” Wilkins also believes the economy is one of marine insurance’s biggest challenges. “Vessels are also being worked hard during tough economic times. This leads to failure of systems and crew negligence, resulting in an upward trend in losses for both hull and marine cargo insurers.” In addition, Wilkins points out that companies are increasingly using exceptionally large vessels to carry more goods, in order to reduce costs and increase their economies of scale. Maersk recently commissioned Daewoo to build what it calls the “world’s largest container vessel”. Each of the 20 vessels will be 400 metres long, 59 metres wide and 73 metres high, and deployed in the Asia-to-Europe trade.
FEATURE / MARINE INSURANCE
“There is, and with deepest respect to my colleagues, an abundance of male and grey-haired individuals of European extraction in the marine insurance sector” Alan Wilkins, OAMPS Gault Armstrong The propensity to build large vessels is putting pressure on underwriters. “Large vessels create a large accumulation of risk for insurers,” says Wilkins. “However, it’s not currently possible to fully track and measure each insurer’s accumulation risk in real time. “This means that in the event of a vessel foundering, the first time an insurer will know what value it insures on the vessel is when the notices of loss have been received. Consequently, it is difficult to predict and control exposures, leading to an over-reliance on modelling for reserving strategies, and higher reinsurance costs feeding into higher prices for marine insurance.” For better or worse, certain issues are likely to change the face of marine insurance as we know it in as little as three years. For Wilkins and Clarke, it is the inherent skills shortage of young talent in marine insurance. “There is, and with deepest respect to my colleagues, an abundance of male and grey-haired individuals of European extraction in the marine insurance sector,” Wilkins laments. “The marine insurance opportunity is growing in proportion to the world economy; however, the population of 34 | NOVEMBER 2013
marine insurance experts is not keeping up, due to significant underinvestment in recruitment and training.” Wilkins also refers to a gender imbalance in the industry but quickly adds: “During my short time in Australia I have been pleasantly surprised by the higher proportion of female marine insurance practitioners relative to the UK. “The insurance sector must invest in the future talent and recognise the importance of marine insurance as a key product for future growth. It must also attract good talent, irrespective of gender or race.” Obliviousness to the success of emerging markets is also a concern. Wilkins and Clarke point out that London, Rotterdam, New York and Sydney are increasingly remote from the emerging centres of world trade, while emerging nations Brazil, Russia, India and China are not recognised as marine insurance centres of excellence. Jim O’Neill, former economist at Goldman Sachs, has, in the past, stated that if China grows by just 7.5% this decade, and “the developed world returns close to trend, then the world will grow by around 4%”. Yet, according to the International Union of Marine Insurance, only 16.1% of global marine insurance GWP is transacted in those four countries. For players like Zurich, technological advancement is one of the biggest game changers. Barton Douglas-Brown, marine national product manager for Asia Pacific, says it will drastically improve how insurers deliver products to the customer and service. He also points to opportunities in offering coverage solutions for logistics operations as they deliver their services and assume more responsibility across their supply chain. For brokers to fully realise the benefits of marine insurance going forward, they must think about the value they add to their clients. This includes, Clarke says, changing their mindset from that of facilitation to focusing on measuring risk and identifying uninsured risk exposures. Giving an example, he explains that few ship owners maintain business interruption insurance relative to their total loss exposure. He also suggests that brokers should always look for ways to add value for the client, such as by reviewing contracts/charter parties to ensure that any transfer of risk is identified and thereafter can be accommodated upon reasonable premium terms. Wilkins agrees. He believes this is particularly important for cargo insurance. “It’s all about
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understanding the needs of your client. Many importers and exporters may be ignorant of the need to insure cargo, wrongly believing that the overseas seller/buyer has arranged the insurance, or that the carrier is liable to pay full value in the event of loss or damage.” However, he warns that claims can be challenging when losses occur internationally, so it is vital that clients receive full claims advocacy in the event of a loss. “It is not good enough for brokers to rely on the claims settling offices of insurers or try and use local knowledge in an international setting. The opportunity for brokers therefore flows from developing expert knowledge in the field of international trade and transport.” Wilkins also issues advice regarding hull and marine liabilities. He says marine insurance should not be approached in the same way as general lines of business, and brokers must be aware of the different laws governing marine insurance. “A thorough understanding of the application of the applicable law is required to ensure that all
stakeholders in the insurance contract are aligned,” he explains. “Some marine insurance-related risks will fall under the Insurance Contracts Act and some under the Marine Insurance Act. Each imposes a different set of rights and obligations on parties to the contract, so it is important to seek specialist knowledge to ensure that clients are fully protected in the event of loss.” For Wilkins and Clarke, what brokers must do is clear: know the law, recognise their responsibilities and understand their clients’ business. “If you have any doubts, any at all, engage a specialist to assist. It’s far better to pay away some brokerage than incur an errors and omissions claim at the back end due to the incorrect cover being placed,” they add. Ultimately, price will always be a fundamental constraint for clients, says Douglas-Brown, but specialist marine insurance expertise and service will go a long way in helping brokers and insurers succeed against pricing constraints, and ensure their customers are protected when disaster strikes.
NOVEMBER 2013 | 35
FEATURE / PROFESSIONAL INDEMNITY
Professional practice The growth of the knowledge economy and increasing health concerns mean professional indemnity insurance requirements are rising. Gary Gribbin explains
The Australian professional indemnity (PI) market is growing quickly, for several reasons. Chief among these is the continued growth of the service sector – well above that of manufacturing – creating more opportunities. Additionally, increased demand for PI in sectors that have traditionally not required this type of insurance also contributes to product demand.
NEW OPPORTUNITIES In addition to looking after the changing needs of their existing clients, there are a number of new growth opportunities for brokers in this space. There will continue to be increased growth and demand in: the allied health professionals sector: chiropractors, physiotherapists, podiatrists, and radiographers the allied health workers sector: acupuncturists, beauty and aesthetic therapists, massage therapists, naturopaths and many other ‘therapist’ type activities Why? It comes down to demographics, and Australia’s increasingly ‘pear-shaped’ population. The country’s financially independent baby boomers are more concerned with health issues as they age, and are keen to enjoy the next lifestyle stage of their lives. Health professionals and workers are therefore reaping the benefits. There will also continue to be increased growth and demand in the following areas: intellectual property issues, both aggressive and passive, as well as associated insurance protections increased occupational regulation intended for improved consumer protection, and subsequent increased demand for professional requirements through industry codes of conduct growing demand for PI by non-advice/non-
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Queensland WHERE ARE MOST PI PREMIUMS AND CLAIMS COMING FROM?
15% premiums 21% claims
NSW
44% premiums 44% claims
Victoria
24% premiums 18% claims professional parties due to standard contract provisions for contractors of all sorts more use of contractors across numerous industries as businesses revise their structures around skill sets and, increasingly, experienced operators move towards life-balanced, reducedhour lifestyles or semi-retirement Other factors influencing demand are increases in the following areas of liability: crime losses employment practices liability statutory liability, particularly fines related to occupational health, safety and environment protection
BROKER NOTES Brokers must exercise care and vigilance when choosing products for their clients, as changes and versions of policy wordings can mean sourcing cover for certain occupations and activities may be challenging. Participation and pricing in specific occupations, as with most products, will also fluctuate due to the claims experience. However, this may occur with increased frequency and with greater severity than experienced with other general insurance products. Insurers and some underwriting agencies will continue to focus on distribution of products through EDI platforms. The impact of an increase in electronic distribution of products is all too frequently a decrease in access to advice and support from underwriting personnel within
BY THE NUMBERS: PROFESSIONAL INDEMNITY
40+
insurers and underwriters offering cover PI comprises
4%
of the general insurance market
3.3% these businesses. The demand is for low- or notouch distribution of products. The consequences of this for brokers can be a higher professional indemnity exposure for their own businesses. As with support for most products that brokers access on behalf of their clients, the most effective and supportive insurers or underwriting agencies from a broker’s perspective are those where there is a human relationship with an underwriter. It follows that a good working relationship between underwriter and broker results in a lower professional indemnity risk profile for a broker. With the PI market evolving, brokers who have good working relationships with their underwriters, whether this be with an insurer or an underwriting agency, will get better support and will be able to put a better-quality product in front of their clients. They may also gain a lower PI exposure profile for their own businesses.
year-on-year growth rate for the overall PI portfolio
Gary Gribbin is underwriting director at ProRisk.
There will continue to be increased growth and demand in the allied health professionals sector and the allied health workers sector NOVEMBER 2013 | 37
INTERVIEW / MORAY & AGNEW
44 years young Moray & Agnew has been a stalwart of insurance law for more than 40 years. Michael Pitt and Geoff Connellan highlight how things have changed and offer some predictions for the future Insurance Business: Tell us about the history of the firm… Michael Pitt: The story really starts in the 1960s, when Sydney H Moray and Co was a practice on the wane. Brian Agnew stepped in and took over the insurance practice in 1969, and when I was admitted in 1971, I went into partnership with him. We were both pretty young, but could see the potential in the firm: it was a case of managing the practice and the work efficiently and servicing the clients properly. As we grew, we expanded in numbers: a unique thing about the firm is that 68% of current Sydney partners started their legal career with us – I don’t think any other firm in Sydney, or even Australia, can claim that. We were originally solely based in Sydney, but in 2000 we began to expand interstate. That was driven by the contraction in the number of insurance firms. That contraction drove a similar contraction in those new, larger insurers’ legal panels, and firms that could give them east coast, if not national, coverage were at an advantage. We opened in Brisbane in 2000, followed with Canberra and 38 | NOVEMBER 2013
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Melbourne in 2003 and 2004, and opened in Perth three years ago. Those offices have all been very successful: just last year the Melbourne office saw a 50% increase in volume.
IB: What areas do you specialise in? Geoff Connellan: We service insurance lines across the board – the only specialist line we don’t claim expertise in is marine insurance. Otherwise, we are involved in everything from property and liability – such as D&O and householders’ liability – to statutory lines insurances like workers’ comp and CTP. There are plenty of firms doing big-ticket, highly publicised claims, but insurance doesn’t turn on those big claims. What it turns on is volume and lots of claims occurring. That’s what makes us an insurance firm – we’re doing those big-ticket items, but also covering those other areas that the insurance industry is really all about.
IB: How do you attract talent to the firm? MP: It’s always been our policy to employ graduates looking for 15 weeks’ practical training. That gives us the opportunity to assess them, and we offer them a position if they’re the right fit. Attracting talent is interesting in insurance law. It’s very cyclical. When the commercial world is booming, everyone wants to be in corporate and M&A – the ‘glory work’ – but at the moment it’s the reverse. We’re inundated with applications. Insurance firms are less badly affected by recessionary times – if anything it’s the opposite! GC: One of the other selling points about insurance law is that you’re actually doing all sorts of legal work, because you have to understand the facts applicable to the case you’re advising on. Like banking, nothing really happens in the world without insurance. When you tell people that you can get involved in kidnap and ransom cases, or cases where satellites have been damaged, or massive cases like Piper Alpha, that gets their interest. Long-term job security is a big draw too. I’ve certainly seen more graduates looking for longerterm roles in recent years. They’re more conservative than the people coming through 10 years ago.
IB: Where are the big issues in insurance law? GC: Post-GFC professional indemnity claims against planners are still a major theme, but there will come a time soon when the statute of
limitations begins to cut those off. For example, people who lost money in 2008 will need to bring a claim by 2014. The people who are bringing class actions – funders and firms – are making sure that potential claimants are aware of that fact, and that’s no bad thing. We will also see claims arise as a result of FoFA, in terms of non-compliance with the new law. The other area we see issues arising is in construction. Again, it’s a cyclical business: when times are good, there are issues arising out of the actual construction; when times are worse and values fall, another type of claim arises – often PI claims against engineers and architects, claims against valuers. We see our work changing in nature, depending on where we are in the property cycle.
IB: What’s next for the industry? GC: The next big thing? I don’t know, but it’ll probably have something to do with developing technology that presents risks to people’s property or finances. An area we expect change in is statutory insurances. Changes in those areas can happen quickly. We know workers’ comp and CTP is on the agenda; how quickly that happens can be surprising, with potentially major impact on business. MP: The desire is certainly there to privatise workers’ comp, and if the [NSW] government can control the deficit, then there’s certainly the appetite from insurers. The impact on us – well, that’s difficult to predict.
IB: What’s in the future for Moray & Agnew? MP: We’re confident there will always be a need for insurance and there will always be a need for insurance lawyers. Our aim is continue to be a major force, and to do that we’ve got to be national and have to be able to service all major lines. GC: We have a very talented, energetic and young team around the country. We’re all of the same view: we want to continue to be a national insurance specialist. However, the exact nature of the work may change and we need to be able to adapt to that as requirements change. That comes down to having the right people – the experienced litigators and negotiators who can adapt to new situations.
MORAY & AGNEW: A TIMELINE 1948 Practice begins as Sydney H Moray & Co 1969 Practice becomes Moray & Agnew 1971 Michael Pitt admitted and becomes a partner at the tender age of 23 1994 Acts in Burnie Port Authority v General Jones, which set aside UK common law that had been in place in Australia for 170-plus years 2000 Interstate expansion begins with opening of Brisbane office 2000 Acts in landmark Leighton Contractors v Smith case, which set subsequent law about vicarious liability in accidents on work sites 2003 Canberra office opens 2004 Melbourne office opens 2008–2009 Acts for insurers following the collapse of Lehman Bros 2010 Perth office opens 2013 Acts for insurers in landmark Great Southern case
NOVEMBER 2013 | 39
BUSINESS STRATEGY / DATA
Data artistry: finding business value in data Data science is the new ‘rock star’ business profession that picks up where big data and analytics leave off. Tim Phillipps argues that, to become more predictive, organisations should recruit those who see the future and others who can visualise it for the rest of us
T
The ‘data scientist’ is a new breed of analytics professional who takes an experimental approach to analysing data. Professor Thomas H. Davenport, visiting professor at Harvard Business School, is one of the world’s foremost authorities on data science and a senior adviser to the Deloitte Analytics Institute. He says a data scientist is “part hacker, part quantitative analyst, part trusted adviser and part scientist”. Organisations are interested in data science because it has the potential to transform business models and
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create new ones. It also replaces gut instinct with datadriven decision-making and is the basis of a new form of competitive advantage that is difficult to replicate. Consider the following examples. LinkedIn owes much of its success to the ‘people you may know’ function, an experiment instituted by its former chief data scientist DJ Patil, who also coined the term that applies to the new profession. GE realised that the growing amount of data produced by sensors in the firm’s gas turbines, jet engines and
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other industrial products could be collected and analysed in real time to improve machine performance and operations, turning unscheduled maintenance into scheduled maintenance and identifying potential operational disruptions before they occurred. The insights it has drawn from its devices are already improving the efficiency of customers’ businesses, saving them anywhere from tens of thousands of dollars to millions for each analytics-based service. Worldwide gaming, resorts and hotel empire Caesars Entertainment analyses data from slot machines to present real-time offers and marketing promotions to its patrons. While organisations are building their in-house ability to use data to peer into the future, Kaggle, a platform that allows organisations to crowd-source data scientists, has attracted the backing of Silicon Valley high-flyers who were behind the online payments platform PayPal. Kaggle allows organisations to farm out complex business problems to data scientists around the world in return for cash prizes. Although data science is the future of decisionmaking, organisations must hurdle two obstacles. First, they must bridge a skills gap and, second, understand and act on the predictive business insights that data scientists produce.
A SHORTAGE OF SCIENTISTS A survey carried out last year by EMC revealed that two thirds of data science practitioners expect demand to outpace supply over the next five years. Even first-year business students know what happens when demand exceeds supply: prices go up. We’re already seeing this, with organisations willing to pay top dollar for data scientists. But this is a risky strategy involving considerable expense and with no guarantee that an individual will be a good cultural fit. So where can organisations find the data scientists of tomorrow? Mark Grabb, Analytics Technology Leader at at GE’s Global Research Center in New York, suggests PhD graduates are likely to remain a major source of data scientists in coming years. The private sector, universities and industry bodies like INFORM are also developing
tailored data science courses. However, there’s a question whether these courses are teaching the right skills. Most courses that are currently being developed focus on the data cleaning, mining and analysis skills necessary for data scientists to do their job. But less attention is paid to the ability to communicate those insights, says Davenport. “Communication still doesn’t have the importance it should in most programs,” he says.
MARRYING ART WITH SCIENCE Bridging the communication gap is of paramount importance. It’s great to have a team of big brains that can crunch data, but their efforts are useless if they can’t explain what they find to decision-makers. Communicating the message hidden within data requires a rare capability to combine the right-brain analysis with the left-brain creativity needed to communicate with non-specialists. This isn’t just about
The Kaggle story Founded in Melbourne, Australia, in 2010, startup Kaggle is an online marketplace that connects organisations with the world’s best data scientists. Now based in San Francisco, Kaggle has two products: data science competitions for optimising a company’s existing algorithms a matchmaking service called Kaggle Connect, which connects companies to data scientists who can help them solve challenging data science problems (whether new or existing) With competitions, companies can post datasets and problems to Kaggle, and the community of 100,000 data scientists compete to create the best solution. Competitions are effective for well-specified problems, where predictive accuracy is most important. Good examples include retailers that want to forecast demand more accurately (to optimise pricing and prevent out-of-stock situations) and insurance companies that want to more accurately predict risk. For less well-specified problems, Kaggle provides a matchmaking service called Kaggle Connect, which matches companies with a data scientist who has a track record of solving a particular problem (as demonstrated through their competition performances). Kaggle Connect is suitable for problems such as helping retailers and CPG companies optimise their pricing, or telecommunication companies better target their customers or potential customers with personalised marketing offers or customer retention initiatives. The Kaggle Community now contains over 100,000 data scientists, including many of the world’s biggest names (from the IBM Watson team to the Google Prediction API team). Deloitte Australia announced on 28 May 2013 it had entered into a preferred alliance with Kaggle. This alliance will combine Deloitte Australia’s analytics, business advisory, technology and process consultants with Kaggle’s data scientist network to bring the best analytics solutions to clients.
NOVEMBER 2013 | 41
BUSINESS STRATEGY / DATA
Insurance and data science The insurance industry is just beginning to take advantage of this new discipline to improve the way it operates in several ways, particularly around pricing risk: By using GIS information and services like Google Earth alongside information in other databases, insurers are increasingly able to map properties to an individual level, allowing for more effective pricing of risk, especially in areas prone to flood or bushfire. Monitoring equipment – ‘black boxes’ – can
Data artists need to be able to tell stories with data, understanding the most effective way to communicate results
Tim Phillipps is the DTTL global leader of Deloitte Analytics and is responsible for Deloitte Analytics Institute Asia. He is an authoritative voice on the application of analytics as a source of managerial insight and competitive advantage.
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running experiments with data; it’s about being able to paint a picture with the results. In many respects, this skill is more art than science, namely ‘data artistry’. There are two key elements to data artistry. First, the data artist must be able to speak both the language of data and the language of business. Second, data artists need to be able to tell stories with data, understanding the most effective way to communicate results, and being able to work with different media to deliver those insights. This typically involves using data visualisation tools. In the past, these might have been static reports, PowerPoint presentations, heat maps and charts. Now, data artists are increasingly turning to new and more creative ways of telling stories with data. They are now using audio-visual presentations, dynamic charts, interactive games, 3D models and apps to convey meaning.
WHAT CAN ORGANISATIONS DO? In the short term, organisations will struggle to find a professional who embodies a data scientist and data artist in the one ‘rock star’ package. A better approach is to create rock bands: data science teams with a breadth of expertise. By focusing on forming teams,
now record every aspect of how a vehicle is driven, from distance travelled to how hard a driver hits the brakes. This information could be used to price risk and assess claims. This technology is not limited to motor insurance, either: as common devices such as phones, TVs and even ovens become ‘smart’ and connected to each other, the ensuing tsunami of information could be used for other types of coverage too. Loyalty card and other data from partner
and sister businesses (such as supermarkets) can be used by insurance companies to garner more information about lifestyle choices and more effectively price risk. This should be carried out with individuals’ permission, however.
organisations can blend a mix of top skills without staking everything on a single risky hire. It also enables organisations to fish in a wider ocean of talent, rather than the existing pool of data professionals. You can hire in specialists in particular areas: data scientists to run experiments, industry specialists who can apply analytical insights to their work, or even computer games programmers and animators to devise data visualisations. Finally, tapping into external sources of expertise can bridge skills gaps, benchmark your own approaches against the latest advances in techniques and technology, and source talent in specific analytical areas. The Deloitte Analytics Institute is one such centre of excellence; alternatively, organisations like Kaggle offer affordable access to data scientists around the world on a project-by-project basis.
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NOVEMBER 2013 | 43
BUSINESS STRATEGY / SMALL BUSINESS
TOP 5
CHECKS Small businesses and underinsurance Small businesses are always counting costs – but being underinsured is one economy that could sink the whole enterprise. Twain Abbott sets out five essential checks you should do with your clients
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For a small business, unexpected events or disruptions can significantly impact operations, leading to a serious dent in sales and cash flow or forcing owners to close their doors all together. For all the planning and preparation involved in starting a business, many small and medium enterprises (SMEs) fail to take out an adequate level of insurance cover. A recent survey of 850 SMEs conducted by CGU Insurance found that one in seven felt they may have been underinsured and, more alarmingly, one tenth of small-business owners claimed they didn’t have any cover at all. A decision prompted by the need to save time and money in the short term, or simple complacency,
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can result in devastating consequences for business owners when they find their insurance cover is inadequate. Insurance advisers need to help steer customers away from falling into the underinsurance trap. In doing so we’ll not only prepare them for the unexpected but also protect their investment and livelihood. Encourage business owners to ask themselves if they are ignoring potential risks to their business just to save money, thinking “it won’t happen to me”. When the unthinkable happens, such as a burglary, car accident, machinery breakdown or even a tax investigation, it can cost many thousands of dollars for the sake of saving a few hundred.
1
ENSURE COVER REFLECTS THE TRUE REPLACEMENT VALUE OF STOCK, EQUIPMENT AND BUILDINGS
This is one of the most common ways businesses get into trouble after an event such as a fire or storm. Business owners might choose to insure only a percentage of the replacement value to cut premium costs. However, they are also electing to take on a percentage of the risk. A fire caused by an electrical fault, for example, can cause total loss for a business, leading to significant costs and months of rebuilding. Another pitfall is neglecting to review the insured sum at renewal time or when changes happen to the business. For example, growing businesses may expand premises, buy new equipment or diversify products. When the time comes to make a claim, the sum insured no longer reflects the true replacement value of their business assets. A business’s insurance policy needs to grow with the business.
2
SET A SUFFICIENT INDEMNITY PERIOD FOR BUSINESS INTERRUPTION COVER
Some 81% of SMEs admitted that an unforeseen business disruption would have a severe impact on their business, yet only 27% had business interruption insurance. Of those that had the cover, it’s likely the agreed indemnity period is not long enough. Planning permits and regulations can sometimes add months to rebuilding timeframes, and the time to obtain replacement equipment from the likes of overseas suppliers can also be far
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longer than first thought, so it’s important to consider this when arranging cover.
3
THOROUGHLY ASSESS THE BUSINESS AND ITS POTENTIAL RISKS
Of those SMEs that did feel 100% confident they had the appropriate cover for their needs, significant shortfalls were found. Many did not have insurance cover for business interruption, employee dishonesty, tax audit, and directors and officers liability. It’s also common for small-business owners to arrange insurance only for compulsory cover. This applies particularly to tradesmen and those who work on the premises of others, and to businesses starting up and needing to finance. A small-business owner may only purchase liability insurance, for example, but there are many other risks to the business that they need to consider.
Encourage business owners to ask themselves if they are ignoring potential risks to their business just to save money
4
FOR CLIENTS LEASING PREMISES, BE MINDFUL OF WHAT ISN’T COVERED BY THE PROPERTY OWNER
Property owners often require tenants to insure certain elements of a building, such as plate glass windows or even the building itself, on the tenant’s own policy. In the event of a fire, broken windows by vandals or a burglary, a business owner may find they are not covered but are responsible for repairs under the lease.
5
“Pull quote lani quam voles inciisit resto dolecaeremo distior erspeli
HIGHLIGHT THE IMPORTANCE OF CONTINUITY OF LIABILITY COVER
Many smaller businesses and sole traders cancel their liability insurance while on leave or when they’re between contracts, to reduce premiums. As a result, they often neglect to reactivate their policies when they’re back on the job. Liability cases can end up in court and run for two to five years, leading to hundreds of thousands of dollars in legal fees. Business owners can be left paying these fees to defend their reputation.
NOVEMBER 2013 | 45
BUSINESS STRATEGY / COMMUNICATION
CLIENT
COMMUNICATION: Digital vs analogue While new online channels can’t be ignored, old-school communications are key to connecting with your customers’ enduringly analogue, emotional hearts, argues Anders Sorman-Nilsson
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We are entering a world of ‘digital disruption’: the idea that everything that can be digitised will eventually be digitised. This includes the customer service and marketing touchpoints that are essential tools for financial services professionals seeking to win the hearts and minds of tomorrow’s customer. Digital disruption is a force to be reckoned with for financial services professionals such as insurance brokers, but it doesn’t mean that everything that can be digitised should necessarily be digitised. It’s essential to pay careful attention to your communications mix so that you don’t throw out the analogue baby with the digital bathwater. While the digital world represents a shiny new penny that is key to engaging with the customer’s increasingly digitised, rational mind, old-school communications remain vital to connecting with the customer’s enduringly analogue, emotional heart. The digital world disintermediates the relationship between financial and bricksand-mortar investments and the end consumer, and that consumer is increasingly doing their due diligence digitally. This means that you run the risk of being digitally disintermediated unless you start providing more value to the customer, via both digital and analogue channels. Think about it this way: digital is phenomenal for attracting new clients, and analogue is great for retaining (cross-selling and closing) existing clients. Thus, you need to become a thought leader in the way that you provide informational, rational value to clients’ increasingly digital minds, while still connecting emotionally with their enduringly analogue hearts. To be able to compete with digital comparison portals, and to protect yourself against digital disintermediation, it’s critical that you figure out which touchpoints you should digitise and which ones you shouldn’t digitise. This isn’t a choice between either the digital or the analogue channel. Instead, you must go ‘digilogue’. Here’s how you can do this.
It’s absolutely necessary to make each tangible analogue encounter with clients, and prospective clients, world class PROVIDE VALUE TO DIGITAL MINDS Put your industry thought leadership and professional expertise on the digital line by creating a great blog, newsletter, and well designed, interactive website. Create a ‘4-2-1’ digital content schedule: blogging four times per month, sending two digital newsletters per month, and creating engaging and educational video content at least once per quarter. For example, an insurance broker in Surry Hills, Sydney, could create a 4-2-1 digital content schedule to provide informational value to clients’ (and prospective clients’) digital minds, while also boosting their Google rankings. It would look something like this:
‘4-2-1’ DIGITAL CONTENT SCHEDULE BLOG 1. “The impact of bush fires on insurance premiums in Victoria” 2. “3 things to think about when buying property insurance” 3. “Do’s and don’ts when making a claim” 4. “Top 7 cover exclusions everyone forgets” DIGITAL NEWSLETTER 1. “3 tips to ensure you’re protected with the right cover” 2.“Business interruption – the insurance every company needs!” VIDEO 1. Interviews with happy clients who have taken the right insurance and whose claims were resolved, or video footage of damaged property along with potential costs
NOVEMBER 2013 | 47
BUSINESS STRATEGY / COMMUNICATION
BEING SEEN You must be seen in the digital world. Your prospects need to start trusting you as a thought leader in the digital world before making an approach to see you in the analogue world. In
Big deals are usually still sealed with a handshake. There is something about the ritual of signing on the dotted line … that the digital world still cannot mirror the digital world, where clients are doing their digital due diligence, offering engaging content is king. Creating search-engine optimised, localised content that can be easily accessed by a prospect contextually via mobile devices will be key to your success in winning digital minds. For example, have content on offer that your clients can view while they’re walking up the street in your area and checking out property.
RECOMMENDATIONS Scenario planning and consulting on a one-on-one basis with your client: My financial advisers at Sentinel Wealth do this incredibly well. We sit down each quarter face-to-face and revisit goals and the long-term plan. They provide me with hindsight, insight and foresight based on our plan, while providing a sense of partnership during these conversations. Writing a handwritten card: This will remind the client of their investment and savings goal, or congratulate them on goals achieved. When I was working with one insurance broker, he said that writing handwritten notes was his key way of adding analogue value and ensuring he retained his clients’ loyalty. Hosting insurance and risk management workshops for clients and their friends: This is a great way of adding value to existing relationships, while also building a pipeline of trusted referrals. Speaking at industry conferences: This will boost your personal brand and thought leadership credentials, and harness your financial networks (accountants, insurance professionals, stockbrokers, banks, etc.) both for speaking opportunities and face-to-face introductions. If you become a trusted adviser and thought leader within your industry, the likelihood is that the industry will talk about you. This in turn can generate positive PR and recommendations.
CONNECT WITH ANALOGUE HEARTS Anders SormanNilsson is a global futurist, innovation strategist, keynote speaker at TEDx and author of the new book, Digilogue: How to Win the Digital Minds and Analogue Hearts of Tomorrow’s Customer. The book is published by Wiley and is available in bookstores nationwide and through Anders Sorman-Nilsson’s website at www. digiloguebook.com.
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While it is critical that you, as a finance professional, are digitally accessible and provide value to digital minds, you also have to ensure that you connect deeply with analogue hearts. Traditionally and enduringly, most transactions take place in the analogue, face-to-face world. Big deals are usually still sealed with a handshake. There is something about the ritual of signing on the dotted line with a Montblanc pen, for example, that the digital world still cannot mirror. It’s absolutely necessary to make each tangible analogue encounter with clients, and prospective clients, world class. If a client, or prospective client, decides to spend analogue, face-to-face time with you, you must show incredible respect for the time they invest with you by connecting deeply with their analogue hearts.
In June 2013, when I spoke at the Million Dollar Round Table for global financial advisers and insurance professionals in Philadelphia, I gave the following recommendations. Have a think about them. There is a time to be digital and there is a time to be analogue. Financial services professionals must ensure they find the correct blend. Digital is phenomenal for attracting new clients and for boosting your own digitally amplified branding, while analogue can be great for building enduring trust, retaining business, and closing deals. Increasingly, you must learn to shift seamlessly between the digital and analogue worlds. In one word, you must start becoming ‘digilogue’.
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Favourite things... Alan Mackay, Guardian Underwriting The industry veteran talks London, Top Gun, and how his complete ignorance of celebrity was a career-advancing trait Place to be: “Pont de la Tour restaurant in London, looking at Tower Bridge,” says Mackay. “I go to London every year for binder renewals and so on. About 12 or 13 years ago I was told I should try this place. It was a freezing cold evening; we sat down and they put blankets over our legs, gave you a glass of red. We sat there and looked at Tower Bridge and it’s been a tradition every year.” Drink: “An older red – I’m a Cabernet boy, and I have a bad habit of buying Cabernets now and putting them all away. I don’t spend a lot of money, but it’s nice to be able to pull out some good wine, even if it only cost you $20 to begin with.” Mackay prefers Langhorne Creek and McLaren Vale wines. Book: Patriot Games by Tom Clancy: “I’m one of those strange people that survives on three hours’ sleep, so I go to bed at 12, get up at 3am, and read until 4. I’ve read Patriot Games several times as a result. I find reading really relaxing.”
Celebrity: “People know that I don’t do celebrities – in fact, I worked for Robertson Taylor Insurance Brokers, who handle entertainers. Because they knew that I didn’t care how famous someone was, they’d often wheel me into face-to-face situations because they knew I had no idea who people were and no interest!” Music: “Eric Bogle, John Williams and anything folk – I’m a bit of a folkie. I was born in Scotland so there’s a bit of that heritage there. I have taken a liking to things like P!nk recently, though.” Vacation spot: “Hastings on Westernport Bay, because it’s 40 minutes from home. On a Friday night, I can leave the office at 6pm, be at home by
7pm, and have a drink in my hand by 8pm. We have a campervan and a regular pitch at the caravan site, which has a fantastic view across the bay.” Food: “Japanese, either out or at home. I can spend a happy afternoon slicing up raw fish and making sashimi. There’s so much you can do with it.” Movie: “Top Gun – I like to see it once a month!” Mackay wouldn’t be drawn on whether he’s Maverick, Iceman or Goose, but did reveal he uses the soundtrack to get the crowd going at conferences.
However, Mackay has never visited Japan itself. “The angle’s wrong – it’s not on the way to the UK! But it is on the list for the future.” Sport: “Union and cricket, but neither at the moment! I played union for many years as a winger – I didn’t want to get hit too hard – and loved to play. But it’s embarrassing watching our team at the moment.” NOVEMBER 2013 | 49
STATS BROKING INDUSTRY
INSURANCE
MONEY TALKS
How much was broker business worth between January and June 2013?
$17,849BN Gross written premium written by APRA-authorised general insurers (excluding Lloyd’s)
S RIE ITH A I W ED S IGN RM INES FORE E INT US D ’S) 69 CED B RISE (UFI S O A PL AUTH URER S UN IN 4M
56
TO
TA
LL
$ ING
HE N T 12 I 0 27M 2 $5 OD IN M I O FR PER UP AME S
INSURANCEBUSINESSONLINE.COM.AU
IES DIAR E R M ES I N E S S T N I 873 CED BU ITH PLA ECTLY W ERS DIR RWRIT UNDE
TOTALLING $7.2BN LING TOTAL
$0.8B
N Source: Intermediated General Insurance Statistics, June 2013, Australian Prudential Regulatory Authority
OR 85% OF WRITTEN PREMIUM
NOVEMBER 2013 | 51
SOCIAL LIFE
In August, the ANZIIF Australian Insurance Industry Awards recognised and honoured the industry’s best companies and individuals in front of more than 750 insurance industry leaders at the Sydney Convention and Exhibition Centre. This year’s event also marked Joan Fitzpatrick’s final Awards as Institute CEO.
SOCIAL LIFE
On 22 August, Wotton + Kearney celebrated the opening of its Brisbane office with a drinks function at Mr & Mrs G Riverbar on Brisbane’s Eagle Street Pier. The riverside location was the perfect place to spend a balmy Queensland ‘winter’ evening, with almost 100 W+K staff, clients and business partners.
NOVEMBER 2013 | 53
SOCIAL LIFE
On 10 September, CGU Insurance hosted its Victorian Market Day for 400 brokers from across the state. The trade showstyle event showcased the full suite of CGU business, ISR and personal insurance products, as well as its workers’ compensation and claims service offering. It also featured a keynote speech by renowned finance and economic journalist Michael Pascoe.
The inaugural Zurich Financial Institutions Forum was held on 22 August at the Museum of Contemporary Art in Sydney. The event was attended by 80 Zurich staff, brokers and their customers in the FI space. The event featured a presentation of Ernst & Young’s 12th Global Fraud Survey by Rob Locke and Tony Prior from Ernst & Young’s fraud investigation and dispute services practice. Zurich’s head of financial institutions for Asia Pacific, Damian Lynch, also participated in the forum as a keynote speaker.
SOCIAL LIFE
On 25 July, some 50 Sydney brokers attended the launch of Calliden’s new ISR Mark IV modified property and general liability insurance products. Brokers were treated to an evening of drinks and canapés at the Blue Hotel in Woolloomooloo, a beautifully preserved and converted 100-year-old wool and cargo handling facility.
Law firm Moray & Agnew hosted close to 200 clients at cocktail events in Sydney and Melbourne on 28 August in support of the not-for-profit Fitted for Work. Fitted for Work prepares disadvantaged and long-term unemployed women for employment by providing them with free work-appropriate clothing, interview coaching, work experience and a range of mentoring programs. In the lead-up to the two events, Moray & Agnew ran clothing drives across NSW and Victoria and contributed 1,130 items to the Fitted for Work wardrobe.
For more pictures from all of these events and more, visit www.insurancebusinessonline.com.au/industry-events NOVEMBER 2013 | 55
THE LAST WORD
THE TORTOISE
AND THE TORTOISE Claims performance may be the most important aspect of an insurer’s service, but are we measuring it all?
Darren Trott is executive general manager of Claim Central, and Insurance Business’s new regular columnist
56 | NOVEMBER 2013
I’m sure many of us analysed the results of the inaugural Brokers on Insurers special report published in the July edition of Insurance Business. It certainly caught my attention, as it highlighted claims turnaround times as the single most important aspect of an insurer’s offering, as rated by the 342 survey respondents. But it also got me thinking. Why don’t insurers publish their actual results against this critical claims performance indicator? What if the gold, silver and bronze medallists were the winners, but in a race that was more tortoise versus tortoise than tortoise versus hare? There is no doubt insurers should have a strong focus on reducing claim life cycles. This generally results in a more positive customer outcome and minimises the potential for cost blowouts. Clearly there are differences in each insurer’s claims portfolio mix, depending on individual risk appetites and line-of-business focus, which can make direct comparisons difficult at first glance. Some types of claims are more complex than others. At the same time, we should be in a position to compare insurers against each other’s performance in average sedan motor claims life cycles, or average small-to-medium property claims lifecycles, for example. We could then compare apples with apples. Although the recent launch of LMI Group’s claims comparison website is an excellent initiative, four of the key comparisons are based on data published by the Financial Ombudsman Service, specifically around claim disputes. Insurers are rated more highly for having fewer disputes or resolving disputes quickly. This is a valid comparison of course, but isn’t it disappointing how one of the few public and objective measurements comes from such a negative factor? It’s a bit like comparing lawyers by how many cases they’ve lost, rather than by how many they’ve won. It’s a measure of customer dissatisfaction.
In reality, there are plenty of objective measurements and, in my experience, most insurers capture them; it’s just that the results aren’t published or promoted. Why not? The following factors would provide brokers and customers with a higher degree of objective measurement, and if made public would lead to greater competition and ultimately raise the bar across the entire industry. My list would start with: The number of claims managed per claims handler – by line of business, as it directly impacts on turnaround times and customer service responsiveness The average claim life cycle – by line of business, measuring the length of time from first notification to final settlement The ratio of claims paid to claims reported – a positive measurement of how many claims are accepted and paid, rather than denied or disputed I’m also a fan of customer satisfaction benchmarks. One of the best-regarded measures is the Net Promoter Score methodology. Products or services are rated by customers according to the extent to which they are prepared to refer a product or service to friends and family. On a scale of one to 10, a score of seven or above means customer satisfaction is strong and customers are likely to be advocating a product or service. A score lower than a seven suggests customers are ambivalent, and at the lowest end of the scale they’ve become detractors, telling everyone about their bad experience… Let’s see who will take up the challenge. I’ll award my gold medal for claims performance to the insurer who can transparently demonstrate the best average claims life cycle, the highest claims paid ratio, and an average Net Promoter Score of eight or above. Game on!
Published on Oct 24, 2013
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