April/May 2021 - Insurance News (magazine)

FAIR FUTURE Ombudsman John Price steps back and looks forward WATER PRESSURE

Old issues emerge after flood catastrophe

AGENTS OF GROWTH

How underwriting agencies have changed the landscape

DEFENDING COMMISSIONS Brokers prepare for remuneration review

April/May 2021

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Contents 4 Newsmakers 8 Flooded with problems

After a benign summer severe floods have elevated concerns about cover affordability, land-use planning and disaster impacts

14 Spotlight on commissions

A review of broker remuneration is pending, and the industry is preparing to defend a system that it insists is working just fine

20 The Price is right

Long-serving insurance ombudsman John Price has seen a lot of change in the way insurers deal with difficult claims – and with consumers

24 Business interruption: back into the breach

A second BI test case is examining more COVID-19 issues related to disputes over policies that insurers say don’t cover the pandemic

28 A decade of learning

Vero’s latest SME Insurance Index marks the report’s 10-year milestone, and reveals key trends for brokers

30 Platform for growth

Expansion of a partnership business is a key focus for Coverforce as demand for support services grows

36 The parent trap

50 The hybrid life

The COVID-enforced shift to working from home may have forever changed the way we do business, but major insurance companies still see a role for the office

54 ‘Tomorrow’s oil’ is a new insurance opportunity Green hydrogen is the new energy market buzzword, and Australia is at the forefront

companyNEWS 56 Advising on resilience

Zurich launches new service

56 Accelerating solutions

ShieldCover revs up a gear with motor cover

peopleNEWS 59 APIG Victorian Chapter reunites 60 Australian Olympian entertains at CQIB lunch 63 YIPs Queensland gets social 65 Upbeat mood reigns at UAC Sydney expo 66 Maglog

The insurance industry’s gender pay gap won’t narrow until systemic barriers faced by primary caregivers are tackled

42 The rise and rise of underwriting agencies

Demand for bespoke solutions for increasingly complex risks is growing. Combined with a hard market, that puts agencies in a great spot

FAIR FUTURE

Pictured: John Price Credit: Joseph Feil/ Blue Tree Studio

Ombudsman John Price steps back and looks forward WATER PRESSURE

Old issues emerge after flood catastrophe

AGENTS OF GROWTH

How underwriting agencies have changed the landscape

DEFENDING COMMISSIONS Brokers prepare for remuneration review

April/May 2021

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April/May 2021

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HORTON SET TO TAKE OVER AS QBE CHIEF

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QBE has appointed Andrew Horton as its new permanent Group CEO, replacing interim chief Richard Pryce in September.

Mr Horton, pictured, is currently CEO at UK listed insurer Beazley, and has held the role since 2008. Prior to that he was Beazley CFO. Beazley is a specialist insurance business with operations

in Europe, the US, Asia and Australia. It manages five Lloyd’s syndicates and last year underwrote gross premiums of more than $US3.5 billion.

Mr Horton will start with QBE on September 1 based in Sydney.

Chairman Mike Wilkins says QBE is delighted to attract a “high calibre” global executive with more than 30 years’ experience across insurance and banking.

“Andrew is an inclusive and collaborative executive, who places a strong focus on risk, culture and relationships. He is known for driving positive change and high performance and has built a well-respected business over a number of

years,” Mr Wilkins said.

“His deep understanding of the insurance landscape and the opportunities and challenges across each of our markets, see him well placed to build QBE for the future.”

After Mr Horton takes up the role, Mr Pryce will move to an advisory capacity, providing a three month leadership transition before retiring from QBE in December.

Mr Pryce took up the interim role last year after previous group CEO Pat Regan left the business suddenly following an external investigation concerning workplace communications that revealed “poor judgment”.

Mr Horton’s appointment is subject to regulatory approvals. 0

People say to me ‘if they are going “ to hack anyone, they would hack NASA,

I am just a boutique business with half a dozen people’… The biggest problem is the blissfully unaware.

”

Cameron Research MD Ross Cameron on SMEs’ naivety about cyber threats.

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HIGH COURT TO HEAR BI APPEAL ARGUMENTS Insurers and policyholders contesting pandemic-related business interruption claims “will have certainty on most substantial issues” this year as expedited legal hearings and appeals are completed, the Insurance Council of Australia (ICA) says.

The High Court of Australia has agreed to hear arguments supporting an insurance industry application to appeal the first business interruption test case ruling, marking the final phase of that legal action.

The NSW Court of Appeal last year found against insurers on whether they could exclude cover using policy wordings citing

the Quarantine Act 1908 and subsequent amendments. The Act was replaced by the Biosecurity Act 2015.

The High Court will hear arguments in support of an appeal on a date to be determined in May or June at the earliest.

“The insurance industry looks forward to presenting what we believe is a compelling case based on a solid legal framework,” ICA CEO Andrew Hall said.

“Given this issue relates to a policy exclusion for which insurers have not been collecting premiums, seeking reinsurance or collecting reserves, there is a strong public interest benefit

in the High Court hearing oral arguments.”

ICA says a second case lodged in the Federal Court that deals with a range of other issues is also being expedited, with a trial proposed for the first-half of September and any appeal to the Full Court to be dealt with in the first week of November.

“Once final rulings have been obtained from the courts, insurers are committed to applying the relevant principles in an efficient, transparent and consistent way when assessing claims,” 0 Mr Hall said.

• Business interruption: back into the breach – page 24

SUEZ CANAL BLOCKAGE COULD CAUSE ‘LARGE LOSSES’

Digging out: early efforts to free the Ever Given were unsuccessful Credit: Suez Canal Authority

Fitch Ratings has warned the reinsurance industry faces a “large loss event” from the blockage in the Suez Canal after the colossal Ever Given container ship ran aground, closing access to one of the world’s most vital waterways for global trade.

The ratings agency says the ultimate loss figure will depend on a number of factors such as when normal traffic resumed in the canal, after the ship was finally freed after almost a week.

Incidents involving large container ships can lead to property claims in excess of $US1

billion but these are mostly salvage-related.

Fitch says as the Ever Given should still be able to resume operation, claims related to hull and cargo insurance, including salvage – which will be borne by the shipowner’s hull insurer – should remain significantly below that figure.

“A large share of those losses will probably be reinsured by a global panel of reinsurers,” Fitch said. “In isolation, this large loss event should be neutral to their credit profile.”

Fitch says the shipowner’s protection and indemnity club will

probably also face claims from the owners of the cargo on the Ever Given and of the other ships that are blocked, for losses related to perishable goods and supply chain disruptions.

They may face claims too from the Suez Canal Authority for loss of revenues caused by the traffic paralysis.

The UK P&I Club, which provided the ship’s Japanese owner with third-party liabilities cover, says all valid claims will be considered by the vessel owner, the UK Club and its legal advisers in due 0 course.

IAG APPOINTS DIRECT, INTERMEDIATED LEADERS IAG has appointed top executives for its Australian intermediated and direct businesses after last year announcing it was splitting the local division and introducing a new structure.

Jarrod Hill, who has been Chubb’s Australia and New Zealand President, will join IAG in September as Group Executive Intermediated Insurance Australia. Chubb confirmed that he was leaving the company and would

be replaced by Peter Kelaher.

“Jarrod is a seasoned commercial insurance executive with a strong background in technical underwriting and brings with him more than 30 years’ experience,” IAG CEO Nick Hawkins said.

“We have an opportunity to build a strong intermediated business and I look forward to welcoming Jarrod to the team to drive that work.”

Julie Batch will take over imme-

diately as Group Executive Direct Insurance Australia after acting as leader of the intermediated business since November, while also leading Strategy and Innovation. Ms Batch was previously Chief Customer Officer.

IAG says Amanda Whiting has been appointed CEO New Zealand, after acting in the Direct Insurance role since November, and will take over from Craig Olsen in August.

Ms Whiting will have accountability for intermediated insurance in Australia until Mr Hill joins, while Mr Olsen will continue to report to Mr Hawkins after August, working on corporate priorities as Group Executive Strategic Projects.

IAG also says Neil Morgan has been appointed Chief Operating Officer, effective immediately and will retain his accountability for 0 technology and digital.

VEHICLE THEFTS PLUMMET THANKS TO COVID Australian motor vehicle thefts last year declined 15% to the lowest level in two decades of data collection due to coronavirus restrictions.

Thefts fell to 49,438, dropping below the previous low of 50,277 in 2014, according to the National Motor Vehicle Theft Reduction Council (NMVTRC), which started in 1999.

“There is no question that COVID-19 related restrictions have had a significant dampening impact on theft volumes,”

the NMVTRC says.

The council says people should “pop keys out of sight” in the home and keep doors and windows locked to reduce theft risks.

“As social and travel restrictions normalise nationally, it’s critically important that the community heed the NMVTRC’s Pop. Lock.

Stop. message,” it says.

Victoria had the highest volume reduction of 2630, representing a 16% decline, while thefts were down 13% in NSW

and 6% in Queensland.

Short-term and profitmotivated thefts fell across all vehicle types in all jurisdictions.

Heavy/other vehicles had the largest decrease in short-term thefts, with a 23% drop, while motorcycles had the highest decrease in profit-motivated thefts, with an 18% decline.

Nationally, the Holden Commodore VE, MY06/13 was the top theft target, followed by the Toyota Hilux MY05/11 and the Ford Ranger PX MY11+. 0

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From the

PUBLISHER

CODE BREACHES FOLLOWED ‘INTENSE PRESSURE’ The Insurance Council of Australia (ICA) says the industry made progress in detecting, reporting and remedying Code of Practice breaches last year amid intense pressures from natural disasters and a pandemic.

ICA says it’s reviewing insights and findings from the General Insurance Code Governance Committee (CGC) annual data and compliance report, which included criticisms of the industry’s performance.

CGC Chairman Veronique Ingram says a stubborn persistence in breach cases is “especially disappointing” and “discouraging” after an “abundance of recommendations” detailing how to comply.

ICA points to a number of positives from the data and says insurers are working hard to implement the enhanced 2020 iteration of the code, which comes into effect this year.

“The report covers a year of intense operational pressure for the general insurance industry, which included bushfires, floods and the COVID-19 pandemic,” an ICA spokesman told insuranceNEWS.com.au.

“Pleasingly, the report found 99% of code breaches were self-reported, up 5% on last year, and that significant breaches dropped by 6%.”

ICA says the CGC has noted that breaches previously had been under-reported.

“The ICA welcomes the ongoing improvements undertaken by general insurers to detect, report and remedy breaches and notes the CGC’s view that the industry is taking on board the committee’s advice about interpreting and applying the code,” the spokesman said.

Self-reported breaches totalled 32,870, plus 112 significant breaches, while CGC investigations additionally identified 172 breaches.

The CGC report is based on data from 49 general insurers and 132 Lloyd’s coverholders and claims administrators. A total of 43.78 million policies were sold to consumers and businesses last financial year.

Most significant breaches related to conducting sales processes efficiently, honestly, fairly and transparently. Just over half of all self-reported standard breaches were of the code’s claims handling standards, many resulting from failing 0 to meet timeframe obligations.

If you think the insurance industry hasn’t changed over the past decade, you haven’t been paying attention.

In this issue of Insurance News we interview retiring Chief Insurance Ombudsman John Price, who has been working in the claims review system through much of its evolution into the government-owned (but independent) Australian Financial Complaints Authority (AFCA).

He comments at length on the industry’s own evolution in the area of claims, noting the value gained in consumer advocates and insurance professionals working together to achieve results based on fairness rather than mere blackletter law.

AFCA rulings often find their way into the Insurance News online Daily bulletins, providing insights into the way the ombudsman and his panel see disputes. Not so long ago some of those decisions would have provoked irritation from the industry. Today they’re studied by people at all levels of the industry, and while some decisions might raise eyebrows, the rationale behind them is becoming better understood. That, in turn, is changing the industry’s own claims culture.

Another change that’s worth looking at is the growing influence of women in this male-dominated industry. We are at last reaching the stage where the appointment of women to the top management ranks of insurance and broking companies is not being seen as a headline-stirring achievement, but as a routine development.

However, this won’t be an industry noted for its embrace of gender equality until we deal with the gender pay gap. In this issue of Insurance News Miranda Maxwell examines why insurance consistently ranks around the top of Australian industries for having the greatest divide between the salaries of its men and women.

As Miranda reports, that’s despite the drive by our largest insurance companies to place women in senior positions. But our article finds in many cases women are being hampered in their progress through professional ranks by the fact that the major responsibility for parenting still falls to them.

The solutions to this problem centre around the partner taking a more equal share of parenting duties and the employer changing its workplace priorities to give women more flexibility.

Men – well, many of them – are embracing the post-COVID paradigm and sharing the load, but women in the workplace need similar concessions and commitment from their employers as well. Until that happens across the industry as a matter of course, women will still be unfairly compromised in their career paths.

And until we have salary parity we won’t have real equality.

Terry McMullan

PUBLISHER:

ADDRESS:

TERRY McMULLAN Email: editor@insurancenews.com.au

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Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders. The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion.

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Flooded with problems After a benign summer severe floods have elevated concerns about cover affordability, land-use planning and disaster impacts

By Wendy Pugh

P

oliticians were fast out of the blocks in warning insurers against being “tricky” and calling for “a bit of humanity” as floods inundated parts of eastern Australia, in a sure sign they expect issues from the disaster to remain hot topics well after the waters recede.

Homes and businesses on the New South Wales midnorth coast and in the Hawkesbury-Nepean Valley west of Sydney took the brunt of the mid-March catastrophe, which was also declared for southeast Queensland.

Claims totals had reached $500 million by early this month and are likely to top $1 billion based on less extensive impacts from an east coast low last year and the Townsville floods in 2019.

NSW Premier Gladys Berejiklian described the inundation as 1-in-100-year flooding in parts of the state while terming the impact west of Sydney as a 1-in-50year event.

The catastrophe, following the Black Summer bushfires a year before, has generated similar concerns about insurance affordability and lack of cover, while also presenting issues specific to the peril. That includes questions about the way flood cover is offered and claim tensions over whether storm or other inundation caused damage.

Sydney’s urban expansion in the affected Hawkesbury region is also adding heat to the debate

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about why poorly planned development keeps putting people in danger of such events and how the risks can be reduced.

Australian Financial Rights Legal Centre Director of Casework Alexandra Kelly says early feedback suggests there will be confusion over whether damage in specific instances is covered and it’s likely some people will have chosen not to take out flood cover due to cost or lack of availability.

“For bushfires you either did or didn’t have insurance, rather than the specific event of bushfire being excluded,” she tells Insurance News. “The fact that some people are just not covered for flood will have an impact.”

The insurance industry adopted a standard flood definition after the 2011 Brisbane disaster, describing it as the covering of normally dry land by water that has escaped or been released from the normal confines of lakes, natural watercourses, reservoirs, canals or dams.

But often claims have elements of damage from both storm and flood, and assessments of the causes after combined events keep hydrologists busy and sometimes require Australian Financial Complaints Authority dispute resolution.

Depending on the insurer, the brand and the location, flood may be a compulsory part of household

Aftermath: residents clean up debris in the Sydney suburb of Windsor Credit: Reuters/Loren Elliott

cover, offered on an opt-out basis, provided up to a low value of damage, or not provided at all.

NSW Police and Emergency Services Minister David Elliott and Federal Emergency Management Minister David Littleproud had turned their focus onto the industry and policy wordings even before assessors were permitted to enter flood-affected areas.

Mr Littleproud called on insurers to “show a little bit of humanity and have a social conscience” when asked on Sky News Sunday Agenda whether firms should “cut people some slack” over policies in the current circumstances.

“People entered into these contracts in good faith, and we would expect insurance companies to act in good faith,” he said. “Obviously contractual law takes precedence in this country but we just say to the insurance industry ‘please, you have an opportunity to build your reputation here’.”

Mr Elliott had a similar message.

“After every disaster, we see insurance companies trying to reduce their payouts by being tricky with their wording, and my strong advice to them is don’t do it because we have very strong laws in this country to protect those policyholders,” he said.

The industry’s handling of disasters was put under scrutiny during the Hayne royal commission, but the Insurance Council of Australia (ICA) points out more

than $7 billion in claims associated with natural disasters have been paid in the past three years.

“In this and past disasters the insurance industry supports the community to get back on its feet,” a spokesman told Insurance News. “ICA responded to the extreme weather in NSW and southeast Queensland by quickly declaring insurance catastrophes, thereby giving priority to affected policyholders.”

ICA has encouraged policyholders regardless of cover levels to contact their insurers, as they may be eligible for emergency assistance or temporary accommodation.

Natural catastrophe affordability worries in recent years have centred on cyclone-prone north Queensland, but flood issues were examined in an inquiry after the 2011 Brisbane disaster, which was exacerbated by the release of waters from the Wivenhoe Dam. A proposed reinsurance pool was never adopted, but the idea continues to be debated. The Australian Competition and Consumer Commission has recently recommended against the concept in the northern Queensland context. Insurers are mostly against, although Allianz is supportive.

Allianz Australia Chief Corporate Affairs Officer Nicholas Scofield says flooding since the Brisbane catastrophe has more commonly affected regional areas, such as in Lismore after Cyclone Debbie, and cover and

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High risk area: Port Macquarie was hit hard by the floods Credit: Matt Gilligan for Suncorp Group

affordability concerns have received less attention.

“We always knew the next time there was a really large-scale event, particularly one that touched a metropolitan area, that the issue would come roaring back,” he tells Insurance News. “It is fair to say we are in the calm before the storm at the moment about the price of flood cover.”

Allianz says some 97.5% of its policyholders in the NSW flood-affected area have opted out of flood. The insurer has taken an optional approach, ensuring homeowners facing affordability pressures can still take out cover for other household risks.

The industry generally has faced scrutiny in the media recently over reports of householders in high-risk areas facing insurance bills of $30,000 or being asked to pay $13,000 for flood cover.

ICA and company executives have highlighted the realities behind higher pricing for riskier areas and the need for mitigation investment and improved land-use planning.

IAG says it aims to use the latest available data to assess a property’s risk of being impacted by flood, rainwater run-off and storm surge, and adjust premiums based on that. Data comes from a range of sources, including the National Flood Insurance Database, specialist hydrology and terrain mapping, council mapping and flood studies, where available, and insurance claims information.

“We understand the importance of insurance being as affordable as possible for people and communities, and that is also an important part of our thinking around calculating our customers’ premiums,” a spokesman said.

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The Hawkesbury-Nepean Valley area is known as one the largest potential flood risk areas in Australia given urban development pressures and its unique geographical features.

Five major tributaries act like taps pouring water into the valley during a flood, while a series of choke points cause water to back up in a “bathtub effect”, rather than flowing more quickly out to the ocean.

The Warragamba Dam, constructed as a reservoir for Sydney’s water supply rather than as a flood mitigation tool, also spills into the system after heavy rainfall events.

A NSW Parliamentary select committee is currently enquiring into a controversial proposal to raise the height of the dam wall, taking into account flood mitigation issues and environment and heritage impacts.

ICA this year said it no longer supports raising the wall after meetings with traditional owners at key sites, and is advocating for exploration of alternative mitigation options to reduce the risk.

Suncorp Chief Executive Steve Johnston says floods too frequently devastate communities across Australia, with towns in NSW among the latest examples, and the nation as a whole must address the risk.

“Unfortunately, many homes in Richmond, Windsor, Penrith, Port Macquarie and Taree are in medium to very high flood risk areas,” he says.

“As a country we need to address how we can protect homes in flood-prone regions through government investment in mitigation infrastructure. We must also improve planning decisions to ensure we are not building new homes in high-risk areas.”

Risk Frontiers suggests the often-used 1-in-100-year

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Known danger: in August 2011 Insurance News investigated “Australia’s biggest flood risk” – the Nepean-Hawkesbury catchment – and plans to add new suburbs in the area.

Ten years later, nothing much had changed

benchmark is not helping as it doesn’t clearly reflect the risks. In reality, there could be centuries with no such events or multiple disasters of the nominal magnitude.

Senior Risk Scientist Thomas Mortlock and General Manager Resilience Andrew Gissing say the term provides a false sense of security to those behind levees or a seawall by implying such a sized event is unlikely in a lifetime.

“It also suggests that if we were unfortunate enough to experience this type of event, then we won’t be due another for at least the next 100 years,” they say in an article republished in the Maglog section of this magazine (see page 66). “Both of these concepts are fundamentally wrong and lead to a malaise in risk awareness and preparedness.”

Risk Frontiers argues that natural hazard risks should be discussed in terms of annual exceedance probabilities, suggesting that talking about a 2% chance of being flooded in any given year has greater immediacy than references to a 1-in-50-year flood zone.

IAG Executive Manager Natural Perils Mark Leplastrier says rare high-risk and high-impact events like the heavy rain and flooding just seen are often not in living memory for most people, and they are devastating when they occur.

“Going forward, as called out by the Royal Commission into National Natural Disaster Arrangements, we want to make sure everyone who brings expertise in understanding these events and the impacts, including insurers, banks, governments, councils and builders, are at the same table, sharing their data and insights to improve land planning and mitigation,” he tells Insurance News.

“In the past the focus has been on life-saving measures, but we also need to analyse the wider financial

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risks and impacts on business.”

Education is also key in making sure people are aware of their risks, he says.

The latest flooding occurred as a La Nina system, typically associated with wetter weather in eastern Australia, was starting to fade. Greater Sydney rainfall was slightly above average in recent months, while NSW had its wettest summer since 2011/12.

A coastal trough off the east coast and a stalled high pressure area in the Tasman Sea in mid-March combined to cause the rainfall and flooding, while tropical moisture feeding down from the north contributed to the event.

By March 21 the Bureau of Meteorology was warning about “a dangerous flooding situation” evolving across parts of Sydney and eastern NSW. The bureau estimates that over a seven-day period nearly 75,000 gigalitres of water reached the ground in the state – 150 times the volume of Sydney Harbour.

Ratings agency AM Best says that for insurers an increased frequency of extreme weather events, including floods, bushfires, and hailstorms may see a greater focus on climate risk, while also upping the ante on robust underwriting, capital management and enterprise risk management.

“These actions may ultimately lead to tightening of terms and pricing increases for policyholders as insurers refine underwriting appetites,” it says in a report.

Losses from the latest flooding will likely put pressure on underwriting margins this financial year and dampen insurer earnings, it says. Reinsurance will absorb a lot of the total losses, but on the downside for insurers there could be upcoming pressure on rates at catastrophe program renewals.

S&P Global Ratings says Australia’s largest underwriters are well protected by reinsurance, that an

“The destruction caused by this disaster is clear.”

influx of claims will be manageable and the three largest primary insurers have “relatively low retentions” in the $150-250 million range before catastrophe cover kicks in.

While discussion continues about the wider issues and impacts, insurers have emphasised they are moving as quickly as possible to assist customers in the wake of the catastrophe and as flood waters have receded.

“The destruction caused by this disaster is clear,” Mr Johnston says. “Homes have been severely damaged and many residents have lost all their personal belongings. This recovery will take some time, which is why it is so important that our assessors and builders are already on the ground working with our customers, particularly in the hardest-hit areas.”

The insurance industry can be certain of more intense scrutiny over the next few months as the clean-up continues and debate increases over how Australia is dealing with the rising costs of natural catastrophes.

It won’t be surprising if politicians, under pressure within their constituencies and fighting their own battles, look to direct a bit more heat in the insurance industry’s direction along the way.

“They know there is a problem with affordability of flood cover,” Mr Scofield says.

“If a politician is going to pick sides between a flooded consumer and an insurance company you don’t have to be a master of political science to work out which side they are 0 going to take.”

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Spotlight on commissions A review of broker remuneration is pending, and the industry is preparing to defend a system that it insists is working just fine

By John Deex

B

y the end of next year, a review of conflicted remuneration exemptions for general insurance, prompted by the Hayne royal commission, should be complete.

At this stage nobody can predict what that review will recommend, but it could result in significant changes for insurance brokers, with the commissions that insurers currently pay them facing the prospect of being outlawed.

But brokers are fighting back, arguing that if a system isn’t broken there’s no need to fix it, and the alternative could seriously harm access to advice.

Royal commissioner Kenneth Hayne’s recommendation for a review is in fact very broad, taking in much more than broker commissions.

We know that it will assess the effectiveness of a range of measures introduced to improve the quality of financial advice, and that it will be completed preferably by June next year, and no later than December 31 next year.

“On their face the conflicted remuneration prohibitions may appear to be comprehensive,” Commissioner Hayne writes in his final report. “But there are exceptions to their application relating to general insurance, life risk insurance products and basic banking products.

“Any attempt to reduce or eliminate conflicts of interest in the financial advice industry must begin, therefore, with examination of those exceptions, and whether they continue to be justified.”

While he did not go as far as suggesting exactly what changes should occur, others have since taken

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that additional step.

Key reports from the Australian Competition and Consumer Commission (ACCC) and small business ombudsman recommend the banning of so-called “conflicted remuneration” for general insurance brokers, with the ACCC suggesting replacing commissions with a fee-based model.

Brokers absolutely disagree. But before analysing the arguments in detail, it’s important to understand exactly what conflicted remuneration is.

The Corporations Act currently contains a broad prohibition on what it describes as conflicted remuneration. And McCabe Curwood Partner Mathew Kaley says the legislation contains a clear definition of what the term means.

“The conflicted remuneration that’s prohibited is that remuneration which, because of its nature or the circumstances in which it is given, could reasonably be expected to influence the advice given or product recommended to the customer,” Mr Kaley told Insurance News.

“In short, the provisions prohibit financial services licensees and their representatives from giving or receiving conflicted remuneration where advice is given to retail clients.”

Where a provider deals in a product without giving advice – not even general advice – then the conflicted remuneration provisions don’t apply.

They also don’t apply to products distributed to wholesale clients, and fees paid by clients to brokers would not be considered conflicted remuneration.

Mr Kaley warns that if the general insurance exemption in relation to insurance brokers were to be removed, as the ACCC and others recommend, the impact would be significant.

“The remuneration brokers currently receive from insurers for advising on retail products would become very limited,” he says.

“What that would mean for the distribution of retail products through insurance brokers is unclear. It could, for instance, result in brokers moving out of that part of the market altogether.”

So why does the ACCC want broker commissions banned? Its inquiry was into the affordability and availability of insurance in northern Australia – a fraught problem with no easy solutions.

Many argue that banning broker commissions will have no impact on the underlying problem, which stems from the high level of risk in the cyclone-prone north.

But Deputy Chairman Delia Rickard tells Insurance News that, despite recognising the valuable work brokers do, a shift to a fee-based model is required.

“Look, the ACCC didn’t start out with an expectation that it would have a recommendation to ban commissions” she says.

“I should say at the outset, we absolutely heard from consumers who had had great experiences with brokers who had gone above and beyond to get them coverage. So this is not an anti-broker thing.

“However, the more we looked at it, the more we realised that there was an inherent conflict of interest

for brokers receiving commissions.

“We spoke to one insurer [that was] concerned about the cost of insurance in northern Australia, and decided to cut commissions. They cut them back to 15%.

“They changed no other aspect of their policy, and lost a significant amount of business.

“We also saw evidence of consumers who have used a broker, then discontinued using a broker, and got significant reductions on their policy costs.

“All up, we really felt there is an inherent conflict in the payment of commissions and if our role was to reduce the cost of premiums for consumers this was an unavoidable recommendation.”

Not surprisingly, National Insurance Brokers Association (NIBA) Chief Executive Dallas Booth has a very different view. While he understands the theoretical concerns about conflicts, he says in practice there is no problem.

“The royal commission heard many examples of real conflicts and genuinely poor customer and consumer outcomes being driven by remuneration structures,” he tells Insurance News.

“But they heard no evidence of that occurring in relation to general insurance brokers. No evidence at all.

“I’m hearing every day examples of brokers chasing the best possible deal they can get for their client, and if that means a saving of $200 or $2000 or more, that’s what they do because it’s in the best interest of the client.”

Brokers who chase higher premiums for their own benefit “won’t last in business for very long”, he says.

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Analysing impact: McCabe Curwood’s Mathew Kaley

“The clients will soon find out that there are better ways and better deals out there and it is very easy for a client to change brokers.

“So anybody who is trying to rort the system and make personal gain out of it won’t be there for long, and that is not the typical example of insurance brokers that I deal with each and every day.”

Mr Booth is concerned that a purely fee-based structure could leave those clients with highly complex policies and claims facing unaffordable costs.

“The process at the moment tends to blend those services within the broker firm and there is a sharing process for both placement and claims.

“That allows the broking process to be available to everybody who walks in the door and I think there is massive value in that.”

He also fears many small businesses would be put off seeking advice for a fee in the first place.

“The evidence around the world is overwhelming, that people are not prepared to pay for financial advice on a fee basis. Very few people are prepared to do that.

“And the net result often is when those sorts of reforms are introduced, the level of advice provided to a community reduces,” Mr Booth says. “Therefore the community by definition has to be worse off, given the importance and the need for good advice flowing through to individuals and to business owners.”

He questions the accuracy of the ACCC’s claims about a product being snubbed by brokers purely because the commission was lowered.

“A lot of brokers have told me the circumstance that they reference followed a particular insurance company doing a major portfolio review [which] looked at commissions, pricing and terms and

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conditions of cover.

“The net result was that brokers had to have a good look at the cover being provided, the premiums proposed to be charged, and the interest of the client in relation to those matters, and the brokers do what they always do – they act in accordance with the best interest of the client.

“All the brokers that have commented to me about that have been absolutely firm about the fact that any change of insurer was invariably because of terms and conditions and price and not because of commission levels.”

Steadfast Managing Director Robert Kelly disputes the ACCC’s view that taking away commissions would lead to cheaper insurance for clients, and says he’s seen these arguments before.

“I’ve been fortunate to work in jurisdictions all around the world where consumers buy insurance on commission,” he told Insurance News.

“I watched the FCA investigation into the London market operation…and the conclusion that came out of London was clearly there was some conflict of interest. But overall, at the end, the consumer gained by those conflicts of interest by the competition that [they] created.

“When the ACCC says the way to provide cheaper insurance in Far North Queensland is to get rid of commissions and allow brokers to take a fee, it will stymie the person who cannot afford to pay a fee from getting competitive pricing on their policy.

“It worries me when you take a system where the commission is factored into the cost of distribution and hope that by taking the commission off that the consumer will lose the 20% – that the insurance industry

Backing broker commissions: NIBA Chief Executive Dallas Booth

will drop 20% off their pricing.

“In my many decades in this industry I’ve never seen anything like that happen.”

PSC Managing Director Tony Robinson says it’s frustrating that broker commissions have been singled out when “variable remuneration” is commonplace across many industries.

And he says broker commissions work because they are transparent, create competition in the market, and reflect the work put in by brokers.

“The absence of some sort of reward structure for a third party intermediary means there’ll be less price competition that can’t be a benefit to the end insured,” he tells Insurance News.

“It’s the competitiveness between providers that’s created by the broking intermediary… that helps keep prices down. It’s got more pluses.

“The marginal difference in the conflict between that form of remuneration and any other form of remuneration is small in my mind, while the benefits of it are significant.”

Mr Robinson believes commissions can be more concerning when the benefit of the commission flows directly to individuals – but this isn’t how it works at PSC, or at many other brokers.

“In almost all cases in this industry, the variable element of the commission is being paid to an entity, and then how it’s shared between the parties in the entity is often quite unrelated to the front-end of the business. In our case the corporate is earning the variable commission but the vast majority of the people in our businesses are on [fixed] salaries only.

“It’s a system that works well for the reasons I’m talking about. No structure removes the conflict. The

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conflict is managed by transparency and the natural forces of the market. If I don’t service my client well I lose them. If I’m not charging appropriately I’ll lose them and if I’m not getting a good premium outcome, I’ll lose them.”

For all this, the ACCC’s Ms Rickard is not backing down. She stands by the evidence produced in the report, following a detailed three-year inquiry.

“We had compulsory information-gathering powers [and] we saw extensive documentation,” she says.

“We are as confident as we can be in the evidence that we have produced in this report and we have got the internal documents and a whole range of quotes, many of which didn’t make it into the report, that support directions we’ve taken.”

She also argues that fees don’t put most people off seeking advice, saying that when the Future of Financial Advice reforms were put in place in 2012, this was a major concern. “Yet we are seeing financial advice businesses survive, flourish, and consumers being prepared to pay a fee.

“There may be some consumers who will be put off by it, but we’ve certainly seen across financial services that businesses continue to survive and many consumers appreciate the transparency that exists there.”

But brokers warn that nobody knows their industry like they do, and Mr Booth adds some stark advice.

“I’m absolutely convinced that governments and regulators have to think very, very carefully about what happens next if you abolish commissions. Will the community actually be better off?

“As part of this review we will be challenging anybody and everybody to put on the table, ‘where is the 0 evidence of a problem that needs to be fixed?’”

Stepping into retirement: insurance ombudsman John Price

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airness” hasn’t always been a guiding precept for insurance claims professionals. The fact that it’s now solidly entrenched in Australian insurance alongside “utmost good faith” owes a great deal to John Price.

The long-serving Insurance Ombudsman is moving into retirement after 17 years deciding on disputed claims and providing feedback guidance to insurers and brokers. However, he intends to continue working part-time with the Australian Financial Complaints Authority (AFCA).

Over that 17 years he has seen some “significant changes” in attitude as claims professionals adjusted to an evolving drive for greater levels of consumer redress. It has been particularly important in the past few years as companies worked through a mass of claims caused by a spate of natural disasters.

“It’s been pretty profound in terms of having the industry embrace the consumer movement,” he tells Insurance News. “There’s a co-operative approach in regards to these things.”

He says the Insurance Council of Australia (ICA) and consumer groups participate openly and in conversations, “working together through the various catastrophes and natural disasters we’ve seen”.

“Sure there’s disagreements, but the community forums starting back after Black Saturday in 2009 have really been an eye-opener in giving consumers a voice and greater visibility. We’ve just grown on that innovation.”

Mr Price was Lead Ombudsman – General Insurance

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at the Financial Ombudsman Service (FOS) Australia when he was confirmed by AFCA as its Insurance Ombudsman on its formation in late 2018.

AFCA merged the operations of three dispute resolution bodies – the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal into an independent body that it proudly notes is not a government department or agency; nor is it a regulator of the financial services sector.

But it is subject to regular Federal Government reviews, with the first (slightly delayed by the pandemic) being conducted by Treasury at present.

Mr Price, having previously acted as Referee, Adjudicator and a panel chair at FOS, has a long career in the law behind him. He joined Maurice Blackburn in 1978 as a solicitor, rising to become a partner in 1984 and heading up its industrial personal injuries practice until leaving in 2004.

His long list of accomplishments on various Victorian government advisory groups and working parties is accompanied by his contribution to cricket work as a code of conduct commissioner for Cricket Australia, and chair of the Pennant Cricket Appeals Board for Cricket Victoria.

AFCA is now looking for a replacement for Mr Price when he finally steps down from the role in July.

He’ll have plenty to tell his replacement, and the spirit of co-operation between insurers and consumer representatives, along with a willingness to actually get out there and talk to claimants, will doubtless be among

The Price is right Long-serving insurance ombudsman John Price has seen a lot of change in the way insurers deal with difficult claims – and with consumers

By Terry McMullan

the most important.

Mr Price traces the development of a closer insurer-consumer relationship back to the 2009 Black Saturday bushfires and the Queensland floods in 2011.

“They are an example of what we can achieve through meetings and just going into people’s homes talking to them and seeing the devastation they’ve suffered,” he tells Insurance News.

“Hearing people’s stories and doing that all in the presence of insurance representatives in a totally transparent way resulted in a significant change in approaches to claims by the insurers.

“It resulted in the early resolution of many of these claims. And we’re now seeing that play itself out in the various catastrophes that have followed.

“In AFCA’s point of view we’re now seeing very few problems resulting from these types of claims. The bushfires [of 2019/20] are a good example. We’ve seen very few disputed claims resulting from that, and those claims that did require attention were very often resolved by a phone call from AFCA to the insurer.”

Mr Price says the insurance industry and AFCA are being more proactive in dealing with such disasters “by being out there and trying to anticipate the issues before they arise”. He says the panels AFCA uses to examine and decide on disputed claims “are extremely well balanced. We have excellent consumer and industry representatives who really do provide balance for us in making decisions.

“I found myself a few weeks ago in a matter where we had three different views being expressed by the

three members of the panel. Once we sit down and talk about it, communication shows its value. We can very quickly reach agreement because we’re all very much on the same page – it’s just often being expressed in different ways.”

That doesn’t mean, of course, that the insurance industry will always be uncritical of some AFCA panel decisions, but Mr Price sees that as part and parcel of the job.

“We certainly have issues where the industry might be thinking one way and we’re thinking another way, but that’s to be expected.”

Even in his earliest days as the FOS ombudsman, he didn’t experience “pushback” from the insurers, despite the fact that the relationship with the insurers “was not as strong, open or collaborative as it is today”.

He says he always felt that the ombudsman schemes – starting with Insurance Enquiries and Complaints in the early 1990s, which developed into the Insurance Ombudsman Service (IOS) and then embraced life insurance and banking to become the Financial Ombudsman Service (FOS) – strongly guarded their independence.

“I don’t think that has changed at all. I suspect that early in the piece some in the industry didn’t like the way IOS or FOS dealt with matters, but I don’t think we ever let that compromise our independence or processes.

“Our independence has been there all along. There’s occasional criticism that AFCA is funded by its member organisations, but that’s usually coming from ignorance and not understanding the provisions in place to ensure

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Affordability alert: Mr Price believes the cost of insurance is a rapidly rising concern

AFCA’s independence.

“What’s important to us is to make people aware that our mission is to be a world-class ombudsman service and to provide fair and efficient and timely dispute resolution processes that are trusted by all. I think that’s vital.”

AFCA is a much bigger operation, with considerable heft given to its reason for existing coming from the Federal Government. The organisation has more than 800 staff with substantial offices in Sydney and Melbourne. It also employs ombudsmen in Western Australia and Queensland.

“We’re recruiting from a much broader pool of people than we used to,” Mr Price says. “All of our ombudsmen in the insurance space are lawyers with extensive experience in the industry. Some like myself have over 40 years’ experience, and some have closer to 50 years. We also have some younger ombudsmen who have worked in the industry, and we even have one who worked in the UK ombudsman’s office.

“So they bring a very broad experience of insurance law – and of fairness, which is a cornerstone of what we do.”

One significant change that he notes has resulted from AFCA’s much higher profile than the services it replaced – the number of files being handled.

The growth in numbers of people contacting AFCA is “a result of the greater levels of publicity AFCA has received through the [Hayne] royal commission and the publicity we’ve received through other events we’ve worked on.

“Our profile is one of our requirements to make people aware of our existence, and also our role in promoting and supporting financial literacy. We had a roadshow going around the country informing people about AFCA. Those are the sort of things that have contributed to community awareness of us and our accessibility.”

While the number of claims filed with AFCA has dropped somewhat in the past year, despite the recent natural catastrophes, Mr Price suggests it may

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have eventuated because of the COVID lockdowns – “given that actual claims made by people would have reduced”.

One fact that impresses him is the relatively small number of disputes recorded against insurance brokers. “It’s impressive when you consider the thousands of brokers out there, yet we only see disputes in the hundreds. That’s probably because the brokers are doing a damned good job.

“They do need to revise their code of practice. They are at this stage looking a bit antiquated in their approach to things. We’ve seen the life insurers, the general insurance industry and the banking industry all update their codes, so I think the brokers do need to come up to speed.”

It’s a tougher deal for insurers, who must deal with a massive variety of claims from across the spectrum.

But Mr Price says the concept of fairness is seen as a consideration “more and more”.

“We often saw a lot of justified criticism about insurers cash-settling claims, but now we see that insurers are providing an additional amount of 10-15% for contingencies in cash settlements that may not be covered in quotes.”

We’ve also seen the industry’s approach to post-catastrophe claims resulting in “very very fair” decisions.

An example: as the summer bushfires were raging a resident in the danger zone called his insurer when he realised his home insurance policy had lapsed a couple of months previously. “The insurer was prepared to re-insure them even though the place was in a fire area.

That wouldn’t have occurred years ago.

“We’ve seen the insurance industry react to claims around domestic violence by responding positively to situations where the co-insured has been disadvantaged. There’s a High Court decision suggesting that the sin of one co-insured affects the whole policy. In my view that is unfair in these circumstances, and the insurers have embraced that view. I think that’s a totally different attitude.

“We regularly see circumstances where the insurers

“I think we have to look at and understand what level of insurance is adequate for a 21st Century family, before the disruptors come along and take away that section of the market.”

are trying increasingly to find a way to pay something on a problematical claim, so in that sense we’re seeing a big change in attitude by the industry. There’s a greater preparedness to listen rather than simply follow the blackletter-strict interpretation that existed in the past.”

Much of that improvement can be attributed to the more open communication between the industry and the consumer movement, plus regular discussions on claims issues with senior industry executives. “We also have quarterly catch-ups with the individual companies to discuss any concerns around performance or any particular determinations they have an issue with.

“We don’t hide from industry feedback; we encourage it. I’ve always invited companies to provide me with opinions from senior counsel that differ from our determinations, but I have to say I’ve yet to be persuaded by any submission that our approaches are incorrect or unfair.”

On the subject of ways to improve consumers’ understanding of what their policies contain and the various measures introduced by regulators – most notably product disclosure statements (PDS) and key facts sheets – Mr Price sighs when Insurance News asks him if he can think of better ways.

“If I knew, I’d have told everybody what to do about it years ago. Plain English is obviously important. But look at it another way: rather than talk about a better form of PDS, we should think about the industry understanding more clearly what people actually want.

“In the 21st Century the PDS and other documents are still rooted in the 1980s and 90s, and it’s time to start looking at what insurance really is.”

He says a bigger issue for the industry at present is affordability. “Insurance premiums are rapidly rising – which is understandable when you consider the catastrophic events we’ve been through recently – and we can only see substantial increases in the immediate future.

“They are likely to take insurance out of being affordable for a large group of people, along with

increasing levels of underinsurance or non-insurance.

“I think we have to look at and understand what level of insurance is adequate for a 21st Century family, before the disruptors come along and take away that section of the market.”

He says personal lines insurance products need to be more flexible and affordable to meet changing patterns of work and living.

“You get to a point where one of the frustrating things is home and contents policies which cover consumers and protect them from defined events but not against accidental damage. “So they wonder, what does my insurance really cover me for?”

He suggests general insurers could consider following the example of the health insurance industry by introducing basic standard wordings for personal lines policies, with three levels of cover from low to gold standard. That would allow for standard provisions that must be included in each level, making it easy to look at, understand and choose.

“The point of difference for an insurer would then be what they add to that standard cover, not what currently applies – where it’s what they subtract from the cover.”

Pointing to such phenomena as bitcoin and new methods of lending that attack the credit card market, he says the insurance industry “needs to adapt – they need to look at what people are really after” – or they’ll find the disruptors moving in.

Mr Price admits the thought of “just walking away into retirement and trimming the roses every day” isn’t how he views the immediate future. He intends to stay on and work two or three days a week at AFCA and help the new ombudsman find his/her feet in a dynamic environment.

“AFCA is being managed in a very progressive and visionary way, and I think it’s going to continue to develop and provide greater service for consumers and the industry,” he says. “I want to assist the new ombudsman – whoever he or she is – and help the executive team at 0 AFCA to achieve their goals.”

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A

Federal Court business interruption test case will examine nine previously rejected claims as insurers and policyholders contest wordings and the extent of cover for COVID-19 impacts in another round of legal action.

The Insurance Council of Australia (ICA) launched the more complex second proceedings while awaiting an appeal decision on a first test case that went against insurers in finding wordings citing the repealed Quarantine Act don’t exclude cover for COVID-19.

Whatever the appeal result, ICA says other hurdles for claimants exist, with the second case set to look at issues around the definition of a disease, the proximity of an outbreak to a business, physical damage requirements and the application of government mandates under prevention of access clauses.

The court will also receive submissions on reducing payments to take into account wider pandemic impacts, if it’s found policies do respond.

Initial documents filed with the court include the following details: Allianz Australia Insurance Ltd v The Stage Shop Pty Ltd (formerly Visintin Pty Ltd) The stage clothing and costume business

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closed its Adelaide shop and stood down employees on March 21 as theatres shut their doors in response to South Australian measures introduced after the state declared a public health emergency.

Confirmed COVID-19 cases in the state totalled 134 when the measures were announced, with the number rising to 612 by late February this year, according to the documents.

Visintin lodged a claim under its Steadfast Business Pack policy which included infectious disease and prevention of access extensions.

The shop says the government measures required its customers to cease operating and resulted in a drop in trade and profit, while a COVID-19 outbreak first occurred in the state at Adelaide Airport, 6.8km from its premises, and within a radius specified in the policy.

Allianz says the disease extension doesn’t respond as the premises were not closed or evacuated in whole or in part by any of the measures, or alternatively it was not as a result of the outbreak of a notifiable infectious or contagious disease occurring within a 20km radius.

Nor did the measures prevent or restrict access, or result from threat of damage to property or persons within a 50km radius, the insurer says.

Allianz Australia Insurance Ltd v Mayberg Pty Ltd Dry-cleaning business Mayberg says restrictions on non-essential travel and business and social distancing rules reduced trading and profit at its Brisbane region locations.

A claim was made under an Advisernet Business Pack policy which included a murder, suicide or infectious disease extension and a prevention of access by a public authority extension.

Confirmed COVID-19 cases in Queensland totalled 319 when the state measures were introduced. Numbers had risen to 1323 cases including 503 in the Brisbane Local Government Area and 29 in nearby Redland, as of February 23 this year, the court documents say.

The Allianz policy says there’s no cover irrespective of where COVID-19 was discovered due to an exclusion citing diseases under the Quarantine Act 1908 (as amended).

But if the first test case knocks out that exclusion, Allianz says the policy still doesn’t respond due to other wordings similar to those in The Stage Shop case.

Chubb Insurance Australia Ltd v Market Foods Pty Ltd Market Foods businesses include the Blackmarket Bar and Grill in central

Business interruption: back into the breach A second BI test case is examining more COVID-19 issues related to disputes over policies that insurers say don’t cover the pandemic

By Wendy Pugh

Brisbane, and Marketcart stores at the Herston health precinct and at the University of Queensland in Saint Lucia.

On March 23 the Queensland Chief Health Officer said non-essential businesses must not operate, including restaurants, cafes and fast-food outlets, except for takeaway. On March 20, the University of Queensland said teaching would go online for the first semester.

Market Foods lodged a claim under the disease extension part of its Chubb Business Pack policy around March 20, then on April 8 lodged a claim under extension B. Chubb says extension B requires physical property damage, notifiable diseases are only covered under the disease extension, while there was no damage to property within 50km that hindered access, or damage to commercial complexes within which the business operated.

Further, government restrictions were “on the basis of a general and state-wide threat to the health of persons” and not related to physical damage issues within 50km, while university actions were not those of a legal authority within the policy meaning.

On the disease extension, Chubb says there was no occurrence or outbreak of COVID-19 at the insured locations, and even if there was, government and university

actions were in response to a general threat of a notifiable disease across Queensland.

Chubb Insurance Australia Ltd v Phillip Waldeck Mr Waldeck lodged a claim under the Chubb Business Pack disease extension, attributing a 40% drop in rent from a tenant in the Melbourne suburb of Camberwell to COVID-19 regulation impacts.

Chubb says there was no occurrence or outbreak of COVID-19 at the location, meaning there was no occurrence or outbreak of a notifiable disease at the premises, within the meaning of the extension.

In addition, the Victorian regulation imposed no physical restriction on the use of, or access to, the location, so did not meet extension requirements.

Chubb’s exclusion references the Quarantine Act, which it notes is a separate issue to be decided in the first test case. But it also flags that section 61A of the Property Law Act 1958 (Vic) applies to the policy and has the effect that the reference to the repealed Quarantine Act is to be construed as a reference to the Biosecurity Act. The insurer says it’s not pursuing that issue in the second test case, as it is subject to a complaint to the Australian Financial Complaints Authority, which hasn’t consented to raising it in the current matter.

Guild Insurance Ltd v Jason Michael t/a Illawarra Paediatric Dentistry Dr Michael lodged a claim under a Dentists Business Insurance Policy after restrictions announced by the federal and state governments and professional bodies affected the Wollongong practice.

The Federal Government on March 25 announced a non-elective surgery suspension and NSW introduced other responses.

Between March and May, the Australian Dental Association and Australian Health Protection Principal Committee recommended restrictions to manage potential COVID-19 exposure at practices.

Guild said a prevention of access extension did not respond, noting Dr Michael was able to conduct business in whole or part and the practice was not closed or evacuated.

The insurer says “none of the government and industry measures constituted the intervention of any lawful authority resulting from threat of damage to property in the immediate vicinity of the business premises which prevented access to or hindered the use” of the premises, and the dental and health bodies are not relevant authorities under the policy.

If the measures were an order to close in whole or part, they weren’t in response to human infectious or contagious disease, or the discovery of any organism at the

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premises, while COVID-19 is not caused by such an organism, it says.

Guild Insurance Ltd v Gym Franchises Australia Pty Ltd & Anor Gym Franchises Australia, which has a premises in Upper Coomera on the Gold Coast, claimed under the prevention of access extension in its Fitness Centres Business Insurance Policy.

The claim was lodged after Queensland Government measures included a March 23 Non-Essential Business Closure Direction, which included prohibiting gyms from operating.

Guild declined the claim with some of the wordings similar to the Wollongong case, including that none of the measures resulted from threat of damage to property in the vicinity which prevented access or hindered use of the premises, and none of the measures was an order for the closure or evacuation of the whole or any part of the premises, as required to engage the extension.

It notes there was no discovery at the gym of a disease or organism likely to result in human infectious or contagious disease, and additionally COVID-19 is not caused by such an organism.

The policy’s infectious and/or transmissible diseases exclusion cites the Quarantine Act and subsequent amendments.

Insurance Australia Ltd v The Taphouse Townsville Pty Ltd The Taphouse bar and restaurant in Townsville lodged a claim after it was restricted to providing takeaway and home deliveries as a result of Queensland Government measures.

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The Government introduced social distancing rules for venues such as pubs on March 19, followed by the non-essential closure direction a few days later, which included restaurant dining.

The documents say the stated aim of the measures was to “assist in containing, or to respond to the spread of COVID-19 within the community”. At the time Queensland had 319 confirmed cases, with one attributed to the Townsville area. The numbers had risen to 1300 state-wide and 31 in the Townsville area by the time court documents were filed.

The Taphouse was insured with CGU and held a Business Insurance Policy with prevention of access and disease extensions.

CGU says disease is not covered under the prevention of access extension and the government measures did not constitute a legal authority preventing or restricting access to the Taphouse’s premises and were “not a result of damage to or threat of damage to property or persons” within a 50km radius.

The disease clause references the Quarantine Act exclusion, while the document also notes that the measures were not a result of a COVID-19 outbreak occurring within a 20km radius.

Insurance Australia Ltd v Meridian Travel (Vic) Pty Ltd Meridian Travel & the Cruise Gallery says it suffered a significant loss in revenue as it had to cancel all of its business and refund clients as a result of an international travel ban.

The travel agency, in the Melbourne suburb of Heidelberg, lodged a claim on July 15

under a CGU Steadfast Office Pack that included a disease and a closure or evacuation extension.

The Federal Government initially advised against travelling overseas, then closed the borders to non-citizens and non-residents and on March 25 said citizens and permanent residents would be prevented from leaving.

At that time there were 2415 confirmed cases of COVID-19 in Australia, 518 confirmed cases attributed to Victoria, and 406 attributed to the Melbourne metropolitan area.

CGU, putting aside the Quarantine Act issue, says that in terms of the disease extension, Meridian’s loss was not a result of an outbreak of COVID-19 occurring within 20km.

There was also no closure or evacuation of the premises by order of a government, public or statutory authority and “further or alternatively, any closure of Meridian’s premises was not consequent upon the discovery of an organism likely to result in a human infectious or contagious disease” at the premises.

Swiss Re International SE v LCA Marrickville Pty Ltd LCA, which provides cosmetic treatment services at the Marrickville Metro Shopping Centre in Sydney, held insurance under an industrial special risks policy.

NSW March 30 orders included that people not leave their homes without a reasonable excuse and that beauty salons close to the public. Salons were allowed to open from May 15 to sell retail goods and gift vouchers, while from June 1 they could operate with

capacity limits, under measures referred to as Orders 2 and 3.

LCA lodged a business interruption claim in July under a prevention of access extension, saying it had closed the business from March 26 to May 31 due to the government measures.

Swiss Re ruled out cover under disease, extension, catastrophe and prevention of access clauses, noting there was no outbreak at the premises and cover is excluded due to a Biosecurity Act listing for COVID-19. Orders 2 and 3 also did not require the “closure or evacuation of the whole or part of the situation”.

The insurer says government orders had a focus on public health in NSW and Australia generally and were not actions taken “to avoid or diminish risk to life” within 5km of the premises.

Documents for all nine of the claim disputes also request court declarations on how any business interruption payments should be reduced if it’s ruled a policy does respond.

In an example, CGU seeks a declaration the claims loss was not caused by, or not wholly caused by insured events, but was caused or partly caused by uninsured events relating to the COVID-19 pandemic and that “further or alternatively” it’s entitled to adjust any payment by reference to those uninsured events.

The Federal Court will hold a second preliminary case management hearing after June 18, by which time both sides must have provided more information and have finalised agreed facts and issues 0 for determination.

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In general, most broker clients claim to be satisfied with their brokers, although this has softened a little over the last year (see Figure 1.1).

There is a very strong correlation between broker satisfaction and the type of relationship that brokers have with their clients.

Brokers who work collaboratively with their clients have a significantly higher level of satisfaction than those who are rarely in contact with their clients.

Specifically, 51% of SMEs who have a collaborative relationship with their broker (that is, one in which the broker presents them with choices and then they decide together) are highly satisfied, scoring their broker 9 or 10 out of 10.

This compares to only 24% of those who say that they have had minimal interaction with their broker.

“I like a phone call once a quarter or so, just to check up how we’re going, Satisfaction levels are also linked to the types what’s happening.” of tasks that brokers do for their clients. Highly Jeweller, Broker Client, 2020 satisfied clients have brokers who are more likely to do value-adding tasks that demonstrate their Satisfaction with broker (broker clients) Figure 1.1:such Satisfaction with brokeranalysis (broker clients) expertise, as providing in-depth and information, checking up on business changes, advocating on the client’s behalf and providing 8% 32% 2021 cost-effective options (see Figure 1.2).

2020

8%

60%

70%

22%

“We have a great relationship. I can ask them anything, they give me 26% 8% 2019 information and explain their analysis and5% recommendations in-depth.”

28% 2018

66%

A decade of learning

67%

Bottleshop owner, Broker Client, 2017 4%

2017

29%

The outcome of highly satisfactory broker client relationships appears to be correlated to more 2016 27% 5% positive attitudes to insurance overall. Highly satisfied clients are more likely to say that being 3% 29% 2015 insured gives them peace of mind and that they are happy to pay more for better service and advice.

2014

3%

27%

Dissatisfied

6

Neutral

67%

68%

68%

70%

Satisfied

A decade of insight. Chapter One Figure 1.2: Tasksby undertaken by satisfied brokers clients with satisfied clients (broker clients) Tasks undertaken brokers with (broker clients)

Analysis

Provide in-depth analysis on insurance options available

Check up on business changes

Provide information Advocate on advocate for clients on changes to client’s behalf insurance or regulatory requirements

Provide info

Provide cost effective options

cost effective

Satisfied

Vero’s latest SME Insurance Index marks the report’s 10-year milestone, and reveals key trends for brokers

By John Deex

Neutral

What does that mean for brokers?

1

7

T

Dissatisfied

SME Index has been Most running Great service means takinghe time to understand of all, for 10 consecutivebusiness, years, and the reports provide clients and be engaged in their stay in contact! brokers and sharing information and analysis that helpsinsurance community with that most the broader them feel that they have the best solution.

A decade of insight.

2

precious of materials – information.

Each report surveys approximately 1500 small businesses on their insurance-buying habits, and by looking back on some 15,000 responses over the course of a decade, key trends can be identified.

Chapter One Broker use is up, with 40% of respondents this year saying they used a broker for their last insurance purchase. Encouragingly, the number of direct buyers considering using a broker is also rising.

Vero stops short of calling it a trend – it would want to see at least two years of similar data first – but it’s a positive sign nonetheless, as clients increasingly seek out guidance in a COVID-altered world.

SMEs increasingly want to be involved in their insurance – 60% this year say they personally research the insurance needs of their business, up from below 50% when the index started.

And SMEs no longer just look for expertise from a broker; they want great service as well. Service has now overtaken expertise as the main reason to use a broker.

Relationships are crucial, and the more contact a broker has with the client, the more satisfied the clients tend to be.

Some 51% of SMEs who have a collaborative relationship with their broker are highly satisfied. The corresponding figure among those with minimal

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interaction is only 24%.

Also, the more involved a broker gets with a claim, the happier clients are with the claims experience.

With this in mind, it should be concerning that 28% of clients in the latest survey say they haven’t had much to do with their broker in the past year, compared with just 9% in 2012.

Vero Head of Commercial Intermediaries Anthony Pagano says the industry has changed significantly over the decade.

“Who would have thought 10 years ago that four international broker groups would have joined together, Steadfast and IBNA would have joined together, and the authorised representative groups would be growing the way they are today,” he told Insurance News.

“No matter how good your understanding of your current situation is, it’s always good to reflect on where you’ve come from, what you can learn and what you can do differently.”

He says brokers have successfully diversified their services and incorporated emerging risks, and clients are seeking trusted advice.

“If you look at the whole environment – whether it be the pandemic, natural catastrophes, the globalisation of segments – clients are looking for expert advice and are turning to brokers for that. It’s almost like a flight to trust.

“We’ve also seen brokers diversify into full claims management services. We’re seeing through the data

each year, I want to be involved, I want to be across the details.”

Bookkeeper, Broker Client, 2015

Attitudinal trends about insurance involvement Insight 4 Figure 1.3: Attitudinal trends about insurance involvement

60%

50%

Relationship with current broker (broker Figure 1.4: Relationship with current brokerclients) (broker clients)

Brokers have an important role to play in claims

35% 30% 25% 20% 15%

Since the start of the Vero SME Insurance Index in10% 2012, we have measured broker usage by asking Australian SMEs about the most recent insurance policy they have purchased for their business.

5%

40%

30%

30%

Increasingly, broker clients are more satisfied with their claims process than those who buy their insurance direct. Specifically, in 2021, 72% of broker clients who made a claim were satisfied, compared to only 37% of direct 2013 2014 2015 2016 2017 2018 claimants (see Figure 1.8).

This year, 40% of SMEs said that they purchased their last policy through a broker, an increase from Haven’t 35% last year (seehad FigureBroker 2.1). gets me Broker presents 2019

I personally research I used the internet to “Claims are annoying, strenuous, the insurance needs research my insurance stressful.

If someone couldoptions look before buying of the business after it for me, happy days!”

quotes, but I

much to do

2021

me with

Broker presents a Broker makes recommendation all the decisions and I usually about my choose that business insurance and I trust they’re right

stillfrom do all year the to year, choices with my This measure canbroker fluctuate and work when and we make in the last 12 there would need two years comes to consecutive decisions monthsto be at itlast decisions about of growth to call this a trend, however, it istogether a positive insurance early sign of increasing broker usage and potential 2012declining 2021 reversal of the trend seen in previous years.

I am quite knowledgeable about business insurance generally

I am quite knowledgeable about business insurance generally I use the internet to research my insurance options before buying I personally research the insurance needs of the business

Hotelier, Direct Buyer, 2016

8

2020

Broker relationships reflect this trend towards

A decade of insight. Chapter One

Satisfaction with claims experience by purchase channel Figure 1.8: Satisfaction with claims experience by purchase channel

personal research.

Compared to in 2021 there Last insurance purchase by2014, channel has been2.1: a significant increase in broker clients who Figure Last insurance purchase by channel claim to do most of the work themselves, or to have to do with their broker (see Figure 1.4).

little 80%

80%

At the same time, there has been a corresponding decrease in the number of broker clients who say they work collaboratively with their broker or rely 70% on their broker’s recommendation.

70%

60%

60%

50%

50%

“I’ll challenge my broker on things, then they’ll go away and get various things, then we’ll go through it together.”

Business Advisor, Broker Client, 2015

It’s important to remember these results reflect the SME’s personal interpretations of their actions, rather than their actual behaviours. There may be cases where SMEs rely more heavily on the expertise of 40% their broker than they perceive.

40%

Brokers should however be aware of these attitudes insurance involvement, so they can help their clients feel engaged in the process.

about 30%

30% 2019 Broker clients satisfied

2020

2014

2021

9

Direct buyers satisfied

2015

2016

2017

2018

2019

2020

2021

A decade of insight. Chapter One Broker user

Direct buyers

Attitudes towards business insurance Figure 3.3: Attitudes towards business insurance 18

decade of insight. Chapter One 14 that atA claims management time client satisfaction with brokers goes up and we’re seeing clients think, ‘we’ve had this terrible claim but thanks to my broker the experience has been fantastic’.”

Increasing numbers of clients see insurance as a “grudge purchase”, and Mr Pagano says one way to mitigate that is to provide extra value through regular interaction and information.

“The broker needs to interact not just about the contract, but what’s happened to the business, what’s happened from a legislation and regulation point of view,” he says.

“Clients see insurance as a grudge purchase, so how do you take that grudge away?

How do we keep them getting value from something they hope to never use? By keeping them informed [and] risk-mitigating their circumstances.

“The research shows the less time you spend with your client the more dissatisfied the client will be. What’s the solution? Talk to your clients as regularly as is appropriate.

“The vast majority of brokers themselves are SMEs. Who better to know what SMEs want when it comes to service, and how they 0 interact with suppliers and providers?”

Direct buyers satisfied

A decade of insight. Chapter Two

Direct buyers

broker clients satisfied

Broker users

70%

82%

61%

73%

63%

73%

Grudge

Price driven

Wariness

• I have to be insured, but I don’t get value for money out of it

• I’m willing to forego personal contact with a broker or insurance company if it means I can get it a bit cheaper

• Recent events have made me more wary of the insurance industry

• I only take out some insurance because I’m legally obligated to • I buy the minimum cover I need

2015

• Price is the most important concern when it comes to making decisions about insurance

• Recent events have made me question my cover • I want my insurance to be with a large insurance company

2021

All graphics sourced from Vero’s SME Insurance Index 2021 These changes in concerns are accompanied by some significant shifts in SMEs’ attitudes towards insurance. Most notably, there has been a considerable increase in the number of SMEs who view insurance as a grudge purchase, who

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Platform for growth Expansion of a partnership business is a key focus for Coverforce as demand for support services grows

By Wendy Pugh

W

ith a myriad of challenges facing brokerages in the current environment, Sydney-based brokerage Coverforce sees plenty of opportunities for a partner network that can offer strong support and add value to businesses.

Coverforce Partners, a relatively recent addition to the insurance intermediary landscape, is stepping up its expansion under a model that involves acquiring equity positions and providing access to a platform of back-office and business support services, technology and supply arrangements.

“There is growing demand from brokers to be properly supported,” Coverforce Chief Executive Jim Angelis tells Insurance News. “We see our partner offering as the solution and we are investing in that. Our investment in the platform of services is significant and continuous.”

The 2017 launch of the partnership business was a natural progression for the Coverforce group, which has grown to become Australia’s largest privately owned insurance broker.

Businesses within Coverforce also include its own general insurance broking operation, the Quanta underwriting agency and group life insurance.

“From inception we were focused on building a company that would scale efficiently,” Mr Angelis says.

“The aim was to have centralised back-office teams that were well coordinated to service all entities in the group.

“Growth by joint venture best preserves the business and relationships we are investing in – so it made good financial sense.”

Mr Angelis says the insurance industry is rapidly changing. Regulators are imposing tighter requirements as they aim to protect clients’ interests, and smaller independent brokers are increasingly looking for services that can help them in running their businesses.

Coverforce Partners will generally take about 3050% equity, while income divisions typically see about

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25% of revenues charged as a fee for services provided.

“We are building a model where the bulk of the revenue goes to the partner, and through scale we are able to make that a viable business model and continue to invest in that platform of services to continuously improve those for the benefit of the partner,” he says.

The network had 26 partners as of early March, generating about $230 million in gross written premium (GWP). Those joining are typically growing at a minimum 13-15%.

Having established the foundations, the group is now raising its profile and welcoming more participants. A pipeline of around 400 prospects has been identified and the business is actively talking to potential partners.

“We needed to prove the model first, and we have done that, so now we have got significant interest and quite a bit of momentum,” Mr Angelis says.

Feedback from existing and potential partners suggests many competitors promise a laundry list of services, but when it comes down to it they sometimes “simply clip the ticket for the use of their Australian Financial Services Licence”, he says.

“We never want to be accused of doing that,” he says. “Coverforce Partners’ mission is to be the best partner in the world to an insurance brokerage.”

Mr Angelis made the move into insurance after starting in the construction industry, working with Lend Lease early in his career and later running his own business in that sector. Coverforce began in 1994 when Mr Angelis took up an opportunity to provide group life insurance, mainly to blue collar workers.

The enterprise entered general insurance broking in 2006 after acquiring Crown Insurance Services, Swissco Insurance brokers and Bookers, with the life side continuing as a small part of the overall group.

“In the years that followed we continued to grow organically and through successful acquisitions, joint ventures, and partnerships,” Mr Angelis says. “The one

Investing in partnerships: Jim Angelis

metric I am most proud of is our client retention rate.

It has remained above 95% every year. It confirms we are delivering quality outcomes for clients.”

Coverforce will achieve around $600 million in GWP this financial year and Mr Angelis says GWP has been consistently growing at an average rate of 22% per year.

Currently Coverforce’s leadership is “quite happy” maintaining the flexibility of being an independent privately owned insurance broker rather than pursuing the path of a stock exchange listing.

Mr Angelis says the ownership structure of a business is less important than having a strong commitment to a purpose and the ability to capitalise on opportunities as and when they arise without unnecessary delay, as well as common beliefs and values.

The pitfalls of not having alignment among key shareholders were highlighted during recent clashes with Coverforce’s private equity investors.

In 2012 South African-owned Pemba Capital Partners acquired a stake in Coverforce, ultimately leading to a court battle over shareholder agreements and whether the private equity firm had the right to push through a sale of the entire company to AUB Group.

The matter, which also involved the Resilium authorised representative network spun-off from Suncorp, has since been resolved following a series of transactions.

Coverforce management shareholders now have full ownership of their company after acquiring Pemba’s 49% stake in a deal that was completed on December 24. Coverforce and Resilium have gone their separate ways.

“If I had my time again, I wouldn’t have proceeded in bringing in a private equity investor,” Mr Angelis says. “It wasn’t a great experience for us.

“Private equity by nature needs to exit the business at some point in time, and we had no such desires. We

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31

“I take the view that there is nothing inappropriate with reasonable levels of remuneration, whether they are fee or commission-based.”

wanted to keep growing and building the business, so it was really that misalignment that led to the position where it needed to be resolved one way or the other.”

Mr Angelis says the final arrangements have meant Pemba has achieved its exit, while management shareholders are pleased that they have been able to buy the shares.

“The only regret I have around the Resilium transaction is we had big plans for their AR network and we are a little disappointed that we weren’t able to demonstrate to that network what we could do for them,” he says.

“Having said that, not every deal goes the way you want it to go, so I guess all the parties just need to move on.”

Looking ahead, the Coverforce team sees plenty of opportunities for brokerages to demonstrate their worth and grow their businesses. Clients are facing the hardest insurance market for many years, and with no sign of softening anytime soon the ability to source suitable cover is being highly valued.

“Brokers can leverage this environment to enhance their skills and build stronger relationships with clients and insurers,” Mr Angelis says.

“We have seen many examples of this at Coverforce.

Two that come to mind are the facilities we established to insure building certifiers and financial planners.

We are very proud that we could provide a solution for these important professions.”

Coverforce acquired underwriting agency Quanta when it bought Crown Insurance Services, and has built its capacity and secured specialist binders as it has expanded in construction sector liability and professional indemnity.

“Some very difficult-to-place covers are being handled by that agency,” Mr Angelis says. “We also see it as a facility within Coverforce that adds to our platform of services that we offer and harness.”

He says the amount of regulatory change underway should not be taken lightly but, rather than a negative, is an opportunity for brokers to showcase the way in which they look after clients’ interests.

A raft of new government regulations will take effect this year, while challenges ahead include a review recommended by the Hayne royal commission that

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will consider if a general insurance exemption to a ban on conflicted remuneration remains justified.

The issue of commissions will be closely examined, but Mr Angelis says general insurance broker remuneration does not feature the controversial payments that have triggered concerns elsewhere.

Excessive upfront commissions and trail commissions that continue for years without any additional advice to clients under long-term arrangements have been particularly criticised in other financial intermediary areas.

“A general insurance broker conversely does work for their client every single year to renew their policies, where they go out and test the market, review what that business does and how that business has changed,” he says. “I take the view that there is nothing inappropriate with reasonable levels of remuneration, whether they are fee or commission-based.”

Broking has also proved resilient despite speculation the smaller end of the commercial insurance market may increasingly bypass intermediaries as direct market providers leverage technological advancements and wider community enthusiasm for online transactions.

Mr Angelis says brokers are benefitting from technologies that automate administration processes and free up time they can better spend with clients servicing their requirements, and Coverforce has seen no loss of SME clients to direct insurers.

“Having a dedicated account manager, the ability to source multiple quotes from multiple providers, having dedicated claims management and providing professional advice in relation to uninsured risks are key to demonstrating capability,” he says.

Mr Angelis says Coverforce Partners understands the challenges brokers face and the company will work tirelessly to help improve businesses that are part of the expanding network.

“While any brokerage can benefit from joining Coverforce Partners, our ideal partners are established brokerages with a goal,” Mr Angelis says. “Whether it is accelerated growth, completing an acquisition, or planning for succession, the more you want to achieve, the 0 more you will get from our model.”

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THE CHALLENGES AND OPPORTUNITIES OF VIRTUAL MANAGEMENT OF MEDICAL CLAIMS Words by James Needle, General Manager Accident & Health, Gallagher Bassett Prior to 2020, the term ‘telehealth’ was rarely used. Australians were used to travelling extensively for medical care, taking time off work to attend appointments and being restricted to the medical experts they could reasonably access in their local area.

The COVID-19 pandemic saw medical service providers embrace ‘telehealth’ options (appointments conducted using voice or video technology) to ensure Australians still received much-needed medical attention throughout strict lockdowns. As the medical industry pivoted to meet these needs, so did those who assess accident and health claims.

While our team at Gallagher Bassett has long used technology to deliver web-based claims management and real-time data insights, there are new challenges we all need to address.

in s u re rs . gallagh e rbas s e t t . c om.au

A R VE D

If the service provider is committed to communicating clearly and using technology in the right way, employers should expect to see a returnto-work timeframe that is not unnecessarily extended.

One way this happens is through our panel of rehabilitation providers, who have progressed towards remote monitoring technology. Through this, they can remotely monitor claimants exercise adherence, pain levels, notify when claimants reach a set threshold, and support a tailored program for both return-to-work and return-to-wellness.

Technology can also deliver better claimant experience through instant video or messaging access to service providers.

One in five Australians live with a chronic condition – a figure that is only expected to worsen. As Australia’s third most costly health condition, after cardiovascular disease and musculoskeletal conditions, it is an increasingly common trait of Australians who drop out of the workforce.

WHAT TRENDS ARE ON THE HORIZON FOR GROUP PERSONAL ACCIDENT (GPA) CLAIMS? For many essential industries, the injury risks to employees did not reduce as a result of the pandemic. In fact, companies across the transport, manufacturing and healthcare industries saw a significant increase in the physical and mental demands of their roles. We expect the demand for GPA policies to remain, however the claiming profile may start to change as a result of these environmental changes.

This trend was mirrored for office-based workers who shifted to a home / remote environment. The workfrom-home environment saw an increased demand for mental health support and musculoskeletal issues as a result of poorly set-up home offices. This has a clear impact in terms of Workers Compensation, but the impact has also been felt in the outside-work GPA space.

We expect these trends to continue in 2021 as many businesses accept a more flexible model of working.

As such, one of the key areas of concern in the coming year is the potential rise of claims relating to chronic, compounding conditions.

The toll of a claim that cannot be ‘simply’ resolved in the normal fashion can be frustrating for insurers, clients and the claimant. An important relationship building exercise for insurers could include education on chronic pain prevention and management for clients. By sharing your expertise in managing these claim types, you will be able to build a greater understanding with your clients around what to expect if an employee develops a chronic condition.

HOW CAN WE CONTROL AND REDUCE CLAIM COSTS IN A VIRTUAL WORLD? Prevention is key - bring your clients on the journey to understand risks their employees face from their role and adjust their workplace health and safety training to meet these new needs. Make sure to stress to your clients the importance of educating employees on how to prevent an injury, identify and report a potential claim. Insurers must be ready to move quickly on claims to minimise the potential of compounding injuries and reduce investigation timeframes.

Utilising digital platforms to clearly communicate claim requirements and outcomes can help claimants and clients understand a claim’s progression, all at a lower cost due to the nature of the digital space.

Through digital management and data analysis, you can ensure your clients feel informed and protected throughout the entire claim journey.

At Gallagher Bassett, we’re helping carriers leverage the virtual claims management model to their advantage through our industry-leading technology.

Find out more at insurers.gallagherbassett.com.au

ABOUT GALLAGHER BASSETT Gallagher Bassett is a global leader in the insurance industry and the largest TPA in the ANZ market, delivering best-practice claims management solutions for all lines of insurance. Gallagher Bassett optimises supply chains and partners with insurers to enhance their brand, values and systems to improve customer service and drive cost and operational efficiencies.

L

HOW WILL CHRONIC CONDITIONS IMPACT CLAIM OUTCOMES?

A RI TO

CAN VIRTUAL MEDICAL INTERVENTION BE EFFECTIVE?

The parent trap The insurance industry’s gender pay gap won’t narrow until systemic barriers faced by primary caregivers are tackled

By Miranda Maxwell

I

t’s hard to put your finger on exactly why insurance consistently ranks around the top of Australian industries for having the greatest divide between the salaries of its men and women.

The Workplace Gender Equality Agency calculates that Financial and Insurance Services has a total remuneration gender pay gap – the difference between the average male and female salary – of 27.5%.

It’s a confronting number and significantly more substantial than traditionally male industries such as construction, mining and manufacturing.

Statistics can of course tell all sorts of different tales.

Juxtapose the fact that Suncorp scored 51% for having managerial positions filled by women, the highest of any ASX20 company.

The board of Hollard boasts five women and three men, while its nine-strong leadership team includes four women. The presidents of the Insurance Council of Australia (ICA), the National Insurance Brokers Association (NIBA) and the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) are all women.

The takeaway from extensive conversations undertaken by Insurance News in March to coincide with International Women’s Day – which aimed to better understand the persistence of the pay gap – can perhaps be whittled down to the “two Ps”: parenting and pipeline.

Until child-rearing responsibilities are divided more equally and workplace flexibility permits that – and until the sizable crop of women occupying lesser-paid insurance roles are promoted – the gender pay gap is likely to remain.

Traditionally, lucrative leadership roles in financial services were male-dominated. Occupational

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segregation is still an issue, with a larger proportion of women performing support roles while men are more likely to occupy the larger paid operational roles. “Wherever the environment is more homogenous and less diverse, influencing change becomes more of a challenge and progress is slower,” says Jenny O’Neill, Hollard’s Chief Governance, Legal, Culture and Corporate Affairs Officer. “A strong commitment to diversity and inclusion is integral to combating this.”

Ms O’Neill tells Insurance News the gender pay gap reflects broad institutional and systemic barriers facing women, as primary caregivers, in the workplace.

Although not unique to insurance, parenthood emerged again and again during talks with industry insiders as being key in salary outcomes.

Women most often take the primary caring role in their families and time out such as parental leave is too frequently viewed as a professional development barrier. This compounds into significant downstream retirement savings gaps between men and women.

“We know this stems from the career breaks women take throughout their careers to raise children and care for family members,” Ms O’Neill says. “Parenting puts additional pressure on women.”

Dianne Phelan, the first female President of NIBA and Group Operations Manager at broker BJS, agrees this is central to addressing the gender pay gap.

“Until we get to the point where men and women equally share that parenting role and have equality in leave around childcare, then it’s going to be difficult,” she told Insurance News.

“Those missed years that women take – being the major child-carer in a lot of households – is a major thing in terms of not being able to further your career

and being behind the eight ball.”

Ms Phelan says she’s “disappointed and surprised” that the gender pay gap remains such an issue in insurance. “A lot of that comes down to the inequality in leave between the mothers and the fathers. The mums just historically take on that role.”

“Parents are parents,” she says, and both should enjoy the same sort of benefits.

Employers can help by being transparent about salaries and considering pay brackets, which can encourage female applicants to negotiate their wage by indicating reasonable expectations for a particular role.

Ms O’Neill agrees transparency, representation and visibility are key, and says that when women “go out there and make their voices heard, more women feel empowered to join them”.

“The solutions require committed efforts across the board,” says Ms O’Neill, who recalls that 14 years ago she was promoted into a senior leadership role by Hollard Chief Executive Richard Enthoven while she was heavily pregnant at the age of 30.

Companies like Hollard are “leading from the front” to eliminate systemic barriers, for example with its female-dedicated Aspire Women Leaders Program, a year-long career development course tailored to female insurance brokers.

“I am so genuinely proud to be part of a company that is bucking the trend with more female than male directors of the board”, she says, noting that such developments are “profoundly inspiring” for people across the business to aim to “be what they can see”.

“Workplaces need to normalise and support men sharing parental/carer responsibilities,” Ms O’Neill told Insurance News. “We need to challenge the idea that

parenting is detrimental to professional development and remove systemic financial penalties such as disparities in retirement savings.”

Hollard – which placed second of 500 companies in HBF’s 2020 “Top Australian Workplaces for Dads” report – has a gender-neutral policy of 18 weeks paid and 52 weeks unpaid leave for every new parent, with superannuation paid throughout.

More can be done by insurance decision-makers to remove systemic barriers, starting with ensuring equal pay with like-for-like analysis – an initiative undertaken at Zurich – and ensuring also that women are paid comparably against market rates.

Ms O’Neill says insurers should consciously tackle unconscious bias in hiring and pay decisions and promote a female talent pipeline to funnel young women into roles that attract higher wages.

Creating quality flexible jobs that allow women and men to balance their ambitions with caring and other responsibilities, especially in senior roles, and celebrating wins and success stories are other steps she suggests.

The Australian Bureau of Statistics (ABS) releases its own workplace figures twice a year which reflects all employers, including the public service. That’s different to the Workplace Gender Equality Agency figures, which are updated only once a year and encompass public firms with more than 100 employees – or around 40% of Australia’s workforce.

An ABS update provided in February shows the Financial and Insurance Services sector gap expanded by 1.4 percentage points to 23.6% over a year to be wider than construction (16.4%), mining (14.8%), manufacturing (12.6%) and all other industries except

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37

Committed to the cause: Hollard’s Jenny O’Neill

professional, scientific and technical services.

Two years ago, economist Conrad Liveris analysed company disclosures and ABS data and found there were more chief executive officers named Andrew leading ASX 200 companies than there were women, who made up 5.5% – the same percentage as bosses named Michael.

Seventy percent of chief executives were promoted internally and 27% studied engineering.

Mildly encouraging is the Workplace Gender Equality Agency’s comment that it’s watching to see if Financial Services and Insurance will be knocked from its dubious place at the top of the pay gap perch at its next update, as the gap has decreased year-on-year since 2013/14.

There have been large gains in the number of employers with targeted policies in place to support gender equality in succession planning, retention, talent identification and promotions.

“Current activities take time to work through the pipeline,” Ms Phelan says. “Insurers and brokers are doing a lot in that area but it will take some time to see that translating into opportunity.”

Major brokerage Marsh told Insurance News that in the Pacific region it has seen an increase in the representation of women in management roles and it regularly conducts remuneration analyses.

“We have made a global commitment to increasing the representation of women in leadership, and are actively working to identify and eliminate barriers to career progression,” a spokeswoman says.

“We recognise that a culture of inclusion also requires a focus on equity – getting to the root causes of why imbalances exist, and actively working to remove those barriers.”

Suncorp is working to embed its commitment to gender diversity across recruitment, flexible working options, development, remuneration and maintaining gender-balanced representation across leadership.

The giant insurance and banking group marked

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International Women’s Day with a thought leadership panel featuring Group Chairman Christine McLoughlin.

The discussion noted Australia’s poor ranking on the World Economic Forum’s Global Gender Gap Index, which ranks Australia at 44 out of 153 countries, down from 15 when the index began in 2006. New Zealand ranks sixth and Iceland first.

Suncorp Chief Executive Insurance Product & Portfolio Lisa Harrison has two daughters who are not yet teenagers, and tells Insurance News maternity leave improved her problem-solving and prioritisation skills.

“While I was away from the workplace I missed out on valuable professional experiences, but … my time management skills increased ten-fold after becoming a mum,” she says.

Ms Harrison advises both men and women to use the skills acquired through parenting as a strength in the workplace.

“Normalising flexibility will be a key enabler for organisations to bridge the gender gap and boost opportunities for women,” she says.

Ms Harrison, who started working in the insurance industry in the 1990s “when gender equality was not a topic of conversation”, says the “tone from the top has never been louder”.

“We have some incredible and respected leaders who are part of the Insurance Champions of Change group pushing for equality in their own companies and across the industry.”

At Aon Affinity, Managing Director Lisa Henderson says she has 50/50 gender representation on her leadership team. She says attracting top talent, particularly from the next generation coming through, requires a readiness by the executive team to be open to diversity of opinion.

“The insurance industry as a whole is still slightly unrepresented in C-Suite positions but…is waking up to the fact that they are missing some great talent unless they have a policy on increasing diversity,” she says.

A pool of talent must be built now from entry-level

Talking about equality: Suncorp’s Lisa Harrison

roles, Ms Henderson says, noting that the insurance industry is increasingly starting to do this when compared with other areas of financial services.

“Another way to increase diversity is to offer greater flexibility around key life events as women move through their careers”.

Trailblazer Sue Houghton, who has reached the topmost echelon of insurance as the President of ICA and as QBE’s incoming Australia Pacific Chief Executive, tells Insurance News she successfully navigated her decision to take a career break when her children were little, though it was challenging.

“I’ve worked part-time during my career and I know how hard it is along the way, so anything we can do in that space will be really, really helpful,” she told Insurance News.

“I’ve had very supportive leaders – most of whom have been men through my career – who’ve given me opportunities and have wanted to test how flexible working works – how we bring people back if they take some time out to have children.’”

The Insurance Council now has four female directors, and Ms Houghton says “we need to keep reviewing and work towards that (pay) parity”.

“We are starting to see a lot of female leaders. I’m not going to be the only female CEO of an insurance company, and that’s good to see. The more of us there are, the better for the industry.”

A larger cohort of female junior actuaries coming up the ranks “will start to change the debate,” Ms Houghton says, and she is heartened that more than half the people employed in the insurance industry are female.

“That gives us a great opportunity to have a pipeline of leaders in the future, and the more we can ‘role-model’ that and make sure that that diversity is right the way across our industry, we can accelerate the change,” she says. “It’s a very different world that we’re in today and a much more positive one.”

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She says that as the industry restructures after the coronavirus pandemic and transforms its technology, it is important to consider “how we’re thinking about women in that space as well. Flexible work practices are really important”.

“We’ve learned how to work remotely. We talked about that before, but I think we’ve understood it this year. I think that’s a positive for us all.

“I’ve seen young men with babies and toddlers doing meetings because maybe there is more sharing of some of those home tasks when everybody’s at home together.

“When you have got to do school drop-offs and pickups, not doing a commute as well can be very helpful.

I think that different way of working will be beneficial in the long term.”

At Zurich, an initiative to advertise its UK vacancies with the option of part-time, full-time, jobshare or flexible working arrangements resulted in nearly 25% more women applying for roles with the company.

Zurich monitors gender representation and has implemented “Equal Pay for Equivalent Work” analysis as part of a yearly remuneration review cycle.

“It helps to create a trusted, diverse and dynamic work environment,” Zurich says in a statement. “It’s simply the right thing to do.”

Ms O’Neill says a career in insurance is “a real privilege” and applauds Hollard’s “family ethos and authentic role-modelling by men in senior leadership positions”, which she says allows the company “to empower men and women alike to take career breaks, focus on their children, and generally achieve better a healthier and more rewarding work-life balance”.

“I’ve always known our industry, for all its setbacks, is a home in which to advance the careers of our most talented men and women,” Ms O’Neill says. “We are seeing the discourse around diversity and inclusion permeating slowly but surely throughout even the most 0 resistant of sectors.”

Women step up as ‘male bastions’ fall The all-female executive team at legal expense underwriting agency ARAG Services Australia has just added its first male with the recruitment of National Business Relationship Manager Brad Smith.

“It has just turned out that we’ve got a really nice all-female team at the moment – well, now plus Brad!,” Director Natasha Gale tells Insurance News. “I am not a broker, but he is, and having his expertise and industry knowledge is important as we grow. It’s good to have his thinking.”

Ms Gale feels “very lucky” that ARAG is supportive and encouraging of female representation across the global group. She began her journey in insurance more than two decades ago, moving to Allianz from Westpac when pregnant with her fourth child aged in her early 30s.

“I didn’t think that you could get any more masculine than working in a bank in the 1990s, but apparently you could, coming into the 2000s and working in insurance,” Ms Gale says. “It was very masculine, not a lot of women around at all for support or to mentor. It’s certainly been a journey. Back then it was a very different landscape to what it is now, thankfully.”

Ms Gale reminisces on men-only gyms, being told “you sound like my wife” when contributing to conversation, and hurdles such as leadership meetings called at 4.30pm with no regard for 6pm closing time at child day care.

“They’d say, ‘Haven’t you got anyone to do that?’

There was a lot of that. It’s all out in the open now, which is great. As men have had to pick up the slack with their own families and lives, they have this empathy now for women who have been doing it a long time without any assistance from the workplace.

“These taboos that were always surrounding women are coming out now and we are allowed to have them as part of our day.”

She says the gender imbalance in insurance stems back to wider societal trends in which women took the “softer roles” while men worked on the frontline, managing the P&L, interacted with clients and ran large sales teams.

“Traditionally it was this male bastion,” Ms Gale says.

“They had ‘girls’ that did the admin. The women never really progressed, and for those that did there was usually a personal cost. I think men held the view that women went off and had children.

“You had a demographic of people who traditionally grew up in that era.”

Women left insurance because the culture “didn’t align to them having part-time or flexible working hours”, she says.

Today, insurance is changing, “just not quickly enough,” and women have a seat at the table but in some places still not “the voice we want to have at the table”.

“If you want my ideas and my creativity and my passion, then I want to sit at your table,” Ms Gale says. “The insurance industry has this amazing, eclectic kaleidoscope of people and there’s so much opportunity there. It’s just a shame that the value of what women can contribute in terms of diversity of thought and action is only just being recognised.”

ARAG’s diverse team: Standing, from left, Sales Consultant Jared King, Chief Executive and Director Antoinette von Wendt, National Business Relationship Manager Brad Smith, and Marketing Manager Christina Veramendi. Seated, from left, General Manager and Director Natasha Gale, and Business Relationship Manager NSW Phoebe O’Reilly

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The rise and rise of underwriting agencies Demand for bespoke solutions for increasingly complex risks is growing. Combined with a hard market, that puts agencies in a great spot

By Bernice Han Upbeat: UAC Chairman Kurt Nilsen

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here’s a good reason why David McEwan, who runs a boutique broking firm in Sydney, turns to underwriting agencies just about every time he has clients in need of cover for a niche or difficult-to-place risk.

The agencies, he says, have the technical specialists and guidelines in place for arranging insurance contracts involving complex risks. Underwriting agencies typically specialise in niche fields of coverage, which Mr McEwan says gives them high levels of knowhow on what it takes to assess, price and insure such risks.

Not that his brokerage, Galvaniize Insurance, doesn’t work directly with mainstream insurance companies.

It’s just that when it comes to risks that do not fall under the so-called “vanilla” category, underwriting agencies have very often emerged as the go-to providers.

At the moment about half of his business is conducted with underwriting agencies, and he works only with those who have security arrangements from capacity providers that have a minimum A-plus rating. In insurance parlance, an A-plus rating is an indication of strong financial strength.

“A broker’s role is to help clients and solve problems that they may have,” Mr McEwan tells Insurance News.

“There is a massive need, especially with boutique brokers like myself, where we get hard-to-place business and clients need solutions. Often it’s underwriting agencies which provide those solutions for us.

“Underwriting agencies fill the gaps and voids in the

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market that traditional insurers can’t offer us. That’s why we will use the agencies, because they have the skills and personnel to deliver what we need for our clients.

“They can solve problems that some of the big insurers can’t or don’t cater for.”

There are other benefits that Mr McEwan sees in working with underwriting agencies. Like many other brokers, he likes the fact that the agencies are “very clear” if they are unable to take on a particular risk.

When agencies are not keen, they arrive at a decision quickly most of the time, giving brokers enough notice to look for other alternatives.

It is no mere coincidence that the profile of underwriting agencies in Australia, as in most industrialised economies, is so high right now. Once referred to by Insurance News as “the third force” in insurance, an increasingly complex world and a global hard market has enabled the agencies to showcase the value to brokers – and insurers.

The ingredient that makes them so useful in placing specialised risks is expertise. In many cases, only bespoke solutions can fulfil a client’s needs, and it’s often only an underwriting agency that has the experts who can understand what’s needed.

That’s why underwriting agencies are often the place for brokers to go in their quest for alternative remedies on risks ranging from cyber to marine cargo, professional liability, energy infrastructure and even

private art collections. It’s a huge, diverse and unusual list where standard tick-a-box policies won’t cut it.

At the same time, insurers in recent years have embraced the concept of outsourcing difficult or unusual risks to agencies. They have worked out the maths and concluded it is more cost-effective to provide agencies with capacity and binding authorities to take on these risks.

Mr McEwan likes the fact that insurers are backing the underwriting agency sector. “It is important to have a blend,” he says. “I hope to see underwriting agencies receive more support from insurers.”

The Underwriting Agencies Council (UAC), the peak body for the sector in Australia, says the volume of business taken on by its members has grown significantly over the past decade or so. The increase has been accompanied by a rise in its membership base. In 10 years UAC’s member list has grown from 60 to 130.

Last financial year UAC members posted total gross written premium in excess of $7.5 billion – about three times that of the $2.5 billion transacted in 2009, according to the council’s long-serving General Manager, William Legge.

He says the past 10 years have seen the broking fraternity tilt “dramatically” towards the underwriting agency sector.

“This in part was occasioned by the need for the insurance companies to really analyse their portfolio to emphasise which direction that they needed to head into in the face of declining investment returns and an increase in the incidence of both very large and also catastrophic claims,” Mr Legge tells Insurance News.

“These reviews led to the broking market turning more and more to the underwriting agencies for answers to their need for an alternate market for clients’ insurance requirements.”

Agencies, for their part, have done their homework, building their operations to thrive in response to growing demand for their services. Not only do they possess specialised understanding of their offerings, they are also aware of the pressures facing brokers and clients.

Crucially, agencies operate with an innovative fervour typically associated with entrepreneurs. This has proved to be an asset as they constantly tweak and improve their offerings in response to the constantly evolving risk landscape.

Many of the agencies that have opened in recent years are owned and operated by specialist underwriters who spent years honing their knowledge. The motivation and freedom to run a business that blends with their specialised skills are often what drives them.

Jill Murphy, a marine insurance specialist who learned the ropes at companies like Aon and AIG, started RedSky Insurance in Sydney with former NTI corporate development specialist Heather Roberts.

“What it came down to was we were able to control our own destiny in the prime part of our careers,” Ms Murphy says. “Heather and I decided that doing our own thing was a better way to go.”

Mr Legge says the major difference that underwriting agencies bring to the table compared to the insurers is that they have a “much smaller and less tenuous” reference structure.

“So they are able to consider, negotiate and by applying their experience and underwriting skills, make a decision relatively quickly,” he says.

“This speed of response is a major benefit to the broking market and has assisted in enhancing the good reputation of the underwriting agency market in the minds of brokers. That boosts brokers’ comfort zone when dealing with the delegated underwriting authority market.”

Mr Legge says the term “delegated underwriting authority holder” is the formal name for underwriting agencies operating in Australia and New Zealand. In the United Kingdom they are called managing general agents (MGAs). They also go by the moniker “Lloyd’s Coverholder” if they have been authorised by the London-based market to enter into insurance contracts under a binding authority.

Like their overseas peers, Australia’s underwriting agencies are now regarded as a major part of the insurance distribution network in Australia. They hold a contract, or binder, from an insurance company that provides the security for an insured risk. They seek for, quote for and then bind and issue documentation on behalf of their insurance capacity providers. Many of these agencies deal only with brokers.

“We can also sometimes handle and settle claims on behalf of the insurance company,” Mr Legge says. “The binder sets out very fully which products and markets the agency may deal in and usually sets out a pricing template.

“In effect, we stand in the place of the insurance company.”

Lloyd’s is a key player in the Australian underwriting agency market. It’s the biggest capital provider to local underwriting agencies, according to Chris Mackinnon, its Regional Head of Australia and New Zealand.

In 2019 the venerable market had 147 coverholders writing $1.68 billion of business. This is a marked rise from 2006, when there were just 62 coverholders with portfolios valued at slightly over $350 million.

Mr Mackinnon says the underwriting agencies play a key role in providing new and emerging coverage solutions, being nimble and highly specialised in their respective fields.

And the current hard market conditions have underscored the critical role of agencies.

“The inherent value of an underwriting agency really

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comes to the fore in a hard market,” Mr Mackinnon tells Insurance News. “When there is limited capacity in the market, it’s not just the underwriting agencies that are affected.

“The general insurance industry is impacted as well, but the ability of the underwriting agencies to be nimble and adapt products to create the best possible solutions with what limited capacity is available is what separates them.”

A new report from AM Best says the agencies have demonstrated their worth to the insurance distribution model. They have long been an important part of the industry’s vast ecosystem, helping insurers identify risks that fit their appetite and potentially expanding their product offerings.

The ratings agency says the growth of delegated

Providing capacity: Lloyd’s local representative Chris Mackinnon

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underwriting authorities has been fuelled by private investments, the accelerated growth of start-ups and operational expansions.

Persistent competitive pressures have made it difficult for insurance companies to grow premiums organically, which is why insurers value the specialty product and the geographic expertise of delegated underwriting authorities.

By tying up with delegated intermediaries, insurers get access to the booming specialist risks market while at the same time enjoying potential savings, because they don’t have to set up in-house operations to underwrite the desired business.

“Many factors that are driving growth in the MGA market are global in nature,” AM Best Senior Director Greg Williams tells Insurance News. “Insurance has become competitive and as insurers are looking to achieve profitable growth, MGAs provide an avenue to grow.

“For example, MGAs have a local presence and have spent a lot of human capital building relationships with customers.

“This local knowledge makes them a very desirable partner for insurers looking for growth in an economy whose growth has been severely exacerbated by COVID-19.”

AM Best says the difficult economic environment has raised the profile of underwriting agencies with brokers and insurance carriers globally.

The Australian market has seen a number of significant deals for underwriting agencies, a sign of the long-term growth potential offered by the intermediary segment. In December last year listed brokerage AUB Group acquired 360 Underwriting Solutions.

And a few years earlier in 2016, XL Catlin – which was taken over in 2018 by French insurer Axa – acquired Brooklyn Underwriting.

Even QBE wants a piece of the action. Last October its investment arm, QBE Ventures, partnered with workplace inspection company SafetyCulture to set up Mitti, a tech-focused underwriting agency for small and medium-sized businesses.

Kurt Nilsen, who set up Lion Underwriting in 2015 and is Chairman of UAC, is fairly upbeat on what the future holds for underwriting agencies. He says the agencies have more than proved that they are capable distribution partners, particularly in the current hard market conditions.

“In a hard market there’s all the more need for expertise, experience and the ability to make decisions,” he says. “We can adapt quickly, being more nimble in our set-up than insurers. “We hold the pen and we make sure we are protecting our capacity providers.

“Agencies thrive because we are able to distribute capacity for the insurers a lot easier and a lot quicker.

Plus we’re close to brokers who provide the opportu0 nities from the client.”

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Motoring on more strongly than ever Specialise in one thing and do it really well.

That’s exactly what Fleetsure has been doing since it started up some two decades ago.

The underwriting agency offers only solutions for commercial, heavy and mixed motor vehicle fleets. These include utes, vans, rigid trucks, prime movers, trailers and mobile plant, for example.

While other agencies have diversified, Fleetsure has instead decided to stick to its knitting, focusing on just one line. The strategy has paid off for the agency, which is recognised by its clients as one of the best in the business.

“Fleetsure has been operating for 20 years and specialises in commercial motor vehicle fleets,” General Manager Steven Hamilton tells Insurance News.

“Being a single-line agency, we have developed an intimate knowledge of our market space which allows us to continue to grow successfully.”

He says that over the years many other agencies have come and gone because they often “had a quick grab” for premium without fully understanding and appreciating that client service with acceptable underwriting results are of prime importance.

Fleetsure has invested in strengthening its all-round service offerings for clients.

For example, it earned recognition for the way it supported clients with their claims applications. The agency last year won the Sue Ronai Memorial Award for Excellence in Claims. It was the second year in a row that Fleetsure has taken the prize.

The award, presented by Austbrokers members in Victoria and Tasmania, recognises overall claims service.

“The motor vehicle space we participate in is an area of very high claims frequency and on a daily basis we assist our clients in what is a streamlined repair accident process,” Mr Hamilton says. “We also have more complex losses and repairs.

“Those – where our repair networks have ready access to spare parts and preferred service levels – allow for clients to achieve timely repair completion of the type that would not otherwise be available.

“This is particularly so in the COVID-19 environment where the supply chain has seen many other insurers’ clients waiting weeks and weeks for vehicles to be repaired.”

The motor fleet line is not the easiest

Specialist operator: Fleetsure General Manager Steven Hamilton

of portfolios to manage, but Fleetsure says having a strong partnership with QBE, its long-standing capacity provider, has worked well for the business.

“Many other agencies have been seen as markets of last resort offering inferior products, whereas our relationship with QBE and product offering, is best of breed,” Mr Hamilton says.

Sky’s the limit for marine agency Jill Murphy and Heather Roberts were under no illusions that setting up an underwriting agency was always going to be challenging, but they were ready for whatever came their way. They were game to take on new challenges and put in the hard yards to make their underwriting agency a success.

And the fruits of their labour have paid off. Some 12 months and a pandemic later, RedSky Insurance has found its niche and is thriving against the odds.

The founders stepped out of their comfort zones to build the dream of a customer-focused and nimble marine underwriting agency in late 2019.

“What it came down to was we were able to control our own destiny in the prime part of our careers. Heather and I decided that doing our own thing was a better way to go,” Ms Murphy tells Insurance News.

They have more than 50 years’ experience in the insurance industry between them, holding senior positions with leading broking houses and insurers in Australia and overseas. But it was Ms Murphy’s last role at Agile Underwriting that gave them the catalyst to strike out on their own.

With backing from Envest, an Australian insurance-focused private investment firm, the pair purchased the marine portfolio that Ms Murphy had built at Agile in an

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off-market transaction in December 2019.

That Envest came on board from the start was a “vote of confidence” in their vision for the business, they said.

“Starting an agency is hard work but the financial and advisory support from Envest combined with our collective knowledge and experience, passion for service; our relationships and networks, and the current state of the market has ultimately worked in our favour,” Ms Murphy says.

“I’m really proud of what we have achieved in just over 12 months. We only launched on December 2 2019 and three months later we had to navigate our business through a pandemic.”

The pandemic required some recalibration of their business plan but according to Ms Roberts, the team managed working remotely very well.

“You just have to get on with it,” Ms Roberts says. “Staying in touch and communicating has been important especially for a start-up. But as Jill says, it’s the passion that really kept us going. And we learned quickly how positive and adaptable we can be as an underwriting agency.”

Ms Murphy, who is based in her native New Zealand, says Zoom became the agency’s “best friend”. And despite being unable to see her team for more than a year or meet

Thriving: RedSky’s Jill Murphy, left, and Heather Roberts

with Australian clients, the agency has continued to grow and establish its presence nationally and in New Zealand. RedSky is also writing marine business in the Pacific islands and recently moved into some parts of Asia.

“I think our customers like that we are niche, we’re passionate and our more than 50 years’ of experience come through. We know what we’re talking about,” Ms Murphy says.

“The other milestone was becoming a coverholder at Lloyd’s. That was a big confidence boost. It took us a short six-month process to achieve coverholder status and in the middle of a pandemic.”

Exceeding expectations: from left, Mitti’s Stephanie MacRae, Danial Cummins and Megan Duckworth

Mitti makes its mark The next generation is ready to make its mark in the insurance industry. Or in the case of the trio who manage Mitti, the mark has been made in the short time since they launched the underwriting agency in October last year.

Backed by QBE and workplace inspection company SafetyCulture, it took the agency founded by Danial Cummins, Megan Duckworth and Stephanie MacRae – who are in their mid-20s to early 30s – just six months to achieve some $2 million in gross written premium for business insurance policies. That was well ahead of the targets that had been set for the business.

“It caught us a little off guard, to be honest,” says Mr Cummins, the agency’s General Manager.

“I’m really proud that three young insurance professionals were able to start this underwriting agency, and to do it at the pace and speed that we have been able to do has been phenomenal,” he tells Insurance News.

“We’re three young insurance professionals trying to disrupt the market and trying to add value to the customer – all in the middle of a pandemic and in a hard market.

“It couldn’t get any harder, but I think if you look at all successful businesses over time, they tend to have come through difficult periods. A lot of successful businesses start during

difficult times or they start by disrupting the market when the market is hard.”

The goal right at the start for Mitti, which is short for “mitigate”, was clear: to reimagine the relationship between risk and insurance and disrupt the market using SafetyCulturedeveloped technology and QBE security.

Mitti bills itself as a technology-first insurance company, meaning it will prioritise and invest in technology to benefit customers. The aim is to ensure clients get maximum benefit when they take up a small business insurance package from the agency.

What Mr Cummins sees setting the agency apart is that its clients will be provided with free risk management support in the form of iAuditor, an inspection app created

by Townsville-based SafetyCulture. The app is used by 26,000 businesses worldwide to merge risk mitigation tech and insurance.

An example: A plumber in Western Australia, who was struggling to get insurance cover within his budget, was able to secure cover from Mitti after using the risk management tool to reduce the potential claims exposure facing his business.

“We want to break the mould of what an insurance company is,” Ms Duckworth, who is Head of Underwriting and Compliance, tells Insurance News. “The feedback we are getting from the market and our customers

is really rewarding.”

Ms MacRae, the other Mitti founder, is Head of Product and Finance.

QBE Ventures, the investment arm of QBE, says it is pleased with how Mitti is doing. The insurer is joint owner of the agency with SafetyCulture.

“Mitti is performing strongly and ahead of our initial expectations,” QBE Ventures Chief Executive James Orchard says.

“It’s a great example of what we’re trying to achieve within QBE Ventures, which is to work with innovative technology companies and leverage our own market expertise to ultimately reinvent what insurance looks like.”

Doors open at The Barn

Ideas man: David Porteous

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In February 2019 the doors to The Barn Underwriting Agency opened. It was the brainchild of David Porteous, who found it simply too hard to just walk away from the industry.

He had previously been with Brooklyn Underwriting, spending some seven years with the agency including nearly five as director.

The little break he took in January 2018 after leaving the business – which was acquired by XL Catlin in 2016 – was where he realised his passion for insurance was still burning brightly.

“I just decided that what I really loved doing was creating ideas and finding insurance capital and brokers to get behind the idea,” Mr Porteous tells Insurance News.

“When that happens, it’s a genuine thrill.

“I decided I’d like to do that under a new vehicle – like a fresh start. I was at a point in my life where I wanted to take that challenge.

“From a philosophical perspective, life is about taking risks. If you never take a risk in life, then you are never going to know what you are capable of.”

More than a year after its doors opened, Sydney-based The Barn, a Lloyd’s coverholder, has established itself as a specialty

commercial insurance underwriter in the Australian market. It offers solutions for specialty property, general liability and loss prevention.

Making a difference is what motivates Mr Porteous and his team every day.

“We’ve got an outcomes-focused approach, so it’s delivering genuine outcomes for our clients,” he says. “We’re completely independent and we’re here for the long-term.”

When the agency started, the insurance cycle was already in a hardening phase. The market conditions have since become even tighter. It isn’t exactly ideal for a new entrant looking to have a crack at the market, but Mr Porteous has a different take.

“We entered at a good time as an agency,” Mr Porteous said. “There’s a pricing element to the hard market, and there is also a capacity element.

“Almost every business needs insurance and they need the additional capacity that we were bringing. They needed to protect their assets.

“At the moment we’ve got appetite and capital for specialty risks that a lot of insurers in the market are now walking away from. They are the segments in the market that we are seeking to add value.”

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The hybrid life The COVID-enforced shift to working from home may have forever changed the way we do business, but major insurance companies still see a role for the office

A

mong the many bold predictions and prognostications voiced during the darkest days of the coronavirus crisis, one of the most prevalent was the “death of the office”.

Remote work was working well, tilting the work-life balance for employees and giving employers a chance to cut their overheads; the home office and Zoom meetings were the new normal, or so the narrative went.

But as the vaccines roll out and we take our first tentative steps towards a post-pandemic, post-lockdown world, it seems those reports (or their headlines, anyway) were greatly exaggerated.

According to some of Australia’s leading insurance industry players, the office still has a key role to play.

And if there is a buzzword for the new era, it is not so much “home” as “hybrid” – aiming to combine the best elements of remote and office-based working.

“As teams move back [to the office], we’re embracing a hybrid working environment, blending both office and remote working,” a Suncorp spokeswoman told Insurance News.

“We know there’s a strong link between flexibility and positive wellbeing and our hybrid model will continue to support this.”

And as major broker Marsh notes, this is an

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evolution in working practices that in many cases predates the pandemic.

“We have a flexible hybrid model, allowing colleagues to combine WFH [work from home] and in-office days,” a spokeswoman said.

“How this works varies based on needs of individual roles and the client relationships they support … we had flexible working arrangements in place before COVID, so expect this to continue.”

Suncorp has been bringing staff back to its offices since September last year “through a phased approach that has prioritised the health and safety of our people and taken into consideration the government health advice”.

In doing so it has implemented “a range of hygiene and safety measures to allow for social distancing, and supported scattered start and finish times to assist with lift [capacity] limits. Each employee was asked to complete a COVID-safe workplace checklist, and our desk booking system helps to manage density across our footprint.”

Suncorp’s vision for the office is as “the home base for collaboration, brainstorming and problem solving”.

The insurer is “encouraging people to plan out their week and think about what tasks are best completed at

Keeping connected: Suncorp says its office at Shelley Street in Sydney maintains traditional workstations and is designed to “foster social connections, innovation and collaboration”

home, and where they’ll benefit from the collaboration and innovation that can come from informal, face-toface connections”.

Over at IAG, staged trial returns to offices have been in progress since October last year, but not before a shake-up of the office space, including providing personal protection equipment and hand sanitiser, COVIDsafe organisation of the workplace, mandatory desk booking prior to entering, enhanced cleaning and signage promoting distancing, and other safety practices.

“Since the start of the trials, 72% of our Australiabased employees have returned to their work site at least once,” a spokesman told Insurance News.

“From February, our teams started to review how and where they will work in 2021. We know not all teams are the same, and we recognise the need for different work models that involve some people being based on site, others from home, and the remainder a hybrid of both.”

Like Marsh, IAG says its approach to flexible working arrangements pre-dates the pandemic.

“To understand the best way forward in terms of working arrangements, we are adopting a ‘consult, test and learn’ approach to our flexible working models until June 30. During this time, we will explore what works

and what doesn’t in terms of long-term impact on customer experience, productivity, culture and employee engagement.

“Following this, we will consider and discuss with our people any proposed ongoing changes to working arrangements.”

Marsh says its staff are returning in line with the various state government guidelines, with “some offices close to full occupancy and others that could be at 20% on a particular day”.

Most workers have been back in the office this year, with the broker’s current guidance being for two days in the office a week, “but this varies based on individual circumstances”.

“We have flexibility in start and finish times to accommodate off-peak travel schedules [and] we have made changes to our offices to allow for social distancing and limitations on the number of people in particular spaces, in line with government guidance,” its spokeswoman says.

“Since March last year we have significantly scaled up the cleaning in our offices and have protocols in place for guest check-in.”

The broker believes “office working is integral to certain forms of collaboration. Our offices are our hubs

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“We know from speaking with and surveying our colleagues that they appreciated the flexibility of managing work and home in a way they needed, particularly with different responsibilities that came from COVID.”

for teamwork and innovation and our business thrives when we are together.

“Our hybrid working model allows for flexibility by combining working from home with office-based collaboration and working.”

Two of the leading industry associations are also getting back to the office.

The Insurance Council of Australia (ICA) says it is striving to find “the balance between working from the office and working from home; supporting the worklife integration of our staff and mitigating risks in either environment. ICA surveyed its staff in late 2020 to understand their work environment preferences and any related concerns.”

At time of writing, ICA staff work three days in the office and two days from home if they want, which a spokeswoman says “suits the majority of staff. For those staff it doesn’t suit, we have discussed options.

“ICA remains flexible of extenuating circumstances potentially affecting our staff, such as the Northern Beaches Christmas COVID outbreak; our team seamlessly transitioned back to full remote working for the majority of the staff, and again some staff worked from home during the recent severe weather event [the March floods in NSW].”

ICA says it remains difficult to provide a definitive structure for its future work environment, but “it will involve remaining mindful of the circumstances and challenges faced by all our staff and how we can best support them and our members”.

At the National Insurance Brokers Association (NIBA), staff are back in the office for three to four

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days a week.

“The team has been impressively productive in the past 12 months, with many significant achievements, and we will continue to review the situation as circumstances develop,” Chief Executive Dallas Booth tells Insurance News.

As Marsh’s spokeswoman notes: “You can’t go through an experience like COVID and revert to exactly as you were.”

Change has been thrust upon us. But if there can be an upside to a global catastrophe, it may be as the catalyst for positive shifts – for staff and businesses alike.

“We know from speaking with and surveying our colleagues that they appreciated the flexibility of managing work and home in a way they needed, particularly with different responsibilities that came from COVID,” Marsh says. “We have proven many things, including the ability to be innovative and find ways to meet client needs in differing circumstances. It’s also shown when interactions can help with relationships and outcomes.”

IAG’s spokeswoman tells Insurance News the pandemic has “taught us that working from home can be both productive and beneficial” in finding a healthy work-life balance.

“However, we continue to see the value in communication and collaboration that is done in person, as well as the importance of face-to-face meetings and events for general employee camaraderie.

“Our task now is to harness what we learned in the past year and apply it constructively to benefit our 0 people and our business.”

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‘Tomorrow’s oil’ is a new insurance opportunity Green hydrogen is the new energy market buzzword, and Australia is at the forefront

By Stefan Feldmann, Managing Director, HDI Global SE Australia H2-ready: HDI’s Stefan Feldmann

M

any analysts view hydrogen as a great opportunity for Australia. The diverse use of hydrogen – in the generation of heat and electricity, as a chemical raw material for industrial companies as well as in the transport industry to power vehicles – can create numerous growth markets.

Hydrogen is intricately linked to energy, and as an energy powerhouse Australia can offer the full spectrum: in addition to fossil fuels there is solar, wind, tidal, wave and geothermal energy.

Hydrogen fits perfectly into this mix, enabling Australia to share its surplus of energy with the rest of the world.

Hydrogen (chemical element H2) is the most common chemical in the universe. It can be produced as a gas or liquid, or made part of other materials, and has many uses such as fuel for transport or heating, a way to store electricity, or a raw material in industrial processes.

The Federal Government has identified hydrogen as one of the pillars of its future energy and emissions policy. In the so-called roadmap published last September, the Government painted hydrogen as a priority area and earmarked more than $70 million for the construction of a hydrogen export hub.

As the next step, a network of hydrogen

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technology clusters will be set up in all states and territories. Around $1.85 million will flow into these 13 clusters – a small investment given the growth a Deloitte report from 2019 promised the country. It envisages an increase in GDP by up to $26 billion and up to 16,900 new jobs.

In addition to economic growth, Canberra hopes that hydrogen, production of which is expected to cost less than $2 per kilogram by 2030, could help Australia reduce its emissions. This new energy source could also alleviate the “growing pain” whole regions will feel when the global market enforces the switch from fossil fuels to renewable energies.

That’s why it is maybe no wonder that the planned hydrogen clusters overlap with the previous centres for coal and gas production.

These lend themselves to the new technology, as they already have the right infrastructure in place as well as the necessary energy supply and engineering knowledge.

The development of these new clusters will also present an opportunity for energy insurers as electrolysis plants and pipelines are constructed and later operated for green hydrogen production and transportation. All these new structures, as well as transport methods, will need insurance.

“Natural catastrophe assessment will be at the forefront of our minds when

underwriting, as there will be an accumulation present in regions of Australia where hydrogen projects are likely to be developed,” says Jane Ravi, the Underwriting Manager, Power & Energy at HDI Global SE in Australia.

“With much of heavy industry playing a vital role in the transition of Australia’s energy mix, we will naturally become vigilant in our assessment while being able to find solutions to support in paving the way into the future.”

Mark Mackay, the Head of Energy at HDI Global SE Singapore, says HDI will approach this type of risk in a similar way it handles liquefied natural gas (LNG) risks. “From an underwriting perspective, we have an appetite for this type of risk.”

HDI also supports the development of other hydrogen processes such as biomass gasification and electrolysis of water, as part of its power generation portfolio.

Hydrogen is transported in bulk liquid form similar to LNG. At present the main mode of transport is cryogenic tankers.

Japan launched the world’s first liquified hydrogen carrier, Suiso Frontier, in 2019 with the intent to start carrying hydrogen – for the time being produced from Australian coal – to Japan. The test vessel is designed to transport liquefied hydrogen at 1/800 of its original gasstate volume, cooled to -253°C, which shows that the technology is in many ways similar

to the carriage of LNG. There are, of course, several risks involved that underwriters need to take into account: Fire, explosion and spills could affect production facilities and transport methods as well as other existing structures that fall out of scope of the contract works and are deemed third party.

Another risk that needs to be weighed up is the inevitable insurance cover for workers’ injuries. “Risk mitigation measures are well described in the literature and with a good risk management program, safe handling hydrogen is achievable,” says HDI Global SE Australia Risk Engineering Manager, Asia Pacific Philipp Glanz. “Our risk engineers are well trained in assisting our clients in implementing adequate risk mitigation measures.”

Risk might also be reduced by the fact that many clusters will be in remote areas which, from an insurance perspective, is a positive.

How quickly Australia can put its hydrogen plans into reality is harder to define. A recently published report by ratings agency S&P said building a “hydrogen chain” requiring pipelines, the retrofitting of ports and specialised ships could take a long time – perhaps decades.

Despite that, many parties are already lining up. On the other side of the world in Berlin, the German Government has pinned its energy hopes on hydrogen. Its Federal Ministry of Education and Research has high expectations for the transition into a greener energy future.

“Green hydrogen can be produced in regions with lots of wind, sun and water and from there exported to meet the world’s energy needs,” the ministry writes on its website.

In September last year Germany and Australia agreed on a feasibility study on a supply chain for green hydrogen. The project, called HySupply, was launched in December and is scheduled to run for two years.

In addition to Germany, South Korea and Japan are also interested in hydrogen from Australia. Both countries have set themselves net-zero emissions targets by 2050 and have reached out to Australia to help achieve these.

For example, South Korean steel manufacturer Posco and the Japanese companies Kawasaki Heavy Industries and Iwatani have already forged co-operation deals with Australian iron ore mining giant Fortescue 0 to produce hydrogen.

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Advising on resilience: Zurich launches new service A new business unit, Zurich Resilience Solutions, has been added to the insurer’s growing stable of specialty advisory teams which spans Climate Change Resilience Services, Zurich Cyber Security Services and Supply Chain Risk Management Services.

The risk services initiative is led locally by Melbourne-based Zurich veteran Mervyn Rea, while former Cover-More Chief Executive Hanno Mijer takes the global role, based in Switzerland.

The new unit meets growing demand from businesses for help managing evolving risks more effectively via prevention and mitigation to improve their risk profile.

It complements traditional insurance products with the latest technology and tools, leveraging extensive data and analytics.

Mr Rea, who has more than 30 years’ experience with the insurer, says Zurich Resilience Solutions “is an exciting development which allows us to expand our offering beyond Zurich’s insurance customers”.

“We are already an established, leading provider of risk prevention strategies for our underwriters, brokers and customers and Zurich’s risk engineering team has a strong track record in our local market,” he says.

The advisory unit taps into Zurich’s expertise

gathered over nearly 150 years, and its large workforce which includes more than 750 risk engineers, accessing rich pools of data.

It complements the “Zurich Risk Advisor” self-service app, an award-winning digital tool designed to give users insights across their risk value chain via self-assessment.

The platform allows reports to be shared with key risk stakeholders, and users can access recommended practices and industry benchmarks and capture and document their outcomes.

Remote collaboration features help businesses to carry out virtual site visits through their mobile devices for risks such as cyber, fire and employer liability.

Under the “What If” Risk Factors section, the tool reveals how different risk improvement actions impact overall risk gradings and how to access best-practice risk insights.

“Businesses today face risks that are increasingly interconnected and complex, and managing these risks is complicated by a lack of relevant and reliable data, tools and insights,” Zurich says.

The insurer says it will further invest in expertise, proprietary services and external collaborations to provide customers with differentiated ways to help 0 mitigate current and future risks.

Accelerating solutions: ShieldCover revs up a gear with motor cover Mechanics, panel beaters, boat or caravan dealerships and car detailers can now benefit from ShieldCover’s creative liability solutions after the Brisbane-based underwriting agency added Motor Trades cover to its portfolio.

A division of East West Insurance Brokers, ShieldCover specialises in blue collar, hospitality, property owners and small retailers. It was previously known as Ryno Underwriting before rebranding last October.

ShieldCover’s general and product liability offer and accident and sickness cover now extends to motor trade professionals after Underwriting Manager Suzie O’Hagan noticed a “distinct lack of competition” in the market and decided to offer brokers and their clients an alternative solution.

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“We already have so much expertise in the blue collar space so it just made sense for us to develop this specific liability offering,” she says.

Motor Trades Liability is available on ShieldCover’s online quoting platform and also includes auto dismantlers and electricians, automotive parts businesses, motor auction houses, motorcycle and caravan dealerships, tow truck operators and tyre fitting businesses.

“Many of our brokers have clients in the Motor Trades industry. That’s why we have hustled hard to offer you tailored liability cover for various Motor Trades occupations,” ShieldCover says.

“We are determined to help you keep your clients appropriately protected in the high-risk 0 environment.”

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APIG Victorian Chapter reunites The Australasian Professional Indemnity Group (APIG) Victorian Chapter held its first face-to-face social event for 18 months, and it was a sell-out.

More than 60 people attended the Riverland Bar in Melbourne last month.

“It was fantastic to welcome APIG’s members and friends back to the fold in a physical sense and I think this demonstrates the importance the industry places on APIG and other industry organisations as a platform

for networking and catching up with colleagues and friends,” Victorian President Edward O’Brien said.

“We are looking forward to hosting more ‘in person’ events in the upcoming months, with a session in insolvency likely to be next up, followed by a ‘state of the London market’ session that will be delivered nationally by webinar.”

Mr O’Brien, Partner at Wotton + Kearney, took over from outgoing president Hubert Wajszel of Barry.

0 Nilsson in December.

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Australian Olympian entertains at CQIB lunch

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An outstanding turnout of 340 attended the Council of Queensland Insurance Brokers (CQIB) annual industry lunch on the first Friday in March.

The lunch, sponsored by Campbell Construction, raised more than $12,000 for Wesley Mission Queensland and children’s hospice Hummingbird House.

Held at Brisbane’s Hilton Hotel, the brokers were treated to a Q&A session with Olympic swimmer Libby Trickett, who reflected on winning gold medals as well as the challenges of life after sport.

CQIB, which represents 54 Queensland-based firms, also recognised the fundraising efforts of Bree Hinchy from Rivers Insurance Brokers by contributing to her upcoming trek in Tasmania. 0

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YIPs Queensland gets social YIPs Queensland held a “kick off” event on a sticky night at Covent Garden gin bar and restaurant in Brisbane’s west end in February.

There were 92 attendees and after a day of rain the weather held for the festivities, which were enjoyed by regular YIPs attendees and newcomers alike.

“It was really great to see brand new faces and people from companies who have not previously attended YIPs events,” Marsh’s Kate Martin, who is President of the YIPs Queensland 0 committee, said.

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Our new weekly podcast, INsight, allows Insurance News to give more information, background and in-depth commentary on the issues that are shaping the industry.

Subscribe now on iTunes, Spotify and all good podcast channels.

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Upbeat mood reigns at UAC Sydney expo The Underwriting Agencies Council (UAC) expo in Sydney attracted about 550 brokers and 74 exhibitors.

Brokers turned up for the March 12 event in two sessions, in accordance with COVID social distancing safety guidelines.

UAC General Manager William Legge says feedback from attendees indicates the peak body’s members are writing and booking a “very acceptable” amount of business despite a challenging economic climate because of the pandemic.

“It seems that the restraints of the pandemic actually increased peoples’ awareness of the exposure that follows and they appeared to be very focused on obtaining insurance cover,” he tells Insurance News.

Ahead of the expo opening, Mr Legge introduced the organisation’s new human resources partner, Natasha Hawker from personnel and recruitment consultant Employee Matters.

And there were three winners from the expo’s Sedgwick-sponsored lucky door prize. Daniel Fogarty of insurtech Evari went home with a $200 gift card, Daniel Robey of Bedrock Insurance Services $100, and Tracy Scarella of McLardy 0 McShane $500.

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maglog >

By Thomas Mortlock & Andrew Gissing at Risk Frontiers

Has the 100-year flood had its day?

T

he recent flood event impacting the mid-north coast of New South Wales has led some to calling it a “100-year” or “generational” flood event.

Describing extreme floods in this way – as the probability of an event happening in a given timeframe – might be common but it is also misleading. It leaves us asking the question: why are we getting so many 100year events?

The 100-year hazard event is often used as a planning and structural design benchmark for a range of natural perils, most notably for inland and coastal flooding and erosion.

It is a term that provides a sense of security to those behind a levee or a seawall, as it implies an unlikely occurrence of this type of event, or bigger, in our lifetime.

It also suggests that if we have been unfortunate enough to experience this type of event, then we won’t be due another for at least the next 100 years.

Both of these concepts are fundamentally wrong and lead to a malaise in risk awareness and preparedness. More needs to be done to better communicate these risks to stakeholders, and perhaps start talking about these measures through a different lens.

Basing land-use planning policies on the probability of an event alone ignores the possible consequences of the risk. Instead, policies should consider both the probability and consequence of a risk, expressed using annual exceedance probabilities (AEP) of specified hazard levels.

The chance of a 100-year flood is not 100% in 100 years The term “one-in-100-years” implies a degree of certainty that we can expect an event of this magnitude, or larger, to occur every 100 years. By this reasoning, the occurrence probability of the 100 return period (RP) event over a 100-year period should

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be close to 100%. But this is not the case.

The real probability of experiencing the 100-year flood in any given 100-year period is roughly 63% when modelled using a Poisson or binomial distribution.

[Editor’s note: A Poisson distribution is a statistical measure that shows how many times an event is likely to occur within a specified period of time. Binomial distribution, put simply, is the probability of a success or failure outcome in an experiment or survey that is repeated multiple times.]

Indeed, there may be some 100-year periods in which we experience no one-in-100 years floods, and others where multiple floods occur that exceed the nominal 100year magnitude. This is because the climate system is irregular.

The occurrence of a 100-year flood event in one 100-year period does not lessen or preclude the probability of a 100-year flood or greater occurring in the subsequent 100year period.

A shifting baseline On a wholly statistical basis, there is a range of possibilities of how many times we may expect to experience the 100-year event in 100 years. However, this assumes a static (or stochastic) baseline. Unfortunately, our relatively short observational record of natural hazard events, combined with climate variability, means the climate baseline isn’t stationary.

For example, more cyclones and floods are generally expected during the La Nina phases of El Nino-Southern Oscillation and cold phases of the Pacific Decadal Oscillation.

Climate variability basically means we can expect extreme weather events to be more clustered in time than with stochastic variability alone.

This is important for natural hazard risk management. The impact on a catchment of two flood events in quick succession, or the response of a beach to two closely-spaced

storm events, is much larger than if the events are considered independently as the antecedent conditions change.

Drawing a line in the sand (or mud) The sense of security around the term “1-in-100-year event” is compounded by the inferred certainty of a 100-year flood map, or coastal erosion zone.

The (rather large) uncertainties inherent in flood and coastal modelling are not adequately communicated by drawing static hazard extents.

In flood modelling, some of the largest uncertainties relate to the underlying digital terrain data. While resolutions are improving, the vertical error can still be on the order of metres. This means that even if every other element of the flood model is accurate, on a low-lying floodplain the mapped extents of that flood may be wrong by up to hundreds of metres.

By drawing a line in the sand (or mud) for a flood of a given probability level, we are implying a high degree of certainty that does not exist.

As the saying goes, all models are wrong, but some are useful.

There is now a welcome move in both flood and coastal risk management towards a representation of the hazard based more on probability than a fixed determination.

In this way, for example, every area within a flood plain is assigned a probability of exceeding a certain flood depth within a given range of uncertainty, which more effectively gets the message across that residual risk exists outside of the planning benchmark. 0 Thomas Mortlock is Senior Risk Scientist and Andrew Gissing is GM at Sydney-based catastrophe modeller Risk Frontiers. A longer version of this article can be found at https://riskfrontiers.com/ has-the-hundred-year-flood-had-its-day/

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1ST IN 23 CATEGORIES 2020 NIBA Broker Market Survey

OVERALL

BEST BROKER EXPERIENCE

Is a trusted partner* Underwriting overall satisfaction Is a brand that delivers on promises

Overall satisfaction*

Overall opinion versus other insurers*

Responsiveness

Work with me to find a solution for my client

Understand underwriting for my client’s needs

Have expert knowledge in specific product areas

Are comfortable having complex or challenging conversations

Communicate when underwriting appetite has changed

Takes ownership for resolving my business issues and follows through on commitment

Willingness to negotiate for the benefit of my client

Takes the time to learn about my business and client needs

Strong product knowledge and technical expertise

ACCOUNT MANAGEMENT

Account management overall satisfaction

Responsiveness to my needs and the needs of my clients

PRODUCT EXPERIENCE

Underwriting flexibility

Ability to tailor a policy to suit my client’s needs

Product coverage and wording that suits the needs of my client

Policy conditions and cover

CLAIMS EXPERIENCE

BRAND EXPERIENCE

Staff are knowledgeable about what the product covers in the event of a claim

Develops and maintains strong relationships

* Liberty Specialty Markets shares the first place ranking with other insurers in these categories.

The independent NIBA Broker Market Survey was conducted from July to August 2020 and compared 18 general insurers in Australia.

Liberty Specialty Markets is a trading name of Liberty Mutual Insurance Company, Australia Branch (ABN 61 086 083 605) incorporated in Massachusetts, USA (the liability of members is limited).