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VOLUME 43
AUSTRALIAN & NEW ZEALAND INSTITUTE OF INSURANCE & FINANCE
2020
CODES IN NEED OF A MAKEOVER Insurance bodies
VOLUME 43 ISSUE NO. 1 / 2020
brush up their codes of practice Are we the defamation capital of the world?
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The opioid crisis on our doorstep
EDUCATION
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LEADERSHIP
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TECHNICAL EXPERTISE
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INSIGHTS
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INNOVATION
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COMMUNITY
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CONTENTS Volume 43 / Issue no.1 / 2020
Contents•
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A new chapter
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MetLife’s Richard Nunn celebrates his first year as CEO and prepares for a year of change, challenge and growth.
Key contributors SUSAN MULDOWNEY Freelance writer & editor
04 Events 06 Industry codes undergo a makeover
In the fallout of the Hayne royal commission, Australian insurance bodies are brushing up their codes of practice to improve industry conduct – ripple effects are also being felt in Hong Kong and New Zealand.
14 Danger zones in a hardening market
Insurance pricing is hardening. We take a look at what’s hurting insurers’ balance sheets.
18 Taking on your biases
Three insurance companies share their tips for creating diverse and inclusive work environments.
22 The skills you need in 2020
Emerging technologies, aging populations and changing customer expectations are set to create new opportunities.
26 Consumer watch
Karen Stevens is working to help prevent, and resolve, consumer complaints.
30 Meet the family
Discover the relationship between organisational culture, risk culture and conduct risk.
35 The new normal – risk-based pricing ANZIIF Scholarship winner Euan Osborne examines riskbased pricing and its effects on the insurance industry.
Industry code makeover — ‘Polishing a tarnished reputation among customers and the broader community is no easy task for any industry.’ PAGE 6.
ZILLA EFRAT
The Journal editor
Danger spots in the market — ‘The hardening D&O market could deter many directors from taking new board positions, diminishing the availability of good leadership.’ PAGE 14.
ANNA GAME-LOPATA ANZIIF content writer
The TPD conundrum — ‘Total and permanent disability is a lifeshattering experience, both physically and emotionally, so it makes sense to offer a lump-sum cover for people in such a category.’ PAGE 48.
Mandarin features Scan the QR code to read select articles in Mandarin
扫描二维码， 阅读中文版精选文章。 ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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CONTENTS
Volume 43
Issue no. 1 / 2020
Technical•
The Journal is published quarterly by Hardie Grant Media for the Australian and New Zealand Institute of Insurance and Finance (ANZIIF).
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Vol. 43 No.1 ISSN 144-8505 GENERAL ENQUIRIES
Tel (61 3) 9613 7200 Fax (61 3) 9642 4166 Email customerservice@anziif.com Web anziif.com
LIFE
The opioid crisis on our doorstep Prescription opioids are increasing the risk of accidental death claims.
ANZIIF OFFICE
Level 7, 628 Bourke Street, Melbourne, VIC 3000 Australia Tel (61 3) 9613 7200 Email journal@anziif.com JOURNAL ENQUIRIES
40 REINSURANCE Breaking the silence
40
Insurers are paying more attention as silent cyber risks spread into almost all classes of insurance.
48 CLAIMS The TPD conundrum
The latest figures show that TPD is a well-targeted product with significant consumer benefit, but there’s room to improve.
52 RISK The defamation capital of the world
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As defamation actions rise, it is hoped planned law reform will prevent an increase in trivial defamation claims.
56 BROKING Can small brokers survive?
In a changing and challenging business climate, some small brokers are finding clever ways to thrive.
61 Member listing
ANZIIF welcomes its newest members.
63 Supporters
ANZIIF’s 2020 corporate supporters.
64 The list
Manage your time with these tips and tricks.
Connect with ANZIIF via social media and anziif.com JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Account director Scott Elmslie
Account manager Hannah Louey Editor Zilla Efrat Subeditor Helen Eva Art direction & design Dallas Budde & Natalie Lachina Pre-press & print Ovato ADVERTISING ENQUIRIES
Nicole Prioste Tel (61 0) 410 618 331 Email nicoleprioste @ hardiegrant.com
Hardie Grant Media Private Bag 1600, South Yarra, Victoria, Australia 3141 Tel (61 3) 8520 6444 Web hardiegrantmedia.com Publication conditions No responsibility is accepted by ANZIIF or Hardie Grant Media for the accuracy of any statement or advice contained in the text or advertisements. The opinions expressed in the Journal are those of the authors, not ANZIIF, unless otherwise stated. ANZIIF accepts no responsibility for the accuracy of information in articles and advertisements in the Journal. Article submissions to the Journal by ANZIIF members and others are welcome. Articles are accepted for publication only on the condition that the authors give ANZIIF an irrevocable non-exclusive licence to publish the article and authorise ANZIIF to give permission for production of the article in whole or in part by other persons and organisations for educational and training purposes, as well as on ANZIIF websites. ©Hardie Grant Media, 2020. All rights reserved.
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EVENTS
SAVE THE DATE // 15 MAY 2020
Panorama Ballroom, Adelaide Convention Centre // Adelaide, Australia Considered the premier charity luncheon on the South Australian insurance calendar, this event provides opportunities for professionals to connect with colleagues, peers and industry leaders while giving back to the community. Proudly supporting Camp Quality For more information, visit anziif.com/sacharity
Rising Stars in Insurance Seminar Sydney and Melbourne // April Aimed at young insurance professionals, Rising Stars in Insurance will equip attendees with the knowledge and skills to help advance their careers.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
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Liability Conference
Client Risk Management for Brokers Study Course Sydney // July
This three-day course for brokers is an intensive learning program that combines hands-on group work, expert presentations and knowledge sharing in the risk-management field.
Auckland // May This technical conference focuses on current issues in liability insurance delivered using keynote speakers, case studies and panels.
Victorian Business Breakfast Melbourne // May Featuring an expert panel, the breakfast is a must-attend event for industry professionals who are eager to hear about the critical perspectives shaping Victoria and the broader industry.
Reinsurance International Study Course Sydney // August This four-day course is widely considered the best reinsurance training course in the southern hemisphere. Participants explore topics including underwriting, placement, rating concepts and portfolio modelling.
Risk Management Seminar Auckland // August This half-day seminar is designed to address current and future changes on various risk management related issues.
Australian Insurance Industry Awards Sydney // August These awards celebrate the achievements of individuals and companies within the insurance industry. Photography: iStockphoto
New Zealand Insurance Industry Awards Auckland // November The awards will bring together all sectors of insurance for a celebration of excellence. ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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REGULATION by Susan Muldowney
Industry codes
undergo a
makeover In the fallout of the Hayne royal commission, Australian insurance bodies have been busy brushing up their codes of practice to improve the industry’s conduct after it was found wanting. Ripple effects are also being felt in Hong Kong and New Zealand.
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he Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry cast a dark cloud over much of the Australian insurance sector when the final report was released in February 2019. Widely viewed as an indictment of unethical practices, it set a mandate for cultural transformation across the entire financial services industry. Commissioner Kenneth Hayne’s recommendations for general and life insurance included a potential ban on commissions (pending an Australian Securities and Investments Commission [ASIC] review in 2021), the removal of claims handling exemptions to ensure they are subject to ASIC oversight, changes to the duty of disclosure and legal enforcement of some provisions of industry codes. While such regulatory changes look set to lift standards across the sector, the insurance industry is also taking steps to increase professionalism from within.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Revising the GI Code of Practice Changes to the General Insurance Code of Practice were in motion prior to the release of the royal commission’s final report after the board of the Insurance Council of Australia (ICA) initiated a review in February 2017. The review’s final report, released on 26 June 2018, included 30 recommendations that reflected key priority areas. These included strengthening the governance of product design and distribution, amending standards on claims investigations and assisting consumers experiencing vulnerability, such as family violence, financial hardship, physical or mental health conditions and exposure to catastrophic events. Addressing the requirements of vulnerable people marks a new and significant step in strengthening the Code.
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SCAN
IN SHORT
Scan the QR code to read select articles in Mandarin
扫描二维码， 阅读中文版精选文章。
› Several initiatives
are underway to lift professionalism in insurance following disturbing revelations from the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
› In addition to regulatory
changes, the sector is also reviewing its culture and conduct through updates to various codes of practice.
› Industry transformation
is also occurring in Hong Kong, as well as in New Zealand, which has felt the ripple effect of Australia’s royal commission.
‘… one of the important ones is going to be whether any provisions of the Code should become legally enforceable.’ Dallas Booth / NIBA CEO
provide additional assistance to affected consumers, while also focusing on training and assistance to staff in the industry. ‘Substantial resources are being allocated to ensure the entire general insurance industry has in place policies and training to ensure all employees are able to recognise and understand when they are dealing with a vulnerable consumer, how best to deal with that consumer, and to ensure that such consumers are always engaged with sensitivity, dignity, respect and compassion,’ says Campbell Fuller, head of communications and media relations at ICA. ‘This has been plainly written into the Code as not only an expectation but a standard to which signatories must adhere.’
Photography: iStockphoto
New principles provide guidance for addressing the rights and the needs of people with a mental health condition. These include principles for treating mental health conditions in the same way as any other medical condition and having available prognostic data and documented rates of prevalence, morbidity and mortality through each stage of the life cycle for relevant insurance products. The Code will also feature enhanced protections for consumers experiencing financial hardship. This includes the requirement for insurers to have internal policies and to train relevant employees to help with the identification of consumers who may be experiencing financial hardship. Similarly, guidance on family violence will
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REGULATION
Preparing for change Transition to the new GI Code began on 1 January 2020 and it will be effective from 1 January 2021. Suncorp is one of the insurers that began preparing ahead of the Code’s release. In 2018, it introduced the Office of the Customer Advocate across its insurance business. The role includes identifying ways to better protect customers’ interests and reviewing complex and sensitive complaints to ensure a faster resolution for customers. Annabelle Butler, executive manager of accessibility at Suncorp Group, says the insurer has also established a dedicated claims team to work with customers experiencing vulnerability. ‘Our employees have received training on how to identify and sensitively respond to the needs of vulnerable customers, including those facing financial hardship,’ she says. ‘For customers and third parties who need a holistic support program, we provide referrals to Uniting Kildonan’s CareRing, in addition to services provided by Suncorp.’ Butler says Suncorp is also in the process of updating its customer management and policy systems to allow for sensitive information on vulnerabilities to be stored, with the consent of customers. ‘For example, for survivors of domestic violence, alternative address details will be stored in our policy systems, which will be hidden from frontline staff to avoid unintended disclosure of details to perpetrators,’ she says. Butler believes the introduction of the new Code of Practice is a massive leap forward for the insurance industry. ‘All insurers have been experiencing increased numbers of customers and third parties who identify as vulnerable, and it’s great we now have a comprehensive framework to help us ensure we are providing appropriate support,’ she says.
Broking under review Australia’s National Insurance Brokers Association (NIBA) is also undertaking a review of the Insurance Brokers Code of Practice, which has been in place since 2014. NIBA CEO Dallas Booth notes that while a Code review is overdue, the royal commission’s findings created greater impetus to examine its effectiveness. ‘I don’t think there’s anything fundamentally JOURNAL // ISSUE 01 2020 // ANZIIF.COM
wrong with our Code, but, by the same token, external stakeholders have been expressing views on a number of areas,’ he says. Booth says these include greater transparency on remuneration, better handling of conflicts of interest and clearer definition of dispute resolution processes for the Code. ‘Ultimately, one of the important ones is going to be whether any provisions of the Code should become legally enforceable,’ says Booth. ‘That’s an important topic that came out of the royal commission, and it’s certainly on the table for all the industry codes.’ He says the review process was paused in the lead-up to release of the new GI Code. However, it will continue throughout the first six months of 2020 in consultation with industry leaders, NIBA members and NIBA’s board of directors. ‘We will be undertaking a broad public consultation, which we have to do to get the Code approved by ASIC.’
Life changes A new Life Insurance Code of Practice has also been in the planning, but its launch date of 1 July 2019 was pushed back indefinitely by the Financial Services Council (FSC) after stakeholders complained it was not written in plain English and ASIC warned the process was being rushed. The updated Code, which would have applied to FSC members (but without legal or regulatory status), would have upgraded existing customer protections in areas such as funeral insurance, mental health claims and pressure selling, particularly to vulnerable customers. Despite the FSC setback, professionalism in life insurance remains in focus, with ANZIIF and the Life Insurance Professional Standards Working Group (LIPSWG) recently signing a memorandum of understanding to work together to lift standards across the industry. LIPSWG consists of AIA Australia, AMP Life, BT Life Insurance, ClearView, MetLife, MLC Life Insurance, TAL Life Limited and Zurich. Designed in consultation with the retail life industry, reinsurers, the Australasian Life Underwriting and Claims Association, regulatory authorities and associations, the memorandum seeks to establish a professional standards framework, undertake a demographic survey and develop an approach to assessing current knowledge defined within the agreed framework.
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THE HAYNE RIPPLE EFFECT
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry triggered a review by the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) into the conduct and culture of New Zealand retail banks. This was followed by a joint Conduct and Culture Review of life insurers in New Zealand. Lloyd Kavanagh, partner at law firm MinterEllisonRuddWatts in Auckland, says the key objective of the Conduct and Culture Review was to understand whether the industry failings in Australia also existed in New Zealand. ‘The regulators’ report on the review found extensive weaknesses in life insurers’ systems and controls, weak governance and management of conduct risks, and a lack of focus on good customer outcomes,’ says Kavanagh, adding that the issues were deemed to be on a much smaller scale to those in Australia. As part of its response to the report, the New Zealand Government introduced the Financial Markets (Conduct of Institutions) Amendment Bill to Parliament in December 2019. It will require banks, insurers and non-bank deposit-takers to be licensed, to comply with a fair conduct principle in the treatment of their consumers, and to establish fair conduct programmes. The licensing regime will be monitored and enforced by the FMA. ‘It is important that all insurers, both life and general, embrace the concerns that the FMA and RBNZ raised,’ says Kavanagh.
New codes for Hong Kong Professional standards are also in the spotlight across the region. Hong Kong’s Insurance Authority (IA), for example, has published the new Code of Conduct for Licensed Insurance Agents and the Code of Conduct for Licensed Insurance Brokers, which came into effect in September 2019. The IA has taken over the regulation of insurance intermediaries from three self-regulatory organisations — the Hong Kong Confederation of Insurance Brokers, the Professional Insurance Brokers Association and the Insurance Agents Registration Board. All insurance intermediaries are now required to be licensed by the IA.
Joyce Chan, partner at law firm Clyde & Co in Hong Kong, which provides advice on regulatory compliance issues, says insurance intermediaries are now subject to statutory licensing and conduct requirements. ‘While the new codes do not have the force of law, the Insurance Authority will take them into account in considering whether the licensed intermediary is fit and proper or has breached any statutory conduct requirements and any other matters under the insurance ordinance to which the codes may be relevant,’ she explains. ‘A shift away from self-regulation and into the single regulatory scope of the IA will push intermediaries into following a consistent set of standards with increased motivation to ensure compliance. ‘That said, the codes adopt a principlebased approach, which gives insurance intermediaries the flexibility to formulate procedures suitable to their needs.’
Lifting the standards Chan recommends insurers establish stringent controls and procedures to ensure compliance with new codes. ‘For example, licensed insurance intermediaries should have in place proper controls and procedures to handle and resolve complaints and to ensure that records in relation to the regulated activities they carry out are properly kept,’ she says. With the new GI Code of Practice now in place in Australia, NIBA will be moving ahead with its own review with the aim of ensuring high professional standards. ‘We wanted the ICA to go first, because it’s really critical that it takes the lead in commitments to clients and consumers for their insurance,’ says Booth. ‘We want to finish up with a product that is welcomed by the community broadly and strongly supported by insurance brokers across Australia.’
SUSAN MULDOWNEY Freelance writer & editor
‘Polishing a tarnished reputation among customers and the broader community is no easy task for any industry. By strengthening the governance of product design and distribution, amending standards on claims investigations and assisting consumers experiencing vulnerability, insurers can strengthen trust in the industry and ensure that their own standards reflect the expectation of the markets they serve.’
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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PROFILE
Richard Nunn Story Zilla Efrat Photography Michael Amendolia
A new chapter
After some challenges in 2019, Richard Nunn sees ‘once-in-a-career’ opportunities for MetLife Australia in 2020.
A
s Richard Nunn prepares to celebrate his first anniversary as CEO of MetLife Australia on 1 May, he looks back on a year of challenges and successes. First, the Australian Government’s Protecting Your Superannuation legislation, aimed at guarding super savings from unnecessary erosion by fees and insurance costs, came into effect on 1 July 2019. Like other players in the market, MetLife Australia had to renegotiate its pricing with its partner super funds. According to Nunn, ‘the team did an amazing job’. He says MetLife Australia’s group business, the third biggest in the market, is growing. ‘It’s quite mature and established, and I am really happy with the team and the way we are progressing.’ On the corporate insurance side, where MetLife is the biggest player in the Australian market, Nunn is also pleased with the way the MetLife sales team succeeded in retendering contracts through partner brokers and retained market share. Much more challenging, however, has been MetLife’s attempt to break into the retail life insurance market. ‘I think it’s well documented that we had a slower start in retail than we would have liked,’ says Nunn. ‘That said, in the past six months we’ve completely revamped our market strategy and changed our pricing and product design on the back of feedback from our partner financial planners.’ MetLife Australia, a subsidiary of the USheadquartered global giant and the 2019 ANZIIF Life Insurance Company of the Year, launched a new retail offering in December and has spent significant time, effort and resources on bolstering its operations, product and distribution teams.
Coming full circle
By joining MetLife Australia, Nunn has now come full circle in many ways. ‘I am coming back to where I started,’ he says. JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Nunn admits to having no idea as a teenager of what he wanted to do for a career. ‘I did a lot of science subjects and that was part of my real interests. But when it came down to getting into university, a business degree was a new kind of thing and I kind of landed in that a bit by accident, but I enjoyed it.’ Of his first graduate job, Nunn says: ‘At the time, I was living in Adelaide. You took the graduate job that was available. And the job available to me was at National Mutual [now AXA]. So, I spent the first 13 years of my career in insurance.’ Nunn then worked in retail funds management, wealth management and banking in Australia and Asia for companies such National Australia Bank, Commonwealth Bank of Australia, IOOF and AXA, across a range of management roles. He joined MetLife from Statewide Super, which manages more than A$9.9 billion in assets and has over 136,000 members. During his more than three years as CEO of the South Australian-based industry super fund, he got to know the MetLife Australia business, because it provided the fund’s group life insurance for its members.
A new direction
Nunn says the opportunity to join MetLife Australia came out of blue. ‘At Statewide, I had got to the inflection point where we had transformed the business to get it growing and sustainable and either me or someone else would have to look at taking the business to the next level. It was just the time to go. MetLife was an exciting growth opportunity for me, and I felt I could add value across its business.’ Of his management style, Nunn says: ‘For me, what you see is what you get, and I would like to think that I am reasonably transparent and authentic and that if people want to talk to me they can. I like to get the team [together] to plan, set and then I get out of the way.’
The challenges of leading
OPPOSITE Richard Nunn says MetLife is entering a new chapter in a time of great change.
Over the course of his career, Nunn says his biggest leadership challenges have involved large restructures or transformation programs. ‘Not only are there people issues; you are asking people to embrace change,’ he explains. ‘It can be fun, but you are responsible for outcomes. To me, it’s all about leaving the business in a better shape than I found it and making it a better place for people to work in.’ However, Nunn adds that the large amount of regulation both before and after the Hayne royal commission ‘has led to the most challenging time I can
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‘To me, it’s all about leaving the business in a better shape than I found it and making it a better place for people to work in.’
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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PROFILE
remember in 30 years in financial services — not just for me, but for the financial services industry as a whole’. ‘It’s impacting just about every part of the financial services sector,’ he says. ‘There’s a huge amount of change being forced on the industry. It’s a day-to-day challenge to navigate through that, manage it and keep people motivated. ‘From an insurance perspective, this is probably the most regulatory spotlight we’ve had on us. It’s changing the economics of our businesses, customer relationships, distribution channels, product design, you name it. ‘It challenges me, because we have to apply resources, change our operating models and adapt – learn new ways of doing things.’
Taking advantage of changes
Looking ahead, Nunn says MetLife’s number one challenge is to support its super fund and financial planning partners in navigating all the changes. Next up is getting its retail business growing. ‘We’ve learnt a lot over the past 18 months,’ he says, ‘and I believe the changes we have put in place will enable us to catch the opportunities out there, particularly with distribution options that were not there 18 months ago.’ Here, Nunn points to changes in the financial adviser market. ‘If you look at distribution, two years ago, 75 per cent of the Australian advice market was locked up by the banks and AMP. That’s changed,’ he says. ‘Banks are exiting and a lot of advisers are coming out into a more open architecture environment, but that doesn’t stop them selling insurance. ‘They are looking for partners as well. If we’d tried to launch the retail business three years ago, it would have been incredibly difficult to break into distribution networks. But the opportunity is out there now, not just for us, but for all firms. It’s a good time for us to be pushing ahead with our retail strategy.’ Other challenges include MetLife Australia’s legacy back book and ensuring the company maintains its leadership position in its corporate business. ‘For me personally, maintaining a customer and staff focus is crucial,’ says Nunn. ‘We want to offer a great customer experience, but I also want people who work at MetLife to enjoy the experience.’ Nunn sees 2020 as a year of opportunity for MetLife Australia. ‘It’s quite a unique time in the industry,’ he says. ‘It’s a once-in-a-career type of thing with distribution breaking open. There’s a lot of change going on in the group market and there’s consolidation among super funds. MetLife Australia is quite well positioned to capitalise on those changes. ‘We have a growth agenda. We are backed by a strong global parent. We have a really good culture. It’s a good place to work, and we are getting great people coming to us from the external market.’ JOURNAL // ISSUE 01 2020 // ANZIIF.COM
TWO-MINUTE BIO Richard Nunn
COMPANY // MetLife Australia TITLE // CEO
CAREER
Nunn grew up in Adelaide and took his first graduate job at National Mutual (now AXA), where he joined the life insurance and personal super division in a business development role. Thirteen years later, he joined IOOF as the general manager responsible for the retail funds management business unit. In 2003, he moved to Colonial First State, as general manager distribution, taking responsibility for the distribution of its and CBA’s wealth management products and distribution channels.
In 2007, he switched to CBA to oversee the Commonwealth Private Bank and the management and delivery of products and services to its high net worth individual customer base in Australia, Singapore and Hong Kong.
EDUCATION
He joined NAB two years later to head its wealth management sales, advice and marketing activities. Later, he was charged with strategic development of NAB’s portfolio of Asian businesses, based in Singapore. In January 2016, he became CEO of Statewide Super.
‘Bringing up two young children with my wife and, if time permits, wine, macro photography, contemporary Australian art and the Adelaide Crows AFL team.’
Advanced Management Program at Harvard Business School; Graduate Diploma in Economics at the University of Adelaide; and Bachelor of Business Administration at the University of South Australia.
BEYOND THE DAY JOB
TOP TIP
‘We have two eyes, two ears and one mouth and they should be used in that ratio.’
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IN SHORT › While there are signs of a hardening market in Asia, each country is different. › In tough markets, insurers have reduced their capacity and limits and increased premiums and excesses. › Australia’s devastating disaster season was anticipated and priced in by insurers.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
INSURANCE MARKET by Zilla Efrat
Danger zones
in a hardening market The insurance market continues to harden across Asia Pacific. Here, we examine the areas that are keeping insurers and their clients up at night.
T
here’s no doubt some parts of the insurance market continue to harden. Honan Insurance Group’s December 2019 Quarterly Market Update reports that high-hazard property, professional indemnity (PI), natural catastrophe risks and residential strata risks with aluminium composite panel construction remain challenging areas for the insurance industry. ‘Underwriters continue to be very risk selective on both renewal and new business and are still prepared to walk away if things don’t stack up,’ says Travis Wendt, Honan’s head of broking and carrier management. ‘We’ve witnessed a number of instances where the incumbent insurer has elected not to renew cover due to changes to underwriting guidelines, even in longstanding client/insurer relationships.’ As a result, Wendt says there’s been a greater reliance to obtain terms through overseas markets such as London and Singapore. Unfortunately, he adds, these traditional markets are undergoing their own remedial actions to restore profitability. Gareth Horne, a partner at legal firm Clyde & Co, reports that his clients have experienced significant pressure on pricing in both primary and excess directors and officers (D&O) insurance. Public liability, especially in excess insurance, is also becoming pricier. ‘There’s D&O cover available, but we’re also seeing a limitation on Side C cover. Either it’s not provided or it’s provided only in the lower excess layers,’ he says. Craig Claughton, head of FINPRO at Marsh Australia, adds that some of his clients looking to purchase certain limits of D&O just can’t. After rising by 88 per cent in 2018, he says the average premium increase for clients was 119 per cent in 2019 and similar increases are expected in 2020, with Australia’s high rate of shareholder class actions to blame. ‘Virtually every insurer is applying higher premiums to almost every part of their portfolios,’
says Claughton. ‘They’re managing their capacity and exposures and looking to increase the excess for each loss. Plus, they’re being far more selective about the risks they chose to take.’ Unfortunately, he expects things to worsen. ‘We get about 20 new class actions each year. The average settlement is A$60 to A$70 million. On top of that, you have defence costs of about A$10 million to A$15 million per action. So, you are looking at close to A$100 million per matter. Not all will succeed, but say 10 do, that’s A$1 billion in losses. The current estimate of Australia’s D&O premium pool is A$450 million. If we continue like this, premiums will have to rise continuously to meet claims.’ The PI market also continues to be unprofitable. According to Claughton, PI premium increases are in the 50–75 per cent range. There’s also a significant shortfall in capacity and companies can’t buy the limits they want. ‘PI premium increases are driven by claims and industry experience,’ he says. ‘Virtually all areas of professional services have had premium increases [as has] anyone who gives advice.’ In addition to claims against financial institutions, the construction industry is in the firing line. Marcus O’Brien, a partner at Clyde & Co, says this relates to defective building work and the liability of professionals such as designers, architects and engineers. ‘Most insurance policies will have an exclusion for any advice or work around cladding. Part of that is due to fires such as those at the Grenfell Tower in London and the Lacrosse building in Melbourne,’ he says. O’Brien adds that a rise in royal commissions, inquiries and regulatory activity is triggering the investigation costs in D&O and PI policies, adding pressure to pricing. Horne says there’s only so much that insurers can do to make PI and D&O more affordable. ‘Various insurers have consciously decided to withdraw from the market or have significantly reduced their exposures, meaning
Premiums heat up
88+12+H 100+0+H 81+H 19+ 88%
After rising by 88 per cent in 2018, the average premium increase for Marsh’s clients was
119%
119 per cent in 2019 and similar increases are expected in 2020.
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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INSURANCE MARKET
AUSTRALIAN INSURERS
READY FOR DISASTER SEASON The full impact is yet to be fully calculated, but Campbell Fuller, head of communications and media relations at the Insurance Council of Australia, says most insurers would have anticipated a damaging disaster season this year, including bushfires, cyclones, storms and floods, and have put prudential measures in place. ‘We saw expectations of an escalated bushfire risk from as early as February or March 2019. So, in general, it would be unusual for this to have a significant impact on premiums,’ says Fuller. Peter Cheesman, head of analytics for Asia Pacific at Aon Reinsurance Solutions, agrees. ‘Multiple properties are lost each bushfire season, and while this season has destroyed more homes than any other in the past, insurers are well aware of the bushfire hazard and have been technically pricing in the risk for a number of years. ‘Insurers will be reviewing their methods for pricing the risk and ensuring their methods remain valid or get some general tweaks. We doubt there will be any noticeable premium increases over the near future.’ One insurer with no plans to increase its premiums is Suncorp. ‘Our home insurance premiums are priced to several risk-based factors and incorporate numerous data sources. One single event will not necessarily affect insurance premiums,’ says a Suncorp spokesperson. Suncorp has also increased its reinsurance protection in FY20 with strong additional cover to limit the impact of further natural hazard costs for the year.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
‘They’re managing their capacity and exposures and looking to increase the excess for each loss.’ Craig Claughton / Head of FINPRO at Marsh Australia
there’s less competition,’ he says. ‘Anecdotally, insurers definitely have a greater appetite to test plaintiffs’ claims through to conclusion.’
Similar trends in New Zealand Insurance Council of New Zealand CEO Tim Grafton also sees signs of a hardening market. ‘Due to a better understanding of seismic risk, this is most pronounced for commercial property earthquake cover in higher-risk seismic areas like Wellington, Marlborough, Manawatu, Wairarapa, Hawke’s Bay, Gisborne Region and Canterbury,’ he says. Aaron Sherriff, partner at lawyers Duncan Cotterill, agrees. ‘When it comes to earthquakes, there have been some highprofile instances over the past 24 months where insurers sought to restrict their writing of new business or placed this on hold. Alternatively, they have applied some significant increases in premiums,’ he says. ‘Under New Zealand legislation, if you have a body corporate in a large apartment building, everyone must have the same insurer. But we see cases where earthquake cover is watered down or completely scrapped because they just can’t get it.’ Sherriff adds that in coastal zones with higher incidences of storm damage, erosions and claims, some insurers will no longer write policies for new homeowners. Grafton notes there also has been a marked increase in some liability lines claims in New Zealand. Like in Australia, D&O insurance premiums — particularly for listed entities — and professional indemnity insurance for engineers have seen some large increases over the past two years.
The wider region Kevin Quek, general manager for Trust Re’s Labuan Branch Office in Malaysia, says that, overall, there are signs of a hardening market in Asia. But the Asian market is very fragmented, he adds, and issues are often localised rather than regionalised, especially
when dealing with losses and natural catastrophes. ‘I can see insurers adjusting their rates for loss-producing accounts and remaining competitive on profitable smallto medium-sized risks,’ says Quek. ‘In general, larger risks that require international capacity will see hardening rates as most reinsurers are tightening their belt. We have also observed that coal power plants in the South-East Asian region face a huge increase — up to 57 per cent for a recent renewing account.’ Quek points to several factors such as aging risks, frequent losses and the fact that several markets have abandoned writing ‘dirty’ energy business over the past few years. Ben Dunston, Willis Towers Watson’s head of broking in Asia, describes the Asian market as changing, not necessarily hardening. ‘In some areas, such as marine, insurers have written unprofitable business year after year and are now correcting their portfolios,’ he says. ‘This is a trend happening globally. Obviously, insurers expect to have some losses on the risks they write, but where expense ratios have crept up in a soft market and insurers are spending 40 cents in every dollar running their business, the premium pool for paying losses is smaller. ‘Coupled with the year-on-year soft market rates and increasing exposures such as widening of cover, this means insurers are writing a lot more exposure for less premium.’
ZILLA EFRAT
The Journal editor
‘The hardening D&O market could put many directors off from taking new board positions, diminishing the availability of good leadership around Australia’s boardrooms.’
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UNCONSCIOUS BIAS by Jessica Mudditt
TAKING ON YOUR BIASES Three insurance companies share how they tackle unconscious bias to create diverse, inclusive and high-performing work environments.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
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A
IN SHORT › There is a growing body of evidence to show that diverse and inclusive organisations achieve better business results. › While our brains rely on
unconscious thought to enable us to carry out a variety of routine tasks, unconscious bias can take the form of snap judgements and can result in a tendency to hire people who resemble us and create teams that lack diversity.
› Genworth Australia, CHU and DLA Piper have implemented a variety of evidence-based strategies to tackle unconscious bias. An important step is providing awareness training — but it is by no means the only step.
Photography: iStockphoto
growing body of research shows that diverse and inclusive organisations have an edge over their competitors in terms of financial outcomes, innovation and overall business performance. Until recently, however, many organisations took a ‘head count’ approach to diversity, at the expense of creating an inclusive culture. As the Deep Dive on Inclusion: Inclusive Culture Survey 2019 notes, diversity on its own is not enough: it is ‘inclusion that brings the value of these demographic and intellectual differences alive’. Or as the executive chairman of insurance law firm Wotton + Kearney, David Kearney, says, ‘diversity is about being invited to the party, but inclusion is about being asked to dance’. The Deep Dive report, sponsored by Wotton + Kearney and SURA in partnership with ANZIIF, further notes that organisations with an inclusive culture perceive difference as an asset rather than an obstacle. Unconscious bias poses a threat to achieving an inclusive and diverse culture, because it filters out difference and embeds our prejudices, says the report’s author and the managing director of Psynapse Psychometrics, Jennifer Whelan. She explains that our brains simplify vast quantities of information, as we couldn’t cope if every single decision was made consciously. Streamlining routine tasks, such as getting dressed or driving a car, are necessary and helpful, but not in every context. ‘Problems arise when you use unconscious thinking for tasks where there’s more than one answer, or you don’t know the answer, or the answer today might not work tomorrow,’ says Whelan. ‘And of course, when we’re trying to create culture change and organisational diversity. That’s where unconscious thinking turns into unconscious bias.’
‘Everybody has unconscious bias to some degree. The question is, what do we do about it?’ Jennifer Whelan / Author and psychologist
Unconscious bias includes things like gut reactions, snap judgements and intuition. It often skews our hiring or workplace preferences. ‘Everybody has unconscious bias to some degree. The question is, what do we do about it?’ asks Whelan. Joshua Box, director of clients and innovation at Wotton + Kearney, likens it to other learned behaviours. ‘It takes time and constant reminders and nudges to break the habit and embed inclusion in our decision-making,’ he says. Part of his role involves helping to implement ‘bias hacks’ to combat unconscious responses to things such as gender, culture and LGBTIQ preference. ‘The hacks can be small things like message boards for meeting hosts to remember to include everyone’s voice, minding your language and the jokes you make, or rotating the chair for regular meetings,’ says Box, who also sits on the firm’s Diversity Council and leads its external Dive In initiatives. On the following page, we present three case studies of companies with a firm commitment to eliminating the harmful impacts of unconscious bias. ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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UNCONSCIOUS BIAS
CHU UNDERWRITING AGENCIES
DLA PIPER
GENWORTH AUSTRALIA
Winner of the inaugural Australian 2019 ANZIIF Excellence in Workplace Diversity and Inclusion Award.
Finalist for the 2019 ANZIIF Excellence in Workplace Diversity and Inclusion Award in New Zealand.
When CHU chief executive Bobby Lehane talks to his team about diversity and inclusion, he likes to tell stories. It’s his way of overcoming those who will try to suggest that ‘it’s just political correctness gone mad’. ‘Several years ago, I was interviewing someone for a role at a previous organisation,’ he tells his staff. ‘The candidate answered every question perfectly. The other person on the interviewing panel said to me, “Wasn’t he excellent?” I agreed but said that something didn’t sit right with me. Suddenly it struck me and I said, “What is a middle-aged man doing with a ponytail?” It was the voice of my father from years ago. I was going to make a decision not to hire someone on the basis of a bias.’ Lehane tells this story because he believes leaders have an important role to play in combatting unconscious bias. ‘As a leadership team, we call each other out on unconscious bias and I think that gives staff permission to do the same.’ Since CHU turned diversity and inclusion into a strategic imperative in 2017 and implemented a host of strategies, its employee engagement score has grown by 11 per cent to reach 85 per cent. ‘We just had our best year ever in our 41-year history,’ says Lehane. ‘I attribute that success to our diverse and inclusive environment.’
‘As a global firm, our daily interactions with colleagues and clients in over 40 countries means that ethnic and religious diversity is inherent in our structure. That’s the easy bit. The bit we’ve been really working hard on over the last five years is getting people involved in five initiatives that foster inclusion and diversity,’ says DLA Piper partner Caroline Laband. She is proud that 30 per cent of the law firm’s staff are involved in initiatives such as the BMX Committee, which aims to enhance relationships between baby boomers, millennials and gen Xers. ‘We’ve had unconscious bias training and we also rolled it out to clients, because we know it’s something they’re interested in,’ says Laband. ‘However, training is one thing: the key is to put it into practice.’ In 2019, DLA Piper ran a session with an external unconscious bias expert. ‘We all were given yellow cards. When anyone spotted something that could be unconscious bias, we were encouraged to raise our card and discuss it,’ explains Laband. ‘It was collaborative rather than confrontational. It was a way of asking, “Are we OK with that? Or is there something going on here that we should be more aware of?”’ Laband notes that while leaders have an important role to play in creating a positive and diverse culture, it can’t all be top-down. ‘It’s not something that should be imposed on people. It’s something that everyone wants to be a part of.’
Recognised as Employer of Choice for Gender Equality by the Workplace Gender Equality Agency for four consecutive years. Named an inclusive organisation in the Diversity Council Australia’s Inclusion@ YourWork Index in 2017 and 2019.
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Over the past four years, mortgage insurance lender Genworth has focused on building a diverse and inclusive culture. It has set multiple targets, such as a minimum 40 per cent female representation in management roles and minimum 25 per cent female representation on recruitment short lists. Its recruitment panels include gender diversity and diverse thinking styles to guard against unconscious bias. It also conducts leadership training sessions to help managers identify biases and counter them, and it analyses performance rating and pay outcomes to ensure there is no gender bias. According to the former managing director and CEO, Georgette Nicholas, one of the biggest challenges is ensuring continuous momentum. ‘We manage this by making sure that our diversity and inclusion objectives are aligned with our company values, against which we are all evaluated as part of our performance assessments.’
JESSICA MUDDITT Freelance journalist
‘Unconscious bias is particularly challenging because, by definition, we don’t know we’re doing it. And we all do it. These three organisations should be lauded for taking an evidence-based approach to eradicating it, which requires more than simply being aware of our unconscious biases.’
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JOB MARKET OUTLOOK by Domini Stuart illustrations by Cami
The skills you need in
2020 What does 2020 look like for those working in the insurance industry? According to the experts, it will be a time of change, but those with the right skills look set to thrive.
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E IN SHORT › Disparate factors are
changing the way the insurance industry operates. The need for new skills is creating competition within the industry and from the banking sector.
› Insurance companies are
looking for different ways to fill skills gaps, including training juniors and employing contract workers.
› Demand for part-time and flexible roles is likely to increase.
› Some insurance
companies are already taking steps to attract and retain older workers.
merging technologies, disruption, aging populations, changing customer expectations, climate change and increased regulation are just a few of the forces transforming the way the insurance industry operates as 2020 unfolds. And, according to Carl Piesse, regional director, banking and insurance, at Hays Australia, these forces are creating significant opportunities for those working in insurance, including new recruits, to build strong and lasting careers. Already, the growing need for new skills is driving competition. ‘Climate change, for example, has become a talking point within the insurance industry,’ says Piesse. ‘The number of high-risk regions across Australia are increasing and there’s a chance that some will become uninsurable in future. As a result, there’s a growing demand for experts who can paint a clearer picture for boards on what the future of insurance will look like.’ Meanwhile, the Hayne royal commission in Australia has sharpened the focus on risk and compliance. ‘The majority of insurers have added headcount to their risk and compliance teams, and this growth will continue in 2020,’ says Paul Murphy, who leads Ensure Recruitment’s executive search practice in Australia, New Zealand and the Asia Pacific. Murphy also anticipates high demand for commercial and corporate brokers. ‘In life insurance claims positions, the number of roles now exceeds the available candidates,’ he says. ‘We feel this will put pressure on salaries.’ Ongoing regulatory change across South-East Asia also means insurers must enhance their governance, enterprise risk, internal audit and controls functions. ‘In Hong Kong and Singapore, for example, we expect a continuous increase in hiring across compliance, audit and risk,’ says Grant Torrens, regional director for Hays Singapore. Insurers are also facing competition for talent from outside the industry in a war that exists between the insurance and banking industries across New Zealand and Australia. ‘The rivalry is particularly fierce in terms of experienced risk and compliance professionals,’ says Joe Whitfield, manager, risk and compliance, at Robert Walters New Zealand.
BUILDING A CAREER — SKILLS TO FOCUS ON FOR THE FUTURE Sharna Barrett, Robert Walters Australia:
Many insurers are still trying to break out of their legacy shells to gain market advantage. This centres on technology and new ways of working. In 2020, insurance industry employees need to gain deep capabilities in digital innovation, customer experience, simplification, embracing development in data, analytics and artificial intelligence (AI).
Neil Munro, Ensure Recruitment New Zealand:
As the insurance sector turns increasingly to automation and AI, building skills that technology can’t replicate will be key to remaining in demand. This includes jobs with a human connection, such as sales, negotiation, relationship management, complex decisionmaking and empathy, as well as the high-level, high-technical skills required to develop and assist technology.
Debbie Lowe, ClearView Wealth:
Lifting professional standards across the industry will help strengthen confidence in the sector. Under the Financial Adviser Standards and Ethics Authority regime, financial advisers are being asked to be degree qualified, so, at the very minimum, staff who interact with advisers and work in the four key areas of claims, underwriting, product and distribution will also need to be degree qualified.
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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JOB MARKET OUTLOOK
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NEW ROLES AND INITIATIVES
MANAGING THE SKILLS SHORTAGE
Whitfield is confident that, in New Zealand’s technology space, data will continue to reign as king. ‘Analyst skill sets will be heavily sought after as financial institutions move from batch processing to real time,’ he says. ‘Salaries for senior business analysts and project managers are also likely to increase.’ Sharna Barrett, Robert Walters Australia’s senior manager for project services, strategic projects, programs and transformation, expects to see similar salary spikes in Australia, particularly for key leadership and specialist contract roles. ‘Leadership roles will be created and project teams ramped up to execute new programs and initiatives,’ she says. ‘I also expect to see emerging technologies being introduced to create a competitive advantage. As we shift away from operational roles in the insurance and finance sectors, technology, strategic transformation and change skills will be critical in providing companies with ways to improve the customer experience, customer retention, market share and brand awareness.’
In the face of strong competition for talent, insurance companies are looking beyond traditional recruitment processes. ‘We’ve seen a strong focus on internal mobility and secondments to teach existing employees new skills,’ says Neil Munro, general manager of Ensure Recruitment New Zealand. ‘Coupled with a high level of external hiring, this can ensure there is a good balance of experience in teams.’ are Hiring managers also drawing up more flexible wish lists. ‘They’re having to accept that the ideal candidate may not be out there, and that someone with 60 or 70 per cent of the perfect skill set can be a great hire,’ says Munro. ‘In areas of extreme shortages, particularly for executive level and highly niche skills, we’re increasingly being asked to seek talent from overseas — mainly from Australia, followed by Asia and the United Kingdom.’
HARNESSING SILVER SKILLS
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Singapore has the highest life expectancy in the world coupled with a declining birth rate. By 2030, one in every four people will be over the age of 65. While this is creating challenges for the island-nation, one company is turning silver into gold. Prudential Singapore has taken steps to make its workplace more age agnostic. It offers courses — for example, in artificial intelligence, innovation and entrepreneurship — to help older workers remain relevant.
It’s also scrapped the compulsory retirement age and has extended the group medical coverage age limit to 100 for its employees to enable them to work for longer. ‘Companies will benefit from viewing their mature employees as assets instead of costs,’ says Wilf Blackburn, CEO of Prudential Singapore. ‘Backed with knowledge and experience, they can be equally — if not more — productive than their younger counterparts.’
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THE IMPACT OF AN AGING WORKFORCE The aging workforce research study commissioned by ANZIIF in late 2019 found:
+50E50 +31E69 +50E 50 80+20+E 90+10+E 40+60+E 50%
FOCUS ON TECHNOLOGY
MORE FLEXIBLE WORK OPTIONS
As digital technologies provide new opportunities for insurers to engage with their customers, many companies are looking for ways to streamline their customers’ experiences. a key focus become ‘Product management has as insurers attempt to make their products less complex and easier to understand,’ says Munro. ‘This requires people with information technology and digital skills who also have technical awareness of how digital interacts with the wider business. At the moment, this combination is in short supply.’ In Malaysia, both life and general insurers are in the process of improving their sales strategies through the development and enhancement of their digital platforms. ‘The insurance industry is also mirroring the banking industry in its pursuit of automation,’ says Torrens. ‘While this may have a negative impact on traditional insurance operations, it will have positive implications for those specialising in IT or big data.’ Technology is also one of the key factors driving recruitment in Hong Kong’s insurance industry, while in Singapore, more insurance technology (insurtech) start-ups are entering the market and attempting to disrupt the status quo. ‘Tech-savvy candidates with deep insurance industry exposure will be able to secure soughtafter jobs in highly disruptive companies,’ says Torrens. Underwriting is unusual in that jobs, rather than people, are in short supply. ‘Life insurance underwriting has dropped off this year,’ says Murphy. ‘As life insurers have launched and improved on their rules engines, we have seen a decline in the number of opportunities for underwriters specifically in this space.’
Both Murphy and Munro have seen a decline in the number of clients actively searching for parttime employees. However, employers are doing their best to accommodate requests for shorter hours from those who are already employed. ‘We certainly support part-time roles and flexible working conditions,’ says Debbie Lowe, general manager, people and operations, at ClearView Wealth. ‘In order to facilitate this and be an employer of choice, companies need to ensure they have the right processes and technology to enable people to work efficiently from home.’ Recruiters also predict an increase in the number of contractors entering the industry. ‘This is already the case in risk and compliance roles, and it suits both employers and employees,’ says Munro. ‘Employers have projects that need to be completed, and contractors can enjoy both flexibility and higher rates of pay. They’re also continuously building their skills by working on different projects.’ Another response to the challenge is to hire juniors and train them to fill emerging vacancies. ‘This is particularly common in DevOps — the space where software development and IT operations combine,’ says Barrett. ‘Regardless of the strategy being used, it is pivotal for employers to consider what skills are must-haves and what skills can be learned to open up pools of available talent over the long term and build a sustainable workforce.’ DOMINI STUART Freelance business journalist
‘As the insurance industry undergoes a period of transformation, there will inevitably be a mismatch between skills available and skills required. If they haven’t already, companies must start thinking now about creative ways to build their future ’dream teams’.’
of ANZIIF members surveyed believe the aging workforce is an issue.
31%
believe the aging workforce will affect their organisations.
50%
report up to a quarter of their workforce is aged over 50.
80%
believe they will lose valuable skills and knowledge when older workers retire.
90%
believe young people can learn from, and would benefit from, working with older workers.
40%
plan to work past 65, with 43 per cent likely to opt for part-time, casual or contract employment. ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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JOURNAL // ISSUE 01 2020
PROFILE
Karen Stevens Story Anna Game-Lopata and Ian Baker Photography Stephen A’Court
Watching out for consumers Karen Stevens is making sure the Insurance & Financial Services Ombudsman Scheme in New Zealand focuses on preventing, as well as resolving, complaints.
M
ake the most of complaints, and if they point to a systemic problem, fix it. That’s the message Karen Stevens has for New Zealand insurers after 22 years of listening carefully to unhappy consumers. As Insurance & Financial Services Ombudsman (IFSO), Stevens heads a dispute resolution scheme that fields just under 4,000 inquiries a year, with about one tenth of them investigated as formal complaints. The IFSO Scheme is industry-funded and its service is free for consumers, with a cap of NZ$200,000 on the financial value of any complaint it pursues. Insurers are the focus of 95 per cent of complaints overall, notwithstanding the expansion of Stevens’ office in 2010 to cover other non-bank financial services. Of 322 formal complaints in 2019, 225 were general insurance matters and 80 related to health, life and disability insurance. By comparison, just 12 were complaints about financial advisers and two concerned financial services.
Stevens studied arts and law at Victoria University in Wellington, completing a double degree in 1986 before travelling overseas and working in the United Kingdom for two years. Back home in New Zealand, she worked in litigation with commercial firm Simpson Grierson. Despite loving the work, Stevens came to believe that many people could not resolve their legal problems by taking them to court. To do so takes too long, costs too much and comes with no guarantee of success. She set up a boutique law practice, Stapleton Stevens, with her husband and qualified as a mediator and arbitrator, with a view to finding better solutions. When the position of Insurance & Savings Ombudsman (ISO) was advertised in 1998, she applied and was delighted to be appointed.
Fair, balanced and independent
In 2010, the ISO Scheme expanded its membership to include a wide range of other financial service providers, and five years later it rebranded as the IFSO Scheme — with Stevens still at the helm. Twenty-two years on, she rates her proudest achievement as sustaining a fair, balanced and independent approach. ‘It’s incredibly important to us to be able to make decisions the industry may not like but accepts because of the reputation we have created and the respect we have earned,’ she explains. ‘Consumers don’t have to accept our decisions, but it’s always rewarding when they express satisfaction with the process, particularly if they didn’t get the outcome they wanted.’ Along the way, Stevens has augmented her training and experience with a Master of Laws degree from La Trobe University in Melbourne, majoring in dispute resolution.
Listening is the key
Insurers could help themselves by listening more effectively to disappointed policyholders, says Stevens. ‘One of the primary comments we hear from people who complain to us is that they weren’t listened to when they complained to the insurer. ‘Listen and learn. That’s the focus of the training we offer our participants. What can you learn from complaints? How can you do things differently to avoid this happening again?’
A better way to solve disputes
Leading from the front OPPOSITE New Zealand Insurance & Financial Services Ombudsman Karen Stevens says insurers can improve by listening to complaints.
Stevens describes herself as a decision-maker with the flexibility to listen, consider other points of view and apply the law to reach an outcome. She says cases referred to the IFSO Scheme have become more complex over her time in the role — a change she attributes largely to insurers improving their handling of basic complaints. ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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PROFILE
‘What can you learn from complaints? How can you do things differently to avoid this happening?’
Nevertheless, her office still receives inquiries from customers who have confused their market value cover for replacement cover or believe that many years of paying premiums entitles them to cover for everything.
Thorny issue of disclosure
TWO-MINUTE BIO Karen Stevens
TITLE // New Zealand Insurance & Financial Services Ombudsman
CAREER Upon graduation, Karen Stevens travelled extensively and worked in the United Kingdom for two years, practising law. Back home in New Zealand, she specialised in litigation for Simpson Grierson and loved the drama and challenges of the courtroom. With her husband, she set up a boutique law practice, Stapleton Stevens. She then qualified as a mediator and arbitrator, looking for better outcomes for all parties to disputes. Stevens was appointed Insurance & Savings Ombudsman in 1998, reappointed in 2000 and took responsibility for the expanded service, which changed its name to the Insurance
& Financial Services Ombudsman Scheme in 2015. She continues to hold a practising certificate as a barrister. EDUCATION Stevens completed a double degree in arts and law in 1986 at Victoria University in Wellington. In 2010, she augmented her qualifications with a Master of Laws from La Trobe University in Melbourne, majoring in dispute resolution. ANZIIF MOMENT Stevens has been a respected judge of the ANZIIF New Zealand Insurance Industry Awards for several years.
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BEYOND THE DAY JOB Stevens is a founding member of both the Australian and New Zealand Ombudsman Association and the International Network of Financial Services Ombudsman Schemes, of which she was chair from 2017 to 2019. TOP TIPS FOR INSURERS • Better communication with customers would prevent a lot of complaints. • A customer-centric approach must be applied throughout the whole organisation. • Products and service go together; advisers and insurers need to work together and drop the ‘us and them’ approach.
Particularly concerning are misunderstandings that lead to insurers avoiding claims over non-disclosure of material facts — still the biggest single source of complaints about health, life and disability products. Not only is the policyholder left without cover in what may be very distressing circumstances, but having a non-disclosure event in their history may make it difficult to obtain future cover. Stevens is hopeful that a long-overdue review of insurance contract law will correct the current inequity as draft documents put more of an onus on insurers to ask the right questions, rather than expecting consumers to understand what underwriters believe to be material. The review also aims to make insurance contracts easier to understand for consumers.
Balancing act
This year, the IFSO Scheme will continue its efforts to develop resources that help participants improve business practices and avoid situations and behaviours that lead to complaints. ‘Our biggest challenge is to stay relevant and move with the times, which means understanding changes in products, technology, legislation and consumer expectations,’ says Stevens. ‘We want consumers to be able to access the IFSO Scheme more easily and, ultimately, be able to make more informed choices.’
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ANZIIF.COM // ISSUE 02 2019 // JOURNAL
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CULTURE by John Dawson and Carmel McDonald
Meet the family A look at the differences and similarities between organisational culture, risk culture and conduct risk.
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‘Risk culture, like organisational culture, is not tangible. You can’t touch it or see it, but you can observe the behaviours that flow from the culture.’ John Dawson and Carmel McDonald / Dawson McDonald Consulting
W
hat does the term ‘organisational culture’ actually mean? And how does risk management tie in with this concept? It’s helpful to think of organisational culture, risk culture and conduct risk as three members of the same family. Organisational culture is the parent, risk culture is the older sibling and conduct risk the younger sibling.
Organisational culture
IN SHORT › Organisational culture, risk culture and conduct risk are members of the same family.
› Organisational culture affects the way people and groups interact.
› Risk culture is derived from
overall organisational culture.
› Conduct risk is about
behaviour and is influenced by organisational culture and risk culture.
Given that anthropologists can’t even agree on a common definition for culture — there are more than 150 different interpretations available — organisational culture can be similarly hard to pin down. But here are two definitions that we find helpful. In Culturally Speaking Culture, 2nd edition Communication and Politeness Theory, the authors define it as: ‘Culture is a fuzzy set of basic assumptions and values, orientations to life, beliefs, policies, procedures and behavioural conventions that are shared by a group of people, and that influence (but do not determine) each member’s behaviour and his/her interpretations of the “meaning” of other people’s behaviour.’ And, from Wikipedia: ‘Organisational culture encompasses values and behaviours that contribute to the unique social and
psychological environment of a business. The organisational culture influences the way people interact, the context within which knowledge is created, the resistance they will have towards certain changes, and ultimately the way they share (or the way they do not share) knowledge. Organisational culture represents the collective values, beliefs and principles of organisational members and is a product of factors such as history, product, market, technology, strategy, type of employees, management style, and national culture. Culture includes the organisation’s vision, values, norms, systems, symbols, language, assumptions, environment, location, beliefs and habits.’ Some academics describe organisational culture as a set of shared assumptions that guide behaviours. It is also the pattern of such collective behaviours and assumptions that are taught to new organisational members as a way of perceiving and even thinking and feeling. Thus, organisational culture affects the way people and groups interact with each other, clients and stakeholders. It may also affect how much employees identify with an organisation.
Risk culture There’s no doubt that risk culture, like sales culture or safety culture, is derived from the overall organisational culture. ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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CULTURE
However, we’ve seen many examples of organisations that have a positive culture overall and yet don’t have a sound risk culture. This is especially true in organisations where the management of risk is seen by many employees as a compliance issue, not a means for guiding business decisions. The CEO and the C-suite team demonstrate what values are important by the way they behave — and these behaviours may not always match the values listed on the organisation’s website. What senior executives do, not what they say, will drive operating practices across the organisation and influence the way individuals behave in order to be accepted or fit in. This determines how risk is actually treated or ‘how things get done around here’.
FIGURE 1
POSITIVE RISK CULTURE Leadership Executives are seen to live the values and lead risk management and risk culture by example, holding people accountable.
Workplace behaviours Poor behaviours (e.g bullying, personal agendas and conflicts of interest) that damage risk culture are not tolerated.
Signposts of risk culture Risk culture, like organisational culture, is not tangible. You can’t touch it or see it, but you can observe the behaviours that flow from the culture. Any effort to strengthen risk culture must begin by gathering evidence about current behaviours and attitudes towards managing risk at all levels of an organisation. This can be done by using some form of online survey like the Risk Culture Assessment or by other methods such as interviews or focus groups. Once you have this evidence, use it to decide what behaviours need to stop, start or continue. Some of the factors we’ve identified through our research and field work with clients as essential to achieving a positive and effective risk culture are illustrated in our Risk Culture Model (see Figure 1). Where staff at all levels are strongly positive about each of the steps in the Risk Culture Model, the executive team will also show confidence that risks are being well managed.
Communication Staff feedback about risk management is welcomed, bad news is not suppressed and whistleblowers are protected.
Behaviours at all levels determine how risk is really managed
Support Leaders actively provide resources, training and support needed for positive Risk Culture to flourish.
Poor risk culture can exist in an otherwise positive organisation culture
Engagement Managing risk is seen as a personal responsibility, integral to decision-making and part of performance evaluation.
The risk siblings: alike but different Are risk culture and conduct risk two different names for the same thing or is conduct risk only one aspect of risk culture? This seems to be an unresolved question in Australia. It’s not unusual to see risk culture and conduct risk referred to as two separate factors and then find these terms also used interchangeably. However, two of Australia’s key regulators have made their positions clear. The Australian Securities and Investments Commission has defined conduct risk as: ‘The risk of inappropriate, unethical or unlawful behaviour on the part of an organisation’s management or employees’. JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Risk as a priority Managing risks is widely perceived as a priority for successful operation.
Enterprise-wide risk focus
Source: Dawson McDonald Consulting 2019
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And the Australian Prudential Regulation Authority (APRA) has noted in an information paper that risk culture can be thought of 2s the impact of organisational culture on risk management. It adds that organisational culture is often defined as: ‘… a system of shared values (that define what is important) and norms that define appropriate attitudes and behaviours for organisational members (how to feel and behave)’. Former APRA deputy chair Ian Laughlin said if culture is ‘the way we do things around here’ then risk culture is ‘the way we do risk around here’. Risk culture is the application of this concept to the way an organisation takes and manages risk. Risk culture is therefore not separate to organisational culture but reflects the influence of organisational culture on how risks are managed. One of the more widely accepted definitions of risk culture is: ‘The norms and traditions of behaviour of individuals and of groups within an organisation that determine the way in which they identify, understand, discuss, and act on the risks the organisation confronts and the risks it takes’. In its information paper, APRA provided a Risk Governance Architecture model to illustrate its views on governance and oversight (see Figure 2).
FIGURE 2
RISK GOVERNANCE ARCHITECTURE GOVERNANCE AND OVERSIGHT Frameworks incentivise sound outcomes
Conduct risk If people want to be accepted and ‘fit in’, they follow the norms of ‘how things get done around here’. This is driven by the overall organisational culture and, as Wikipedia states, this comprises ‘... the collective values, beliefs and principles of organisational members’. Factors that influence organisational culture include: »»history, product, market, technology and strategy »»type of employees, management style and national culture »»norms, systems, symbols, language, assumptions, environment, location, beliefs and habits. These factors produce collective values, beliefs and principles and influence the type of risk culture organisations develop.
‘An organisation may have a positive risk culture and still be exposed to rogue behaviour by one or more individuals.’ John Dawson and Carmel McDonald / Dawson McDonald Consulting
Direct and proportionate rewards and consequences
Effective assurance and compliance mechanisms
RISK CULTURE Source: Dawson McDonald Consulting 2019
That they include things like history, strategy, symbols, assumptions and beliefs shows that culture consists of much more than just behaviours. Conduct risk is by definition only about behaviour: inappropriate, unethical or unlawful behaviour. It is not identical to risk culture, although it is influenced by the overall organisational culture and risk culture. An important qualification is that while culture does influence behaviours, it doesn’t necessarily always determine the behaviour of each individual. An organisation may have a positive risk culture and still be exposed to rogue behaviour by one or more individuals. However, there’s no doubt that a positive risk culture will significantly reduce exposure to conduct risk. As we have demonstrated, when it comes to organisational culture, risk culture and conduct risk, influence flows down the family tree — but this doesn’t always prevent the younger sibling from acting in ways that disrupt the family. JOHN DAWSON AND CARMEL MCDONALD Dawson McDonald Consulting
John Dawson and Carmel McDonald are the co-owners of Dawson McDonald Consulting. They’ve been running Risk Culture Assessments since 2008 to help clients protect their organisations and build resilience.
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
PROMOTION
34
A NEW STAR IN MARITIME Harsh Chopra, is the founding director of HC Maritime Consulting in Melbourne, Australia. In part 3 of the series he focuses on the recovery services of his company that form an integral part of their operations. What kind of recoveries does HC Maritime conduct on day-to-day basis? We are recovery agents for different forms of subrogated recovery actions– it could be anything from maritime recovery action, a common-law recovery action, or simply a dispute between an aggrieved party and his opponent whoever they may be. Thus, we could be instructed on anything based primarily on: • contracts of carriage – both domestic and international; • contract of logistics and warehousing; • contract of lease; • contracts of insurance; • tort law; • bailment law; and other international regimes and conventions that the commonwealth of Australia has ratified. There is never a dull moment in a recovery agent’s life – we learn how to improve our approach, arguments, and representation with every-case we conduct, in order to obtain desired outcomes for our clients. Recently, we did an investigation for a potential-recovery-action in which hundreds of air-conditioners were water-damaged due to an overhead-sprinkler system’s water-pipe bursting. The arguments of both the warehousing-company and the land-lord of the premises to the aggrieved water-damaged cargo owner was that the water-pipe burst due to out-of-the-ordinary heat-wave in Melbourne during December 2019 – essentially a direct consequence of superficial-expansion of water due to heating and corresponding increase in pressure concurrently. This would be an acceptable argument to a man of normal prudence, but to us it was unpalatable and illogical, as the question was: why did not all over-head-sprinkler water-pipes in all the warehouses in Victoria burst on that hot day. Hence, we delved deep into the subject of proximate-cause of pipe-bursting and hired a specialist-technical-investigator to assist us
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
– the answer was that the pipe burst due to: (a) primarily faulty and incorrect installation (b) secondly due to non-installation of a simple pressure-value that would allow for such superficial expansion of water on account of temperature and corresponding pressure increase. The client was jubilant with these results. What in your opinion makes for a good recovery-action and recovery-agent? Recovery action is usually initiated toward the end of any matter – insurance claim or otherwise. Thus, it is imperative: 1. That all materials-facts of the case are collected and well-documented; 2. That the quantification occurs on rational and logical terms to determine the monetary value of the same; 3. That the proximate-cause (root-cause) of the loss, damage (that may be one or more reasons), and/or wrong-doing is scientifically and explicitly established under the doctrine of balance of probability – and if not done, the reasons thereof should be clearly stated; 4. That the aggrieved party – one or more in favour of whom the action is to be taken is clearly identified; 5. That the wrong-doer and tortfeasor (negligent-party – one or more) is also simultaneously ascertained against whom the action is to be fought; 6. That the legal remedies under which the matter is to be addressed is thoroughly investigated legally with special emphasis on any precedents in the jurisdiction the matter is to be filed, in order to avoid any surprises down the track.
This is essentially the homework of the recovery-agent, per se – one can only discharge this duty towards the client, if one is very clear in his/her mind about the practical implications and legal implications that are involved. This vital skill comes from study of law; study of trade-practices; and study of prevalentconventions that are used for any particular type of trade and commerce, as well; as in-depth practical knowledge acquired over decades of working in the field. We give pro-bono advice on any recovery action that is referred to us by our clients. We are honest and upfront with what can and cannot be done with a very clear indication of cost and viability of that recovery. This enables our clients to take informed and accurate decisions– they appreciate what we bring to the table.
Get in touch HC Maritime Consulting Pty Ltd — a one-stop-shop for expertise in marine insurance, logistics and admiralty (maritime law). For more information, contact Harsh Chopra: (61) 411 132 260.
HC MARITIME CONSULTING PTY LTD INSURANCE
LOGISTICS
ADMIRALTY
ESSAY
35 35
by Euan Osborne illustrations by Cami
ESSAY
$
$
The new normal
Risk-based pricing 2019 Insurance Council of New Zealand and ANZIIF Scholarship winner Euan Osborne examines how it affects insurers, their customers, society and collective pooling.
U
ntil recently, domestic property premiums were largely cross-subsidised, with lower-risk locations effectively subsidising higher-risk ones. However, challenges posed by earthquakes and natural disasters in New Zealand have caused a shift away from cross-subsidisation towards a more individualised approach to property pricing. This can be done via risk-based pricing, where statistical modelling can predict the likelihood and impact of certain events for individual locations, rather than just the wider area. In New Zealand, the most concerning risks come from the natural environment — earthquakes, floods, landslides and erosion. Following the catastrophic Canterbury earthquakes [in 2010 and 2011], insurers now have billions of dollars’ worth of claims data with which to assess their exposure. The overall industry trend is towards riskbased pricing. Tower Insurance introduced it for domestic property in mid-2018, and others such as AA Insurance have followed suit, citing concerns about natural disasters as impetus for the change. A recent Lloyd’s report notes ANZIIF.COM // ISSUE 01 2020 // JOURNAL
ESSAY
ESSAY
36
Figure 1: Number of relevant natural loss events worldwide
Source: Munich Re’s NatCatSERVICE
1980 - 2018
Climatological events
Hydrological events
Geological events
Meteorological events
900 800
Number of events
700 600 500 400 300 200 100
1980s
that New Zealand is the second-riskiest country in the world for natural disasters. The 2011 Canterbury earthquakes caused damage equal to 15 per cent of its GDP, and extreme weather events look set to increase with climate change. The reinsurance industry is increasingly concerned about the impact of these losses. Figure 1, from Munich Re, highlights this upwards trend.
Effects on insurers Risk-based pricing allows insurers to drill down into individual risks and assess them on their own merits, based on factors such as seismic calculations and flood maps. In the past, they used broad-rating tools such as postcodes so the uncertainty around the risk posed by individual locations led to high rates of cross-subsidisation. Insurers who fail to use risk-based pricing will face pressure from competitors who can provide lower premiums for lower-risk customers while charging more for high-risk ones. A possible result will be that adverse selection will mean consumers who have seen their premiums increase will start moving their high-risk properties to insurers that don’t use risk-based pricing. Over time, this will increase the proportion of high-risk policies on these insurers’ books, eventually leading JOURNAL // ISSUE 01 2020 // ANZIIF.COM
2000s
1990s
Figure 2: Spread of insurance premiums
2010s
Source: Actuaries Institute’s Green Paper, The Impact of Big Data on the Future of Insurance
A Current
Future (Big Data) Area of unaffordable insurance
C
B Low Risk
Average Risk
High Risk
Insurance Premium Levels
to higher claims costs and increasing pressure from reinsurers.
Impacts for consumers
According to the Insurance Council of Australia (ICA), cross-subsidisation tends to result in higher average premiums overall due to the level of
uncertainty around individual risks. Conversely, Australia’s Actuaries Institute says risk-based pricing results in lower premiums for most customers. Figure 2 shows how improved analytics or big data lead to a flattened premium distribution — more low-risk customers see premium decreases (B) and fewer
37
customers are treated as ‘average’ (A). Conversely, there will also be an increased subsector of high-risk customers (C), who will be priced out of insurance entirely. Some areas, however, may be viewed as too risky and left uninsurable. We see this in Australia where advanced flood modelling has effectively priced some properties out of the private insurance market and left them unsellable. This will be exacerbated by future exposure and losses due to climate change. A recent report by New Zealand’s National Institute of Water and Atmospheric Research advises that 50,000 properties in New Zealand collectively worth NZ$12.5 billion are currently exposed to extreme coastal flooding. That figure could increase as we begin to feel the impacts of climate change. Risk-based pricing may also reduce choice for consumers. This is the case in Australia’s Northern Territory. According to the Australian Competition and Consumer Commission 2018 interim report on the Northern Australia insurance inquiry, general insurance customers faced increasingly limited choice, as insurers were unwilling to open themselves to flood exposure and some insurers declined to quote entirely in some areas.
Effects on society Increasing premiums could also lead to some areas being affordable only to the well off, while those on lower incomes are filtered into riskier locations. Perversely, the people least likely to have insurance and to be able to recover in the event of a large loss could also become those most at risk. The ICA says this rising insurance unaffordability could raise public policy issues and questions around the role of government. Taking a more optimistic view, risk-based pricing may lead to better long-term results for society. In this scenario, insurance risk modelling would be considered when the New Zealand Government and developers determine where to build. We are seeing the insurance industry push for a low-carbon economy in the light of climate change. Many of the large global insurers have withdrawn from underwriting coalmines and power plants, and 19 of the major global insurers are divesting from coal and other fossil fuels.
The end of collective pooling? Insurance at a fundamental level involves the transfer of risk from the insured
‘… risk-based pricing will not do away with collective pooling entirely. Insurance is rooted in uncertainty, and, except for the highest risk locations, no amount of data can predict with certainty when losses will occur and what they will cost.’ Euan Osborne / Financial lines underwriter
to the insurer, where the level of risk determines the premium charged and the restrictions imposed. These premiums are collected and pooled together and allow insurers to pay the claims of the few out of the premiums of the many. Historically, insurers did not have access to the level of data that they do today and so there was more uncertainty around individual risks. As discussed, this resulted in a high degree of cross-subsidisation, which led to the premiums for higher-risk locations not accurately reflecting the risk they posed. In a low interest rate environment, insurers face decreasing investment returns. This shifts the emphasis to delivering underwriting returns, and risk-based pricing is a key tool in achieving this. However, risk modelling company RMS points out that this can lead to tension between the insurer’s role as a profit-making entity versus its role as a risk pooler. The Reserve Bank of New Zealand’s recent Financial Stability Report also notes that extreme
risk-based pricing could threaten the collective pooling of risk — some insurance customers face higher premiums and a small proportion are unable to acquire total insurance cover, reducing the size of the pool and leading to properties facing a premium tailored to their individual locations rather than the wider area. Ultimately, however, risk-based pricing will not do away with collective pooling entirely. Insurance is rooted in uncertainty, and, except for the highest risk locations, no amount of data can predict with certainty when losses will occur and what they will cost. Insurers still need to cross-subsidise and collectively pool risks in the face of these uncertain future losses. Better data analytics do not mean that risk pooling will come to an end. Sharing losses has always been a basic concept of insurance, and more granular pricing just means that insurers can charge a premium that better reflects the risk.
EUAN OSBORNE
Financial lines underwriter
Euan Osborne is a financial lines underwriter at Chubb New Zealand. He holds a Bachelor of Commerce/Bachelor of Arts degree from Auckland University and completed the ANZIIF Certificate IV in General Insurance in 2017.
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
Cyber Insurance
Our Cyber Insurance products are easy to understand, with comprehensive policy terms to protect against one of today’s top-ranked emerging risks
Visit our website for more information: www.brooklynunderwriting.com.au
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We’d love to hear from you — suggest a topic or make a submission to the Journal at anziif.com/about/the-journal or email us at: journal@anziif.com
Technical• Keep up to date with the latest research, market trends and big issues facing the industry.
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REINSURANCE //
CLAIMS //
RISK //
BROKING //
Breaking the silence
The TPD conundrum
The defamation capital
Can small brokers survive?
It’s becoming increasingly important for the insurance industry to address silent cyber exposures.
Total and permanent disability (TPD) product design poses a dilemma for insurers.
A rising number of actions has earned Australia an unenviable new title as a centre of defamation.
Small brokers continue to flourish despite the challenging and changing broker landscape.
44 LIFE //
The opioid crisis on our doorstep The life insurance industry has a vital role to play in mitigating and creating awareness of opioid risk.
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
REINSURANCE
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Insurers are paying more attention to silent cyber risks — often the result of ambiguous policy wordings — to avoid unforeseen losses that have neither been assessed nor priced in.
Breaking the silence JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Cybersecurity by Tim Garratt
IN SHORT › As the transformation of
global commerce continues, it is becoming increasingly important for the insurance industry to address silent cyber exposures, which can potentially affect almost all classes of insurance.
› The consequences of failing
to address silent cyber could potentially be disastrous. (Re]insurers may take on risk that has not been properly underwritten and be unaware of their total accumulation. Additionally, more claims disputes could arise, and the reputation of the wider industry could be adversely affected.
› Ensuring insureds have
clarity as to the precise risks included/excluded from each of their policies is vital.
T
he world is increasingly connected and more reliant on the fruits of technological progression. According to the 2019 Global Cyber Risk Perception Survey by Marsh and Microsoft, it’s estimated that internetconnected devices will number 75 billion by 2025. The report adds that ‘even traditional sectors such as manufacturing expect almost 50 per cent of the products they develop to be “smart” or “connected” in some way by 2020’. ‘New technologies are changing our way of life and integrating into everything we buy,’ says Matthew Honea, director of cybersecurity for Guidewire Cyence.
‘New technologies are changing our way of life and integrating into everything we buy.’ Matthew Honea /
Director of cybersecurity, Guidewire Cyence
New cyber risks emerge for insurers A heightened reliance on, and integration of, technology will bring new cyber exposures. Providing proper protection against these everevolving dangers also requires responding to silent (or non-affirmative) cyber risks. Silent cyber exposures are cyber-related events or losses neither explicitly included nor excluded from a policy that was not originally intended to offer cyber coverage. Paul Merriman, casualty underwriter for Munich Re Australia, says silent cyber risks can be found in almost all classes of insurance. ‘While the most significant losses have been seen in commercial property globally to date, many casualty classes and even personal lines could be affected,’ he says. ‘As long as there is ambiguity in the policy wording around cyber exposures and/or data, there could be silent cyber exposure.’ Michael Parrant, cyber insurance practice leader in Aon’s Cyber Solutions Group, says affected policies often have not taken into account the asset rotation — from tangible to intangible assets — that’s occurred in business over the past two decades. ‘What we’re seeing now … in the property, crime and the general liability insurance policies is this question over whether they are supposed to cover those sorts of exposures or not, and that really comes down to the language that they’ve used being quite broad historically.’
Dangers for (re)insurers and customers Failure by insurance players to grapple with silent cyber could potentially be catastrophic. ‘Silent cyber can manifest itself in unforeseen losses that have neither been assessed nor priced for by the underwriter,’ says Merriman. ‘It means that (re)insurers could potentially assume exposure without proper underwriting and accumulation management. Not only for cyber, but in all classes, it is important to consider risks in the underwriting process and achieve riskadequate prices for the associated exposures, not least to ensure sustainability and solvency in the long term.’ From the customer perspective, ambiguous wordings around cyber and data can lead to contract uncertainty and increase the likelihood of claims disputes. Merriman also points to the broader concern for the industry around trust and reputation. ‘With increasing regulatory scrutiny and focus on fair treatment, (re)insurers need to work harder than ever to ensure their customers understand the coverage and value of the products they are purchasing.’ ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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REINSURANCE
42
ORGANISATIONS VS NEW TECHNOLOGIES
77%
Cloud computing
have already adopted at least one of these technologies
Percentage of organisations that have adopted or are piloting/considering each technology…
32% Blockchain
90% 59% 50% Artificial intelligence (AI) / machine learning
Robotics / process automation
Base: All answering, excluding don’t know responses: n=588-733 (2019)
74%
Digital products and apps
74%
Connected devices
76%
are piloting or considering adopting at least one of these
Source: Marsh Microsoft 2019 Globa Cyber Risk Perception Survey
‘… the most appropriate policy should respond, and customers should not be left with a gap in coverage, especially one they do not understand.’ Paul Merriman /
Casualty underwriter, Munich Re Australia
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Globally, the largest silent cyber losses to date arose from the 2017 NotPetya malware attack, which led to claims under property policies. ‘In some cases, the silent cyber exposure stemmed from ambiguous definitions of electronic data … and in other cases, the explicit agreement to insure electronic data as property, but perhaps without a full appreciation at the time for what this meant for the cyber exposure,’ Merriman explains. According to Property Claim Services Global Cyber, almost 90 per cent of the total industry loss from NotPetya is attributable to non-affirmative cyber.
Taking action In January 2019, the United Kingdom’s Prudential Regulation Authority (PRA) called on the (re)insurance industry to more prudently manage cyber risk exposures, including silent cyber, requiring it to create action plans containing clear milestones and timeframes for taking action. Responding to PRA’s direction, Lloyd’s announced that, from 1 January 2020, its underwriters must ensure all first-party property damage policies affirm or exclude cyber cover. Requirements for liability and treaty reinsurance will come into effect in two phases during 2020/21.
‘Other regulatory authorities like the European Insurance and Occupational Pensions Authority in the European Union are beginning to address the issue as well; for example, by introducing a combination of quantitative and qualitative questions on cyber risks in their insurance stress tests,’ says Merriman. He characterises the industry response to silent cyber in Asia Pacific as ‘mixed’. ‘In some cases, insurers and reinsurers are ahead of the curve and have already completed projects to assess their own exposures and communicate to the market,’ he says. ‘In other cases, there is a lack of awareness and urgency.’ Honea stresses an insurer’s need to thoroughly understand its policies, ‘both past and present’. ‘Language has evolved over time, and we didn’t think about all the risk we have today, say, 10 years ago,’ he says. ‘It’s important to systematically understand policy text. We suggest using an approach of bucketing policies into three types: defined included risk, defined excluded risk, and unknown silent risk.’ Merriman says insurers and reinsurers can address silent cyber by working together to facilitate clarity for all involved, including the customer. ‘If we put ourselves in the customers’
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CYBER RISK AWARENESS INCREASES
Driven by the frequency and severity of high-profile incidents, such as the 2017 NotPetya attack, cyber risks and threats increased significantly among respondent organisations’ top priorities in 2019. Globally, 79 per cent of respondents ranked cyber risks as a top five concern for their organization, up from 62 per cent in 2017. The number citing cyber risk as their #1 concern nearly quadrupled, from 6 per cent to 22 per cent.
‘Many insurers … are not readily equipped with the expertise to address their silent cyber exposures …’ Paul Merriman /
Casualty underwriter, Munich Re Australia
4+34+566H 21+57+22H 6% 4%
2017
34%
2019
56%
57%
A top 5 risk for 79%
A top 5 risk for 62%
position, they are probably less concerned with which of their policies responds, than having the right cover in place and being able to clearly understand the wording,’ he says. ‘As long as the cyber scenario in question is insurable — and some are not — the most appropriate policy should respond, and customers should not be left with a gap in coverage, especially one they do not understand. ‘If this approach is kept in mind, the objective of cyber exclusions, write backs, endorsements and affirmative coverages is clear. The insurance industry … [and] external cyber experts need to collaborate closely to develop a common understanding of how cyber risks should be dealt with, in order to understand the risk, assess it adequately and therefore make it insurable.’ As with affirmative cyber (where policy language covers or excludes cyber-related losses), Merriman says the challenge for (re)insurers regarding pricing is to build a framework without the benefit of ample historical data. ‘Silent cyber can be considered a risk of change, often a new proximate cause of existing perils,’ he says. ‘Underwriters will need to consider the impact of this risk of change, while maintaining a pragmatic view of the benefits of new technologies
21%
22%
The #1 risk
A top 5 risk
(but not #1)
Not a top 5 risk
Don’t know
Base: All answering; n=1312 (2017); n=1512 (2019)
Source: Marsh Microsoft 2019 Globa Cyber Risk Perception Survey
that can also lower the exposure rather than amplify it.’ One approach, suggests Merriman, to assess the exposure in the absence of credible claims data could be to explore loss scenarios and their impact on conventional policies. However, he acknowledges this is easier said than done. ‘Many insurers, particularly those that do not participate in the affirmative cyber market, are not readily equipped with the
expertise to address their silent cyber exposures without support,’ he says. Merriman says an industry-wide response to silent cyber will ultimately benefit customers, insurers and reinsurers. ‘The insurance product landscape should ideally jointly address the insureds’ need for cyber coverage and clearly define what is covered and what is not in existing policies,’ he says.
TIM GARRATT
Freelance journalist
‘In August 2019, Willis Re released its annual Silent Cyber Risk Outlook report, involving more than 600 insurance professionals globally. The survey indicated the industry was less apprehensive about silent cyber exposures than it was 12 months earlier. Willis Re’s global cyber practice leader Mark Synnott posited that insurers’ endeavours to address these exposures would have tempered their concerns, but noted it was also likely that the lack of highly publicised cyber losses during the relevant period impacted the results. It may take the next high-profile cyber attack to facilitate a clearer picture of (re)insurers’ success in addressing silent cyber.’
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
LIFE
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IN SHORT › Deaths related to
prescription opioids are increasing in many countries, including Australia and New Zealand.
› For life insurers, this
may mean an increase in accidental death claims from prescription opioids.
› The insurance industry
can help by providing insurance cover that pays for treatment alternatives to opioids, as well as emergency overuse medication and therapy to treat addiction.
The opioid crisis on our doorstep Prescription opioid overdoses are becoming a bigger problem across South-East Asia, increasing the risks of accidental death claims. The life insurance industry has a role to play in helping to mitigate the risk and creating more awareness of it.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
Opioids by Abigail Murison
I
n the early 2000s, fans of the popular TV series House were shocked not only by Dr Gregory House’s unorthodox bedside manner and startling powers of medical diagnosis, but also by the way he managed his own chronic leg injury pain with a steady and sometimes illegal supply of the powerful opioid drug Vicodin. According to the United States’ National Institute of Drug Abuse, 8 to 12 per cent of people who are prescribed opioids over several months become dependent on them. That’s sobering news, especially as the Australian Institute of Health and Welfare found that more than three million Australians got at least one opioid prescription in 2016/17. ‘Opioids are highly effective in treating acute, severe pain,’ says Dr Hester Wilson, an addiction medicine expert from the Royal Australian College of General Practitioners. ‘We are lucky to have them, and it’s a tragedy that in some countries people have no access to them. However, the evidence is not there that opioids are effective for the management of chronic pain.’
Tragic outcomes Over time, users of opioids can develop a greater tolerance to the medication. They may take higher doses to get the pain relief they once experienced, or they may combine their prescriptions with other medications accidentally or deliberately, sometimes leading to tragic outcomes. ‘Inappropriately high doses of opioids can produce respiratory depression and circulatory failure,’ says Louisa Degenhardt, Scientia Professor at the National Drug and Alcohol Research Centre at the University of New South Wales. According to the Australian Bureau of Statistics, three Australians a day died from opioid overdoses in 2018. Seventy per cent of these deaths were from prescription opioids, often in combination with other substances. Research by the Australian Institute of Health and Welfare in 2018 found that deaths from opioids more than doubled from 2007 to 2016, jumping by 62 per cent to 4.7 deaths per 100,000 people. Across the ditch, the New Zealand Drug Foundation estimates that one person in every 100,000 dies from an opioid overdose each year in New Zealand. Between 2001 and 2012, the opioid-related death rate there increased by 33 per cent. Data on opioid use across the broader Asia Pacific is hard to come by. Reports by organisations including the Rand Corporation
OPIOIDS BY THE NUMBERS
Three Australians a day died from opioid overdoses in 2018.
62+38+H ↑
62%
From 2007 to 2016, national deaths from opioids jumped by 62%.
130 In the US, on average, 130 Americans die from an opioid
overdose each day.
Sources: Australian Bureau of Statistics; Australian Institute of Health and Welfare; US Centers for Disease Control and Prevention.
ANZIIF.COM // ISSUE 01 2020 // JOURNAL
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LIFE
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suggest that while heroin remains a bigger cause of opioid-related deaths at present, prescription opioid overuse is a growing problem across the region.
Other factors The US holds the dubious distinction of being the world leader in prescription opioid addiction and deaths. According to the US Centers for Disease Control and Prevention, on average, 130 Americans die from an opioid overdose each day. Research into the US opioid crisis provides insight into the factors that may influence how the situation could play out in other regions. For example, while New Zealand has seen an increase in prescription opioid deaths, access to illegal opiates such as heroin is much more limited. In the US and other countries where illegal forms are more easily accessible, people who are addicted to prescription opioids may graduate to using heroin if their prescriptions are cut off or no longer meet their usage needs, increasing the number of deaths. Similarly, in countries like Germany where addiction is viewed as a medical issue rather than a moral issue, there is generally better access to drugs and programs to help people addicted to opioids to get better – improving health outcomes and reducing related deaths.
Challenges for insurers In the US, insurers have been criticised for providing cover that pays for the use of opioids for chronic pain management in preference to non-medicinal methods, such as therapy. In other instances, cover may be limited for medications and treatments for opioid addiction. The extent and type of cover insurers offer can have a big impact on how and when opioids are used and on recovery from an opioid addiction. ‘The medical defence unions [in Australia] do really well,’ says Wilson. ‘If someone is injured and their recovery drags on, they may wonder if the insurer will cover non-medical and psychological support. Chronic pain is a complex experience, and we need cover funding a nuanced, multi-pronged and compassionate treatment approach.’ In terms of life insurance, most policies won’t cover a drug-related death, unless the drug in question is prescribed by a doctor, typically the case with prescription opioids. While many policies stipulate that the drug must be taken as prescribed, prescription opioid deaths may fall into a grey area if the overdose is considered accidental.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
WHAT ARE
OPIOIDS? Opioids are a family of psychoactive drugs that relieve acute pain. Some, such as morphine, are naturally derived from the opium poppy, while others, such as fentanyl, are synthetic. Prescription opioids include morphine, codeine, hydrocodone, oxycodone and fentanyl, among others, and may be marketed under different names in different countries. Heroin, which is typically illegal or tightly controlled internationally, also belongs to the opioid family.
OPIOID STRENGTH COMPARED WITH MORPHINE
HYDROCODONE
(marketed as Vicodin in some countries)
Equivalent pain relief to morphine, but the effect lasts longer.
CODEINE
OXYCODONE
FENTANYL
Morphine is about seven times more powerful than codeine.
(marketed as OxyContin in some countries)
About 100 times more powerful than morphine.
About twice as strong as morphine.
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Such a situation might be a person combining opioids with other substances with unintended consequences, or finding themselves more sensitive to the medication than anticipated. Insurance that covers naloxone, an opioid receptor blocker in the form of a nasal spray that can prevent accidental overdose, could help reduce deaths, as could teaching patients and their families how to administer it. Wilson says: ‘Take-home naloxone treats opioid overuse and overdoses, and we need to teach people how to respond and that overuse is a risk.’
Prevention and support In workplaces that offer group life insurance, employers can help by creating a safe environment to avoid workplace accidents and by selecting an insurance plan that also covers non-opioid treatments for injuries. Companies can also train their supervisors and managers to spot the signs of opioid-related impairment and provide stigma-free support to help employees who may be struggling with opioid misuse get the medication and/or therapy-based treatments they need. Paid time off during treatment and flexibility to work from home can also support employees recovering from injury or getting treatment for an addiction to prescription opioids.
Greater awareness Consumers have perhaps the most important role to play in managing their own wellness and treatment and preventing misuse and potential opioid addiction. They are best placed to ask their doctor what medicine is being prescribed, if there are non-opioid alternatives and how long they should be taking a prescription. Most opioids are prescribed for moderate to severe short-term pain. People who find themselves taking medication for mild pain, or for months after an injury has healed, should be aware that opioids are not considered effective as long-term pain treatments. AIA Australia’s national wellbeing manager Simonie Fox says 53 per cent of AIA’s claims involve chronic pain. The insurer works closely with Pain Revolution, the brainchild of Professor Lorimer Moseley, from the University of South Australia. ‘The aim of the program is to raise awareness about current pain science through education of the community, as well
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‘Opioids are highly effective in treating acute, severe pain … However, the evidence is not there that opioids are effective for the management of chronic pain.’ Dr Hester Wilson / Addiction medicine expert, Royal Australian College of General Practitioners
as medical and allied health professionals,’ says Fox. ‘By providing pain coaching to our customers, we can help them to reduce their pain experience, which then allows them to work with their medical team to address their opioid use. ‘Our customers who undergo pain coaching have a 76 per cent improvement in function and a 33 per cent reduction in pain. ‘Many of our claimants, who are between the ages of 35 and 55, are parents and are very keen to ensure they recover, so they can be a contributing and productive part of their family. ‘This is often a motivator to allow them to explore the possibility of an alternative approach to dealing with their pain.’ Pain Revolution also raises funds to train local pain educator networks in the community. These pain educators are trained in evidence-based pain science and
work with Australians who are suffering from chronic pain to retrain their brains and reduce their pain experience. ‘The Pain Revolution program has reached more than 6,000 Australians to date and will help prevent people from getting chronic pain and becoming opioid dependent,’ says Fox.
Where to from here? From commercial shipping to firefighting, insurers have improved society by funding research into better practices and policies, and supporting activity that reduces loss, injury and death. The prescription opioid crisis is shaping up to be another such challenge, including for governments and the healthcare industry. ‘A comprehensive and evidence-based public health response is required to substantially reduce opioid dependence and related harms over the coming decades,’ says Degenhardt. ‘Drug policy needs to be driven by public health and prevention of harms to health, which will require decriminalisation of drug use and dependence. Research should be funded to develop and evaluate novel interventions to prevent opioid overdose, improve the quality of treatment for opioid dependence and identify new treatments for opioid dependence and chronic noncancer pain.’ Kath Johnson, Fidelity Life’s chief operating officer, says: ‘We’re aware of the significant risk opioid addiction poses to customers, insurers and the wider community. We’d support an industry-wide response and are keeping a close eye on developments.’ ABIGAIL MURISON Freelance journalist
‘We trust doctors and medicine to make us better; the prescription opioid crisis challenges those assumptions. It’s going to take a concerted effort from government, insurers, healthcare professionals and the pharmaceutical industry to reduce harm and death from drugs that can also do so much good.’
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CLAIMS
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The TPD conundrum The latest figures show that TPD is a well-targeted product with significant consumer benefit, particularly in relation to group insurance through superannuation. Having said that, there is room for improvement.
IN SHORT › Total and permanent disability (TPD) product design poses a dilemma for insurers as it is unsustainable to offer increasing numbers of large lump-sum payments to claimants. › To date, strategies to restrict TPD payouts by increasing premiums, narrowing definitions or offering payments by instalment have resulted in public criticism and negative findings from the Hayne royal commission and the 2019 ASIC review of TPD insurance claims in Australia. › Despite this, the latest figures from APRA show that both retail and group life TPD claims have high acceptance rates and loss ratios, making TPD a welltargeted product. › Given there’s evidence that some TPD claimants can return to work after retraining or rehabilitation, the right mechanisms to facilitate such services and cover insureds in the interim need to be found.
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TPD by Anna Game-Lopata
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t’s hard to ignore the heartrending depiction of Queensland stonemason Garry Moratti in the media. Diagnosed with silicosis in 2017 and given four to five years to live, he has been denied a lumpsum benefit under his total and permanent disability (TPD) life insurance policy through Sunsuper. It’s the latest in a stream of criticism aimed at the Australian not-for-profit super fund. Along with some other funds, it introduced a new TPD product offering six instalment payments accompanied by support with retraining and rehabilitation as an alternative to the traditional lump-sum payment. After the first year, recipients are required to prove their TPD status to be eligible for the next instalment. TPD is not always permanent. If you dig a little deeper, the complexity around TPD becomes clear. In an in-depth study of members who’d already been paid a TPD claim, Sunsuper found that 36 per cent were working or actively seeking employment within three years. ‘This really highlights that total permanent disability may not always be permanent, and that many of our members who have made a TPD claim want to return to work,’ the fund said in a statement. The changes to Sunsuper’s TPD product have also reduced premiums by around 30 per cent. The Australian superannuation system enables more than 15 million people to save for retirement. It also provides insurance to around 12 million Australians, with about 90 per cent of total TPD insurance policies held through super.
Photography: Alamy
High acceptance rate According to the latest figures from the Australian Prudential Regulation Authority (APRA), 89.5 per cent of finalised TPD claims through group life insurance are admitted – up from 88 per cent in 2018.
‘Ascertaining whether an individual has the ability to work in the future is difficult and complex, so you’d expect lower acceptance rates.’ John Berrill / Director of Berrill & Watson Lawyers
For retail TPD claims sold through an adviser, 85 per cent are admitted. John Berrill, director of Berrill & Watson Lawyers, asserts that compared with loss ratios for other insurance lines and products, TPD acceptance rates are robust, especially given the bar for TPD is set intentionally high. ‘It’s not an easy product to deliver, because of its long-term nature,’ says Berrill, one of Australia’s most experienced plaintiff superannuation and insurance lawyers. ‘Ascertaining whether an individual has the ability to work in the future is difficult and complex, so you’d expect lower acceptance rates.’ Berrill says very high loss ratios are indicative of a product that is welltargeted. He’s on record as warning that they might even be unsustainably high. ‘There’s no doubt that there have been affordability issues with TPD, and the way insurers dealt with it was to increase premiums dramatically or narrow their definitions,’ he says.
Design and flexibility could be improved In response, the Hayne royal commission recommended a Treasury investigation. ‘Commissioner Hayne rightly said that the value of an insurance policy is tied to the breadth of its terms and conditions,’ says Berrill. ‘Evidence before the commission was that these varied widely and members were often in a knowledge vacuum.’ He adds that the Treasury review, which is exploring universal terms and conditions for group policies and how changes could affect premiums, will be useful. ‘Insurers offer policies on set terms with little or no room to negotiate variations,’ he says. ‘Consumers, for their part, have preconceived notions of what is insured and rely on trustees. While trustees should have a more nuanced understanding of life insurance, they have obligations to the membership as a whole and price pressures which may translate to lowest common denominator cover.’
No place for ADL Currently, the law requires TPD benefits offered through super funds to be consistent with the ‘permanent incapacity’ definition set out by the Superannuation Industry (Supervision) Act 1993. This stipulates a ‘permanent incapacity to do your usual occupation or any other suitable work with your education, training or experience’. However, in practice, some TPD definitions have adopted much narrower definitions, as highlighted by an October 2019 review of TPD insurance claims by the Australian Securities and Investments Commission (ASIC). Most worrying, according to ASIC, is the trend towards applying the Activities of Daily Living (ADL) definition. It restricts benefits to members unable to perform two or more activities, such as feeding,
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bathing, dressing, toileting, walking and transferring from bed. ASIC estimates that of 13 million TPD policies held by Australians, 500,000 have ADL definitions. In addition, some policies apply the ADL definition to ‘high-risk’ occupations and ‘flip’ members into the ADL definition if they don’t meet ‘at work’ or minimum working hours thresholds. The report notes that 60 per cent of ADL claims were rejected, compared with just 12 per cent of other TPD claims. ‘Only a handful of superannuation fund members whose working lives are cut short because of injury or illness would satisfy an ADL definition, thereby disenfranchising many from permanent incapacity benefits, usually without any premium differentiation. Hardly value for money,’ says Berrill. ‘What stands out in the [ASIC] report is that the ADL definition has no place
in employment-related default insurance cover. These are trauma benefits measured by an inability to self-care, not an incapacity to work and accumulate income for retirement.’
Adapting to the rise of mental health claims Sandy MacLeod, Sydney-based general manager for insurance solutions at mental health organisation SuperFriend, says the ADL definition has its limitations but points out that ASIC’s report shows such claims represent only 4 per cent of overall claims submitted. MacLeod would like to see some allowances made for mental illness claims, where the insured person is deemed ineligible to be assessed under the education, training and experience (ETE) definition. According to
research by the Financial Services Council and KPMG Australia, mental health conditions account for almost a quarter of all TPD insurance claims paid. ‘It’s typically very difficult for an insured person to meet the ADL definition when he or she is suffering from even the most severe psychological impairment,’ says MacLeod. He argues this issue could potentially be resolved by adopting a single sum-insured or hybrid-style policy that pays a benefit regardless of the severity of a person’s health condition affecting their ability to work. ‘Under this style of policy, benefits would be paid in a similar manner to an income protection policy until the sum insured has been exhausted. Lump-sum payments would only be paid for death, terminal illness or a specified medical condition
SPOTLIGHT ON THE CLAIMS PROCESS According to ASIC’s October 2019 review of TPD insurance in Australia, poor claims handling processes contribute to some consumers withdrawing their claims. One in eight, or 12 per cent, of claims lodged with insurers did not proceed to a decision. ‘We consider that this high withdrawal rate is, at least, partially due to insurers subjecting consumers who are vulnerable (due to life-altering illness or injury) to a claims process that is often unnecessarily challenging and onerous,’ the report states. ‘Frictions’ identified included poor communication, excessive delays, potentially threatening surveillance and desktop surveillance. Insurers also lacked key claims data to help them effectively manage the risk of consumer harm, including being able to identify the value of products to consumers and key friction points in their claims handling processes. For over 50 per cent of withdrawn claims, ASIC found the reason given by the insurer was ‘lack of response by the consumer to a request for information’. The second most common reason was the consumer withdrawing for reasons other than eligibility or return to work (31 per cent). However, insurers did not record the actual reason for these active withdrawals. APRA research released in December 2019 found timeframes for TPD claims have dropped to 5.2 months. Dispute processing timeframes have also dropped, but still exceed the 45-day Code of Practice time limit. Lawyer John Berrill expects further drops to be incremental, as the updated Life Insurance Code of Practice and Superannuation Code of Practice start to have an effect.
Frustration, embarrassment or discomfort
Lack of funds to pursue their claim
Consumers withdrew their claims due to …
Threatening behaviour or allegations of fraud
Stress that affects mental health Source: TPD Claims process (ASIC’s October 2019 review)
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as day-one TPD, such as paralysis, cardiomyopathy or dementia. ‘This would remove some of the complications of insurance policy design while also introducing a rehabilitation opportunity where previously this was disincentivised due to lump-sum benefits already paid.’
TPD IN NEW ZEALAND
Addressing premiums To address the issue of high premiums, MacLeod would rather see a different strategy to the one-day active employment test eligibility criteria. He says it would be more reasonable for cover to be limited for a period of 12 months followed by a 30-day active employment test. ‘This would mean that no benefit would be payable for a condition which was present prior to the commencement of cover during this initial period and, to me, strikes the right balance between accessibility of benefits and risk mitigation.’ He adds that it’s appropriate for group policies to have some exclusions. For example, all policies should adopt an illegal activities exclusion where a claim arises as the result of a serious breach in the law.
Time to account for retraining Berrill believes it would be a retrograde step to remove automatic acceptance default cover. However, he agrees with MacLeod that a key improvement to TPD would be the introduction of clauses and accompanying legislation that allow for retraining options if a person is likely to resume the accumulation of superannuation at work. ‘It would be important for a retraining clause to be subject to a “reasonableness test” to ensure the retraining is within the person’s abilities and is reasonably available,’ says Berrill. ‘It could also be accompanied by a limited offer of assistance to ensure retraining is a practical assessment and not purely theoretical.’ MacLeod suggests introducing an initial period of income replacement benefits to be paid while the insurer and treating medical professions assess all possibilities and avenues for recovery. This could be aided by changes to legislation to allow life insurers to pay for medical treatment of mutual benefit to assist with the insured person’s return to active employment and a higher quality of life. ‘Once reasonable rehabilitation options have been exhausted, the insured would be eligible for a lump sum.’
‘Only a handful of superannuation fund members whose working lives are cut short because of injury or illness would satisfy an ADL definition, thereby disenfranchising many from permanent incapacity benefits, usually without any premium differentiation.’ John Berrill / Director of Berrill & Watson Lawyers
TPD policies in New Zealand can’t be readily compared with those in Australia, as different definitions apply. TPD cover is also not offered to customers through superannuation funds, as it is in Australia. According to Kath Johnson, chief operating officer at Fidelity Life, most retail TPD definitions relate to customers ‘no longer being able to work in their own occupation and/or any occupation’. Johnson says TPD policies make up a small part of the award-winning life insurer’s business, so the number of claims accepted is very low and can vary significantly. Notable TPD policy initiatives at Fidelity Life include the ability to cover people who aren’t in paid employment, such as homemakers or students, the availability of a partial benefit for the loss of the use of a limb or sight in one eye, and offering cover as an additional option with trauma policies. However, Johnson adds that regardless of the type of cover or policy the customer has, there’s always room for improvement in the way insurers help the customer understand what to expect during the claims process. ‘Customers can be under significant stress at claims time, so this is an area the whole industry can improve on.’
ANNA GAME-LOPATA ANZIIF content writer
‘A total and permanent disability is a life-shattering experience, both physically and emotionally, so it makes sense to offer a lump-sum cover for people in such a category. However, if there is any chance the disabled person can regain something of their working life, the option to receive services such as retraining should be covered by their insurance policy and evidence should be collected compassionately. The ideal policy would incorporate initial payments to cover the insured while their diagnosis and potential to re-join the workforce is being explored.’
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Defamation
RISK
by Christopher Niesche
The defamation capital of the world The rising number of actions in Australia has earned it an unenviable title as a centre of defamation. As the costs of insurance climb, some professions have been left without cover. It’s hoped that planned law reform will jettison more trivial defamation claims.
IN SHORT › The number of Australians taking defamation actions, the costs of doing so and the damages awarded are all rising. › Some professions, such as freelance writers, find it harder to obtain defamation insurance cover. For others, it’s usually included in policies such as professional indemnity or management liability. › Law reform this year could eliminate petty defamation claims.
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ustralians are taking more defamation actions, the damages are increasing and the price of defamation insurance is rising as a result, lawyers and insurance brokers say. The huge payout won by actor Rebel Wilson against Bauer Media in 2017 — A$650,000 for non-economic loss and A$4 million for economic loss — put Australia’s media outlets on notice. (Ultimately, the Victorian Court of Appeal cut the non-economic loss to A$600,000 and the economic loss to zero.) Last year’s win by Geoffrey Rush, at first instance, against The Daily Telegraph — A$850,000 for non-economic loss and almost A$2 million for economic loss — was another prominent case involving a high-profile litigant. At the same time, social media and the internet have ‘spawned a whole new industry of defamation’, says Barrie Goldsmith, principal of Australian Defamation Lawyers.
‘By far, most defamation cases now involve what we describe as ordinary people,’ he says. In particular, Goldsmith says disputes between members of an apartment block’s strata committee and tenants are a breeding ground for defamation actions, because they are such fertile grounds for disputes. Office Christmas parties tend to spawn actions when, emboldened by alcohol, workers let fly with what they think of their bosses or their colleagues. The internet has also given rise to selfrepresented litigants, who research their cases online. Even if they are unsuccessful, these actions can still cost a lot to defend. According to Trends in Digital Defamation: Defendants, Plaintiffs, Platforms, a study by the University of Technology Sydney’s Centre for Media Transition, it is becoming more common for private individuals to be the plaintiffs in defamation actions. ‘Our findings contradict common assumptions about public figures being the main users of defamation laws,’ the study states. In the period 2013 to 2017, only 21 per cent of the plaintiffs in defamation judgements in Australia could be considered public figures and only 25.9 per cent of the defendant ‘publishers’ were media companies. In last year’s case of Raynor v Murray, the District Court of New South Wales ordered Patricia Murray, a tenant of the ‘Watermark’ in Sydney’s Manly, to pay damages of A$120,000 to the chairman of the building’s strata committee for a defamatory email regarding an unlocked mailbox. The email, sent to 16 residents of the block, appeared to suggest that the plaintiff unreasonably harassed Murray, sent
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Fa kEE
DEFAMATION BY THE NUMBERS The huge payouts won by celebrities in the past few years have put Australia’s media outlets on notice Rebel Wilson won against Bauer Media (2017)
A$650,000
for non-economic loss and
A$4 MILLION for economic loss
Geoffrey Rush won against The Daily Telegraph (2019)
A$850,000
for non-economic loss and almost
A$2 MILLION for economic loss
Illustration by Cami
threatening emails and was a small-minded busybody. (The District Court’s judgement was later overturned by a Court of Appeal.) Australians threaten to sue and actually sue for defamation more than any other nationality, notes David Rolph, a Professor of Law at the University of Sydney and a leading academic on Australia’s defamation law. ‘It’s probably also true to say that it’s easier and more plaintiff-friendly to sue in Australia,’ he says, adding that law reforms planned for mid-2020 might change that’ (see page 54). Tim Castle, a commercial litigation partner at law firm Sparke Helmore, says several prominent defamation actions have been prompted by the #MeToo movement. Many of these concern celebrities accused of inappropriate or illegal sexual behaviour who sue publishers who report the accusations. In December 2019, for example, The Daily Telegraph issued a public apology to actor John Jarratt as part of its settlement of his defamation case against the newspaper. Other details of the settlement are confidential. JOURNAL // ISSUE 01 2020 // ANZIIF.COM
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‘Because the premiums are so expensive for freelance journalists, the organisations they provide work for have no choice but to agree to indemnify them contractually.’ Robert Cooper / Director, Cooper Professional Risks
Defamation insurance harder to obtain All of this is flowing through to the insurance market. Robert Cooper, a director of Brisbane broker Cooper Professional Risks, says defamation insurance is ‘a lot tougher to obtain’. This applies particularly to freelance authors of unauthorised biographies, where the writer reveals something about the subject that they don’t want revealed. Often these revelations rely on anonymous sources who will not put their names to a defamation defence. ‘It’s extremely hard to get cover on an author [who is] a freelance author. It’s probably not so bad if they’re part of a publishing house,’ he says. Insurers are asking more questions of freelance authors or journalists before they agree to provide cover, if they do at all, says Cooper. They want a legal sign-off on the material. ‘Because the premiums are so expensive for freelance journalists, the organisations they provide work for have no choice but to agree to indemnify them contractually. Therefore, they also can become a party to them,’ he says. ‘They will take responsibility on for defending the journalist and their own publishing house. You would hope they can manage the risk more effectively.’ Cooper points to a client who recently asked for a quote. ‘He wanted to write his autobiography and he’s a barrister,’ he says. ‘The insurers were concerned that he would breach client confidentiality, therefore I couldn’t get cover for him in any way.’ Adding to the difficulty of obtaining insurance is the fact that even if defendants successfully defend an action, they can still face a large legal bill. Cooper says the price of defamation
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Law reform planned A plan by federal and state attorneys-general to revamp Australia’s defamation laws could put an end to many of the more trivial defamation claims. The proposed reforms will affect both traditional and online publishers, as well as social media giants such as Facebook and Twitter, with the first tranche of amendments expected to be carried out in mid-2020. Among the possible changes is the introduction of a ‘serious harm’ threshold, which would require potential litigants to demonstrate the publication has, or is likely to have, caused serious harm to their reputation. The proposed amendment follows a similar provision introduced in England and Wales in 2013. ‘The introduction of that in somewhere like Australia should have the effect of discouraging trivial clients at the outset,’ says the University of Sydney’s Professor David Rolph. ‘All you have to prove until now is that there was something defamatory [said] about you, which may or may not be something that could be the subject of evidence, that you’ve been identified and that it’s been communicated to at least one person, rather than you. That’s not a lot to prove.’ While Rolph expects the number of claims to fall, he cautions that the reforms are likely to be tested in the courts, so they might operate differently in practice.
insurance is rising, but it’s hard to put a specific figure on it. How much the premiums are rising depends on factors such as whether the insured has preexisting cover; their long-term relationship with the insurer; their claims history; their risk management processes; staff training; and so on. For existing clients who tick these boxes, premiums are only going to rise by ‘a minimal amount’, he says. ‘But if you have never taken out a cover before, you’re an unknown quality. So perhaps you’re a former journalist but have now decided to write the unauthorised biography of Pauline Hanson or someone, then that would be considered fairly high risk.’ Defamation cover is generally not a ‘standalone’ product for other professional occupations and is usually included in policies such as professional indemnity or management liability. Cooper says there are specific multimedia policies that cover social media, websites and so on, but he adds: ‘When I sit down and compare a multimedia liability policy with an ordinary professional indemnity policy, there are not a lot of differences. ‘It is just that occupation will have more risk in the area of defamation and infringement of intellectual property.’ However, even these specialist insurers are particular about the type of insured they are prepared to accept. James Fletcher, a director of Sydneybased brokerage Malton Road Advisory, says
many insurers are excluding this cover from their management policies. ‘We do see some insurers actively trying to exclude libel, defamation and slander from D&O policies, which tells me that they see an exposure there for them,’ he says. Insurer IAG says defamation claims constitute only a small proportion of its total business claims. ‘We haven’t seen any significant changes in insurance claims relating to defamation,’ the company says in a statement. IAG covers defamation under professional indemnity insurance, including policies from CGU and NRMA. Organisations and businesses in the media, marketing and advertising industries may also consider a multimedia liability policy, which provides cover specific for these industries, says IAG. Libel and slander are covered under public liability insurance products, usually as part of the standard advertising liability that is included in these types of policies.
CHRISTOPHER NIESCHE Freelance journalist
‘Defamation is a growing risk for businesses, so it’s important for insurance brokers to develop a deep knowledge about it and how to help protect clients from it.’
2018 & 2019 WINNER Authorised Representative Group of the Year
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Survival of brokers
BROKING
by Jessica Mudditt
Can small brokers
survive?
Many smaller brokers recognise the appeal of joining a larger broking group that provides risk and compliance services. Others, however, are finding ways to survive, and even thrive, despite the changing and challenging broker landscape.
IN SHORT › Despite the many political and economic upheavals of 2019, there was a great deal of M&A activity in the global insurance industry, including a rising number of cross-border mega deals. › Larger brokers remain as hungry as ever to acquire highperforming smaller brokers. With many of these smaller brokers under enormous pressure, they are willingly being absorbed into the folds of bigger players and gain more support as a result. › However, smaller brokers with strong relationships and a keen understanding of the market will continue to flourish in the short term at least.
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here’s a changing of the guard in the insurance brokerage industry. And the high number of mergers and acquisitions flowing from this change is reshaping the landscape. David McKinnis, ANZIIF CIP and general manager of development at the Community Broker Network, points to a number of reasons for this scenario. ‘In our section of the insurance industry, there is an ageing demographic. And with the tsunami of legislation that keeps coming at us, a number of principals have decided to invoke their succession plans and exit the industry,’ he explains. ‘There’s also an emerging group of energetic, innovative start-ups. These are led by young, successful people who are keen to grow their businesses, including through acquisition.’ In April 2019, the largest insurance broker in the world, Marsh & McLennan Companies, took over another Americanowned juggernaut, Jardine Lloyd Thompson Group plc, at a cost of US$5.6 billion. And, Avryl Lattin, a Sydney-based partner at global law firm Clyde & Co, believes that more consolidation is on the horizon in 2020. Lattin says the appetite for achieving growth through acquisitions by large broking networks such as AUB and Steadfast shows no sign of slowing.
‘Clearly, a key part of their ongoing growth strategy is to continue to acquire strongly performing smaller brokers,’ she says.
A tough business climate It is no secret that things are getting tougher for smaller brokers in Australia. The edge they once had has disappeared, says Kay Jackson, ANZIIF CIP and a director of Simplex Insurance Solutions in Victoria, Australia. ‘Many years ago, underwriters cancelled a lot of accounts they were servicing,’ she says. ‘Now, because of the number of authorised representatives, insurers no longer have the advantages they used to have. With authorised representatives being part of larger brokers, they have to service the smaller brokers again under this model and can no longer demand the brokers they deal with have a certain level of business with them.’ Jackson believes it is more advantageous to be an authorised representative. ‘We’re members of Steadfast, and if we weren’t, there is no way we could operate as a full brokerage,’ she says. ‘When things get challenging, we can use the triage system. The difference is amazing when you’ve got somebody a lot bigger supporting you. They will say exactly the same thing and get a different outcome to what we would as a little, single voice.’ According to the CEO of Navigator Insurance Brokers in Hong Kong,
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Clive Wolstencroft, the main downside of remaining small is lacking sufficient volume to be able to negotiate with insurance companies. ‘The challenge is not having enough volume in any particular area to build an economy of scale,’ he says. ‘It means you need to make sure your staff are trained
in a whole range of products. If you can provide a personal service, you will have a niche against the bigger players who will typically run in a more systematic fashion.’ Wolstencroft’s firm mostly caters to expat professionals in Hong Kong’s financial sector. Often, his clients have been bankers who have moved into
selling hedge funds. ‘Because we have a relationship with them, we will typically keep taking care of their business vehicle,’ he says. ‘It’s a competitive market out there, so it’s a matter of who gets to them first. But provided you keep taking good care of them, they don’t look elsewhere. They’re busy people.’
Pros and cons of staying small
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In Australia, the Hayne royal commission has been cited as a factor that is making life more difficult for smaller brokers in particular. ‘I’m not always of the belief that bigger is better; it’s just the way the market is going,’ says Jackson. ‘You have to be a certain size to stay on top of all the compliance that’s coming out as a result of the royal commission.’ Speaking at the 2019 National Insurance Brokers Association Conference, the Australian Financial Complaints Authority commented that it’s unfortunate brokers are the ones who are penalised with extra compliance because ‘brokers are not what’s keeping it awake at night’. Lattin agrees and understands why smaller brokers may see the appeal of joining a larger broker group that provides risk and compliance services. This has been the case for Lisa Carter, who established Clear Insurance in Sydney a decade ago, which only has a headcount of five. ‘The extra compliance costs don’t apply to my business, as our licensee, Insurance Advisernet [IA], takes care of all compliance under our authorised representative agreement,’ she says. ‘As a platinum practice of IA, I operate my business within the IA “best practice” guidelines to remain compliant. It’s business as usual as far as I’m concerned.’ Her award-winning business is thriving, and she cites multiple benefits of staying small. ‘The advantages include fewer managerial headaches, fewer overheads, and with a low client count, high-end small and medium-sized enterprise [SME] book, you can invest more time in intensive personal client relationships,’ says Carter. She finds this approach more satisfying
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BENEFITS OF SMALL & LARGE BROKERS Understanding a changing market matters more than size
SMALL Fewer managerial headaches and fewer overheads.
Able to invest more time in client relationships and focus on strategic advice.
Can add value by acting in clients’ interests as a risk and insurance adviser.
LARGE Able to build economies of scale and offer staff training in a range of products.
Can provide greater risk and compliance services and remain on top of changes.
A broader network can have a stronger impact on client outcomes.
than the11 years she worked for a large international broking firm, and her profitability has increased 10 to 15 per cent year on year. ‘I can add value by acting in my clients’ best interests as a risk and insurance adviser rather than an order-taker with large numbers of administration staff pumping out policy renewals. We focus on high-level strategic advice.’ Carter believes the way corporate brokerages service their clients is completely different to a boutique brokerage like hers. ‘Ours is more personalised, and we find our high-end SME clients prefer that level of service,’ she says. ‘They want to know that they’re going to get the same person on the phone, who knows what they’re talking about.’ Abbie Wilson is the director and sole employee of National Insurance Brokers in Sydney, which she founded in 2013. She points out that while it can be difficult competing against big brand names, she has no shortage of clients. ‘I provide a personal service,’ she says. ‘I know a lot of people say that, but I really mean it. I go to my clients and talk to them; I become part of their team. It’s different from just ringing someone up and never meeting them, but continually asking them to pay a bill.’ However, Ease Insurance Brokers takes a different approach. It is based in New Zealand and has three financial advisers, each of whom offers phone and email consultations to its clients across New Zealand. Co-founder Andrew Ball, who established the brokerage in 2009, says clients prefer this to face-to-face meetings, as it tends to save them time. Ease Insurance Brokers has plans to grow, but not beyond a headcount of eight, says Ball. He adds that the prospect of managing dozens of different personalities doesn’t appeal to him and that he prefers the work culture of a smaller organisation. Another factor that makes him disinclined to want to become a large brokerage is that, like Australia, New Zealand is going through a period of increased compliance as a result of new legislation.
‘If we had a headcount of more than 15 people, which would be considered a large brokerage in New Zealand, it would become more difficult to manage staff. You would need to ensure that everybody who is working for you is always doing everything 100 per cent correctly, because you have liabilities and that would take considerable time.’
What does the future hold? Wolstencroft’s strategy for the future is to launch new products, such as exclusive medical insurance, by working with other insurance companies around the world. ‘The idea is that we become like a wholesaler, as well as a retailer,’ he says. ‘So if there are products to be sold in the market, then people need to come to us or we will get credit for their sales.’ PricewaterhouseCoopers Australia partner James Hocking sees both opportunities and challenges on the horizon for small brokers. ‘Small brokers continue to play a key role in servicing Australia’s large geographic footprint,’ he says. ‘However, if the revenue model is challenged following the Australian Securities and Investments Commission’s review [in 2021], it may trigger further consolidation at the smaller end of the market and create coverage issues for clients.’ Brokers with a good understanding of the market and their clients’ needs will likely continue to flourish, regardless of their size. Nonetheless, with rising compliance costs, moving to a broader network has an undeniable appeal.
JESSICA MUDDITT Freelance journalist
‘Australia’s insurance broking industry is under pressure, and small brokers face a particularly challenging set of circumstances. It is unfortunate that the Hayne royal commission is having a penalising effect. With their cost base rising as a result of extra compliance measures, many smaller brokers may find it increasingly difficult to survive. Only time will tell how concerned we ought to be about the changing broker landscape.’
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THE LIST by Lucy Siebert
T
here’s a good reason for the saying, ‘if you want something done, ask a busy person’. Some people — often those in senior roles or positions of responsibility — seem to be able to whip through important tasks quickly and efficiently. Luckily, time management is a skill that anyone can learn and improve on, and there are plenty of techniques you can adopt to help you get more done, more efficiently in 2020.
ways to manage your time better Get the most out of every day with these time-management tips and tricks.
01 // Don’t procrastinate The biggest obstacle to getting tasks done is the human tendency to procrastinate, says Les Watson, time management expert, trainer and author. He recommends a four-step approach: ‘Do, Dump, Delegate, Decide when (or Diarise)’. If you can do a task in two minutes or less, do it immediately. If the task requires more time, evaluate whether you have to do it yourself or whether you can delegate. If you decide it is something that you must do, this is where leadership and discipline come in. ‘Put a diary entry into your calendar — this is the leadership,’ says Watson. ‘When the reminder comes up, actually do what you said you would do — this is the discipline.’ 02 // Do what’s important The Eisenhower Matrix divides tasks into four quadrants, depending on their level of importance and urgency. Watson recommends you examine how you’re spending your time and which quadrant these tasks fall into. You may well find that you’re working in the ‘urgent, low-importance’ quadrant. ‘High urgency and low importance often come from other people,’ he says. ‘It is their urgency, not yours. It is a matter of [having] clear boundaries and … if possible, delegate or push back.’ Focus on spending time in the ‘high-importance, low-urgency’ quadrant. ‘That is where you plan and get ahead of the game.’ 03 // Build habits and support Assess what you can do every day to work more efficiently. Build those habits by doing something small each day, and garner support from your co-workers or peers, who will keep you accountable. ‘Talk about the habits, what are you putting into your day that you want to create as a habit and how can you support each other,’ says Watson. ‘You feel like you aren’t doing it alone.’ 04 // Learn to say ‘no’ The word ‘no’ is very powerful, says Watson. And there are ways of saying ‘no’ to co-workers that won’t damage your professional relationships, he adds. If colleagues approach you for advice or ask you to look over a piece of work, politely tell them that you can’t do it at that very moment, but that you will schedule time later in the day to meet or discuss it. In many instances, they will resolve the problem on their own.
JOURNAL // ISSUE 01 2020 // ANZIIF.COM
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05 // Use the tools at your disposal You might like to think that there is an all-powerful app that can magically transform your time management habits, but Watson warns there is no silver bullet. ‘Whatever tool you use, you need to work to a system,’ he says. There are plenty of digital tools and apps that can help form better habits or support more efficient use of time. Watson is a fan of Microsoft OneNote, which allows users to keep track of their ideas and plans, collaborate and share notes. Another app is Freedom, which blocks websites or apps that distract you. You can set work sessions when these sites will be automatically blocked.
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