JUN/JUL 2011 - Insurance News (the magazine)

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CONTESTABLE BROKING PLATFORMS Efficiency leap or slippery slope?

RATES TURNING What happens next?

BROKING IN A HARD MARKET Tips from survivors of the last one

SHAKING ALL OVER How two NZ insurers ran out of money

The global educator ANZIIF’s Joan Fitzpatrick on 21st century industry training June/July 2011

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Introducing a brand new name for a company that’s been resolving claims for decades.

ans.

The new name for MYI Freem

As part of our forward thinking philosophy and commitment to ongoing excellence, Cerno (pronounced ‘sir-no’) is the new name for MYI Freemans.

Cerno is Latin for ‘resolve and determine’ and as this is the promise we make and keep everyday, we’ve made it our name.

With over 500 professionals nation-wide, we are fully committed to the continued position of quality, streamlined and timely services, all tailored for Australasian conditions and our clients.

Our name may be brand new, yet our reputation for being balanced, fair and utterly professional remains exactly the same. www.cerno.co

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Contents 6 Newsmakers » 10 Dangers ahead as rates turn » Reinsurers are looking again at the local market’s risk profile, and insurers are being more selective about the business they write.

14 Broking in a hard market »

It’s when good brokers come to the fore. Here’s some tips from survivors of the last one.

20 Putting his money where his mouth is » Catlin’s founder and chief inspiration believes in facts, fairness and building a big presence in the Australian market.

22 Pulling back the curtains »

The Insurance Council embraces a more open communications culture to rebuild trust and respect.

24 New Zealand insurers in crisis: Too big to fail, too weak to save »

One insurer was saved, one was allowed to fail, and one is teetering.

28 Once bitten, twice shy »

Far North Queenslanders learned their lessons from Cyclone Larry.

30 The global educator »

Joan Fitzpatrick’s all-embracing approach has transformed ANZIIF into an international force with a local focus.

34 Efficiency leap or slippery slope? »

It depends who you ask. Inside the bold new world of contestable broker platforms.

38 Ready, aim… bushfire! »

US insurance researchers examine fire hazards by burning a house down. Their findings should interest Australians.

40 Don’t follow the UK’s lead »

lawNEWS

50 Catching up with Australia » The law setting out British consumers’ insurance contract rights is 105 years old, and it’s overdue for a change.

companyNEWS

53 A textbook that explains insurance » Allan Manning’s latest publication spells out the things that people need to know – but rarely do.

54 Countering the cost of cyber-crime »

Mobius Underwriting provides cover for online security risks.

54 QBE speeds up the process »

New online capabilities increase brokers’ ability to manage clients’ claims.

peopleNEWS 56 58 64 66 68

A long way to come for an exam » AIMS delegates gather » Expo marks a step forward for UAC » Lunar fun for AILA’s young professionals » 125 reasons to celebrate as QBE staff toast their company » 70 Young brigade wins again at Vero’s first Adelaide expo » 71 ProRisk’s legal complexities seminars attract big audiences » 72 Allianz inspires tomorrow’s leaders » 74 maglog »

Australian brokers should hope a proposed client compensation fund doesn’t emulate the British mess.

44 From highway to high-rise »

NTI has moved 29 storeys up into a showpiece of efficiency and flexibility.

46 Steering in new directions »

Vehicle thefts have halved in a decade, but thieves are becoming increasingly sophisticated.

June/July 2011

Cover image: Michael Brewer

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newsmakers at

insuranceNEWS.com.au Some flood cover options: Insurers can take some comfort from the fact that the Federal Government’s Natural Disaster Insurance Review isn’t making them the only parties under the microscope in the search for a solution to the flood insurance dilemma.

The review group’s issues paper released in early June makes it clear that “the affordability problem in flood-prone areas will not be solved by the insurance industry on its own”.

The review panel chaired by industry luminary John Trowbridge has whittled its options down to three, including one to maintain the status quo.

The option giving insurers sleepless nights is the possibility of automatic flood cover, which would at least eliminate disputes about whether water damage was caused by flood or storm.

Mr Trowbridge says some homeowners would face significant increases in insurance premiums under this option, “unless these homeowners were given some form of assistance to enable them to continue to insure their homes”.

The third option would see insurers offering automatic flood cover but with a clause for customers to opt out.

The review panel’s consultation process is open until July 14.

Sinking under deficit: As Australian insurers and governments fret over the viability of various options to make flood insurance more generally available around the country, we should spare a thought for the embattled US National Flood Insurance Program.

Even though a congressional committee has decided to support the program for another five years, there is a $US17.75 billion deficit in its accounts.

Insurance, Housing and Community Opportunity Subcommittee Chairman Judy Biggert says the program “is in deep financial trouble” and the bill will place it back on a sound footing by phasing in “actuarially sound rates”.

She says the legislation also addresses a broad range of concerns about flood mapping as well as dams and levees.

Bracing for the onslaught:

My, how they’ve changed!

First came the floods, then the disputes. The Financial Ombudsman Service (FOS) expects to deal with a record number of disputed claims from the Queensland and Victorian floods and Cyclone Yasi.

General Insurance Ombudsman John Price says 400 disputes linked to the three events had been filed with the service by early June – more than the combined total of claims received after Cyclone Larry in 2006 (98), the 2009 Victorian Bushfires (128) and the last year’s Perth hailstorm (50).

Local and community legal agencies have indicated they have a further 400-500 disputed claims.

Three organisations have changed their corporate images recently.

Financial services giant AMP has replaced its staid 1988-vintage logo with a “spark” that Chief Executive Craig Dunn says symbolises the “promise, energy and dynamism” of the new AMP following its takeover of Axa Asia-Pacific.

The Underwriting Agencies Council (UAC) has shrugged off the cliched quill and adopted a colourful circle that Chairman Damien Coates says “better represents UAC’s core values of innovation, specialisation, support, guidance and strength”.

The “transitional brand” of loss adjuster MYI Freemans has gone in favour of the Latin word Cerno, which means “resolve and determine”. It’s pronounced “sir-no”, and the logo is, um, a colourful circle.

Disasters led to $16.6 billion in claims: Floods in Australia and the Christchurch earthquakes blew out claims figures for the Australian general insurance industry in the first quarter of this year.

The Australian Prudential Regulation Authority says the industry reported gross claims of $16.6 billion, compared with $6 billion in the previous quarter.

The property sector saw the biggest leap in claims, up from $900 million in the December quarter to $2.5 billon.

Insurers were also faced with falling revenue during the March 2011 quarter with net earned premium of $6.2 billion compared to $6.6 billion in the December quarter.

Net earned premium fell across most sectors during March with only product liability and professional indemnity reporting growth.

The combined effect of lower premiums and high claims hit the bottom line of general insurers.

Net profits after tax for the industry were $500 million compared to $1.1 billion in the last quarter of last year.

But higher reinsurance recoveries from the various natural disasters saw total assets for the industry rise by $9.1 billion to $110.8 billion.

The amount recovered by general insurers from reinsurers was $20.1 billion, compared to $11.2 billion in the previous quarter.

Despite the increased recovery rates, solvency coverage for general insurers was 1.8 times the minimum capital requirement during the March quarter, compared to 1.91 times in December.

And the capital base for general insurers in March was $26.3 billion, compared to $27.3 billion in December.

“The combined effect of lower premiums and high claims hit the bottom lines of general insurerers”

Figure this

16.6

6

58

91

Dollar amount of claims submitted in Australia in the first quarter of 2011

Dollar amount of claims submitted in Australia in the last quarter of 2010

Loss ratio for Australian insurers in the last quarter of 2010

Loss ratio for Australian insurers in the first quarter of 2011

BILLION

6

BILLION

insuranceNEWS

June/July 2011

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Rates up here, down in the US:

A bad month for disasters:

Everyone in the insurance industry, it seems, wants insurance rates to rise – except those insurers in various places around the world who are locked in combat for market share.

While rates in Australia are on the rise [see story page 10], rates in the United States general insurance market are still falling. US insurance exchange MarketScout says rates actually declined an average 4% in May, with commercial property and business interruption dropping by 2% and general liability and inland marine falling 3%.

The Risk and Insurance Management Society says global disasters have not made an impact on US commercial lines as strong capacity continues to fuel premium falls.

It says the latest survey of risk managers shows the US market is still “highly overcapitalised”.

While the insurance focus during May was on Japan’s trials following the March 10 earthquake and tsunami, as well as the repercussions of the New Zealand quake and Australian floods, several other countries were suffering from large-scale disasters.

Flooding in the Mississippi River Valley in the United States covered more than 1.45 million hectares of farmland, with total economic losses estimated at more than $US5 billion.

In Canada flooding – in some areas the worst in 140 years – was recorded in the provinces of Manitoba and Quebec, while a bushfire in Alberta destroyed 431 buildings.

In Colombia, 116 people died as more than 1 million hectares of land was flooded and 372,000 homes damaged, at an estimated cost of $US5.85 billion.

Two earthquakes were recorded in southern Spain, killing at least nine people and injuring 400 others. Some 20,000 buildings in the town of Lorca were damaged, with insured losses expected to reach €70 million.

Regulation is a global concern:

Is all of NZ underinsured?

Local insurance industry reforms and European regulators’ Solvency II reforms are the main worry of insurance leaders around the world – except, it seems, in Australia.

The “Insurance Banana Skins 2011” risk survey of 490 respondents in 40 countries has found regulation is the key concern in every other region, followed by the rising incidence of natural catastrophes.

Life insurers are concerned about their ability to handle all the changes in regulations, difficult investment markets with low interest rates, and reputational risk.

General insurers see risks from the surge in disaster claims and report few signs of recovery in the soft market.

But some of the 21 Australian and 15 New Zealand respondents in the survey name damage to reputation as a key risk, saying difficulties with flood claims and a poor response to catastrophes have damaged the industry’s relationship with governments and policyholders.

Underinsurance is usually related to individuals’ ignorance or willingness to take a gamble on their risks. But has the Christchurch earthquake demonstrated that the entire country has been underinsured for a long time?

Vero New Zealand’s new Chief Executive Gary Dransfield raised the question late last month when he questioned the structure and conduct of the country’s general insurance industry.

He told a Suncorp investors meeting that Vero will review its risk appetite and how it deploys capital in New Zealand, because “it is clear now that New Zealanders have not paid enough in the past for the earthquake risk component of their premiums”.

Price rises across the country – rather than just the Canterbury region – have begun to be imposed, with increases of up to 50% in residential premiums expected.

Brokers say Auckland businesses are seeing increases of up to 30%, while commercial business in Wellington – regarded as a high earthquake risk – are seeing prices rise by 50%.

The falls come in the face of warnings that it’s time for insurers to start building their reserves as the spate of natural disasters around the world continues.

Last month Lloyd’s Chief Executive Richard Ward (pictured) issued a warning that the next big natural catastrophe will be a capital rather than earnings event, unless there are “significant” rate rises.

“Prices are dangerously low at present,” he said.

“Clients may think they are getting a bargain, but the fact is that they are buying security. The insurers who write unprofitable business are inevitably the first to collapse when disaster strikes.”

Changes at the top: Two major regulatory bodies have welcomed new executive chairmen.

Greg Medcraft (above left) now leads the Australian Securities and Investments Commission (ASIC), while Rod Sims will be the new Chairman of the Australian Competition and Consumer Commission (ACCC) from August 1.

Mr Medcraft replaces Tony D’Aloisio. He joined ASIC as a commissioner in February 2009 to oversee investment banking, investment managers, super funds and financial advisers.

Previously he spent nearly 30 years at Société Générale in Australia, Asia, Europe and the Americas, co-founded the American Securitisation Forum in 2002 and served as chief executive of the Australian Securitisation Forum.

Mr Sims is a corporate adviser and an expert on public policy issues. He is also Chairman of the New South Wales Independent Pricing and Regulatory Tribunal (which recommended in August 2008 that the state drop its insurance-based fire services levy), a National Competition Council councillor, adviser to the Prime Minister’s Multi-Party Climate Change Committee and a member of the research and policy council of the Committee for the Economic Development of Australia.

He has also previously worked in a number of government positions including as deputy secretary in the Department of Prime Minister and Cabinet.

11

17.7

130

Number of separate events recognised by the NZ Earthquake Commission since September 4 last year

Percentage of adult Australians unable to afford general insurance, according to a study

Expected percentage rise for Earthquake Commission reinsurance treaties

insuranceNEWS

June/July 2011

Dallas steps up: Dallas Booth (above) will bring a power of experience to the National Insurance Brokers Association (NIBA) when he begins work as chief executive on July 1.

The former Asbestos Injuries Compensation Fund Chief Executive has also served as Deputy Chief Executive of the Insurance Council of Australia and General Manager of the NSW Motor Accidents Authority, as well as a board member of WorkCover Tasmania.

NIBA President David Duffield says Mr Booth, a lawyer, “has extensive knowledge of the insurance industry in Australia and wide experience representing the interests of the industry at all levels”.

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newsmakers at

insuranceNEWS.com.au

Bad news and good news First the bad news: Australians’ insurance premiums will rise as reinsurers raise their rates and tighten terms in the wake of the summer disasters.

The good news is that there’s no sign of reinsurers withdrawing cover from Australian insurers.

That’s the summation of Australian Prudential Regulation Authority Chairman John Laker, who laid out the situation to the Senate Standing Committee on Economics in June.

He says some changes in the structure of insurers’ reinsurance programs are expected, including increased retention of risk.

Dr Laker says Australian insured losses are estimated at $5.3 billion, comprising $2.8 billion from the Brisbane flooding; slightly less than $1 billion for flooding elsewhere in Queensland; $1.1 billion from Cyclone Yasi; around $500 million from the Victorian floods; and $35 million for the Perth bushfires.

Trail of destruction: a NASA satellite picture shows the path of a tornado through La Plata, Maryland

A windstorm season to dread The North Atlantic hurricane season began on June 1, with weather researchers predicting “well above average activity” – 17 named storms, nine hurricanes and five major hurricanes – before the season ends on September 30.

While preparing for the near-certainty of at least some hurricanes crossing its coast, the United States is already reeling from the impact of a record number of tornadoes.

By early June tornadoes had killed 169 people and left more than 1500 injured, with risk modeler AIR Worldwide assessing insured losses

so far at $US5-7 billion.

The US Storm Prediction Centre said one particular outbreak during late May spawned at least 275 tornado “touchdowns” across an area stretching from southern Texas to New England.

Joplin, Missouri, was struck by the most destructive tornado since records began in 1950, killing at least 141 people and injuring 1150.

That tornado was of an EF-5 – the highest on the enhanced Fujita scale. The last time the US recorded an EF-5 tornado was in 1998. This year five EF-5 tornadoes were recorded before June.

“Many of the states hammered by the tornadoes have among the nation’s highest rates of homes without hazard insurance” – Associated Press report

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insuranceNEWS

August/September 2010

He says reinsurance recoveries are just over $3.4 billion, leaving insurers to find $1.9 billion from their own pockets.

Australian insurers expect around $6.3 billion of gross insured claims from the Christchurch earthquakes, of which about $5 billion is reinsured, Dr Laker says.

However, until assessors can get into the shattered city centre, that figure is tentative.

And while the Japan earthquake and tsunami hasn’t raised any immediate concerns for insurers, “downstream claims from corporate clients related to shortages of parts, the need to find alternative markets and, possibly, trade credit exposures” are expected in the longer term.

Despite the pressures on the local industry, Dr Laker says the insurers hold around $30 billion in shareholders’ equity and will meet their claims obligations.

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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Dangers ahead as rates turn Reinsurers are looking again at the local market’s risk profile, and insurers are being more selective about the business they write

By Jan McCallum

2011 BEGAN AS NORMAL WITH A SOFT MARKET, but was transformed after the second Christchurch earthquake on February 22. Coupled with the Australian floods and Cyclone Yasi, it’s hardly surprising that insurers and reinsurers alike are pushing rates up to replenish their reserves.

So far the rate increases have only affected property, and then only some levels of risk. Clients with a poor claims record are facing significant increases as insurers re-evaluate their books.

Austbrokers Premier director Alan Jones is seeing insurers raising premiums 15-20%, particularly for domestic property but also for some commercial premises. Although he is based in Brisbane, he says the move is Australia-wide.

Another industry source says commercial risks are being reclassified into three categories.

“For the top 20% with no claims over time, we are seeing rate reductions, while the mid 50% are seeing some small rate increases,” he said. “For risks that do not have a good claims experience over a period, we are seeing rates double or triple. Maybe it is an increase of 20-40% across the board.”

Competition in the commercial market is dampening pressure for increases, according to some brokers.

They say the situation is also encouraging underwriters to look harder at the business they are accepting – a fairly standard phase in a hardening market as insurers start to shed low-performing business.

Ratings agency Standard & Poor’s (S&P) has forecast premium rises in personal lines but says prices remain soft in commercial lines, “in part reflecting ample foreign capacity”.

But EBM Insurance Brokers Managing Director Jeff Adams in Perth says rates for domestic policies are rising 710%. Underwriters are trying for increases of 3-4% in small commercial, “but not always getting them”.

He says there is little movement on larger risks.

Suncorp Chief Executive Commercial Insurance Anthony Day notes that rate rises for homeowners will reflect weather events, reinsurance costs and higher average 10

costs of claims, but he says he isn’t seeing uniform increases in commercial insurance.

“At the March renewals we saw some corporate rates go up by 10-15% on some risk, but it wasn’t across the board,” he told Insurance News. “I think what you are seeing is a greater focus on the risk selection side.”

Consumers have been conditioned to expect higher insurance premiums after the summer’s rash of disasters put insurance on the front pages.

Brokers say clients are largely accepting the inevitability of their insurance costing more. But while they won’t be surprised by rate rises, some will feel affronted when underwriters reject their business.

“People are starting to look at the business they have and the business they want to retain,” one industry executive told Insurance News.

“I’ve been speaking to a lot of underwriters and they are going through the book and reassessing their business.”

JLT Australia has begun preparing staff for a hardening market that will be a new experience for any broker aged under 35.

Chief Executive Leo Demer says relationships with clients will be more important as they work with their broker to prepare the best case to put before an underwriter.

JLT has, for the first time, published tips on its website to help clients improve their renewal process, a key one being to start early.

“A price increase does not necessarily follow if you do your homework and get in early – and if you haven’t had a bad claims experience,” Mr Demer says.

He believes many of the industry’s younger participants will be tested by a hard market and says JLT is training staff on what to expect and how to work with clients on strategies.

Mr Demer notes that clients “will also have to work harder” with their brokers, because underwriters will be asking for more information.

“Everyone will have to work harder to get the deals done,” he says. “You will have to argue why the underwriter

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Reflecting on tougher times ahead: Brisbane floods clean-up, February

“Everyone will have to work harder to get the deals done. You will have to argue why the underwriter should take your risk as opposed to another risk” – Leo Demer, JLT Australia Reuters

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should take your risk as opposed to another risk.”

Suncorp has adopted a more sophisticated pricing and risk assessment capability by adapting its general insurance pricing engine from personal insurance to commercial for its SME portfolio.

Mr Day says the application went live in May and enables the group to use a greater amount of data and rate for fire, storm and cyclones. It will enable Suncorp Commercial to de-risk its own business and become more competitive by attracting better risk through more targeted assessment and pricing.

Coming months will show how clients react and how cushioned insurers are by a relatively buoyant economy.

Standard & Poor’s expects demand for non-life insurance to continue to benefit from the solid performance of the economy, with real GDP growth, low unemployment and low interest rates.

It also considers that the media coverage of disasters could boost business.

“Recent natural disasters highlight the importance of adequate insurance coverage to consumers and businesses and, in our view, the events could trigger an increase in the take up and retention of both personal and commercial lines to some extent,” S&P analysts say in a report.

Alan Jones of Austbrokers has not seen clients reduce cover in order to cut the cost of their insurance, but says brokers will have to explain increases and how they are working to find the most appropriate cover at the best price.

Anthony Day notes there is still significant capacity in the reinsurance market globally and says reinsurers still have an appetite for Australia.

Another industry leader, who did not want to be identified, says there has been “considerable uncertainty” in the period leading up to the reinsurance renewals, but underwriters are trying to get price rises where they can because clients expect an increase and insurers know they are facing higher costs.

“Until most insurers get past June 30 and know the outcome of the natural catastrophe treaty renewals, there is a feeling of being in limbo,” he says.

“Brokers in the SME area are telling me they are certainly seeing increases of 10% and north Queensland brokers are complaining about lack of availability.”

The consequences of floods and earthquakes were most obvious in reinsurers’ first-quarter results announced last month, with companies reporting significant profit falls on liabilities for Japan, New Zealand and Australia.

While reinsurers have given some indication of the impact on this year’s profit, the fallout will be reflected not only in the June treaty renewals but possibly in a longerterm re-evaluation of catastrophe risk in this part of the world.

Hannover Re Senior Underwriter and Germany-based Head of P&C Treaty Department for Australasia, Michael Harms, says there will certainly be significant price increases in the Australian and New Zealand markets this year as treaties are renewed.

“I feel we are in the midst of a giant exercise in recalculating the Australia/New Zealand risk, and we are witnessing the Australasian risk map being rewritten very quickly,” he says. “New Zealand was struck by two events in rapid succession which have possibly each exceeded a one in 500-year recurrence.

“That changes the metrics of a market completely. It has never happened before in global reinsurance markets where a developed market like New Zealand with high earthquake insurance penetration was affected by two events of this frequency and severity in such a short time span.”

12

Mr Harms says that although the Australian floods, cyclone and bushfires were smaller than the New Zealand earthquake events, being less severe and hitting comparably higher ceding company retention levels, Australian clients should be prepared to shoulder some of the pricing reaction to New Zealand, since many Australian ceding companies were affected by the earthquakes via their local operations.

“New Zealand will see much bigger premium increases than the rest of the world this year because of its two extraordinary events in rapid success,” he says.

Mr Harms believes Australia will also see a sizeable “uplift effect”, and probably much larger price increases than the US or Europe, where the markets are larger and can take a more significant event before price changes are triggered.

He warns that if the catastrophe modellers start reclassifying risk, pricing will react and the available reinsurance capital might be exhausted much faster for Australasian exposures.

“Australia will see a sizeable ‘uplift effect’, and probably much larger price increases than the US or Europe” – Hannover Re Senior Underwriter and Head of P&C Treaty Department for Australasia, Michael Harms

Reinsurers will have to readjust their risk appetite or underpin the risk with larger capital amounts, and price accordingly, he says.

“We may not see this development go full circle within a year but we will certainly see it happening within three or four years.”

Although there is a view in the industry that foreign insurers and reinsurers favour Australia and New Zealand for geographic diversification, and may have previously considered the region comparatively low risk, Mr Harms believes that is a myth that is fast fading.

Hannover Re classifies Australia and New Zealand as a “mid to high” peak risk, with Australia towards the peak end.

“New Zealand is somewhere in the middle but may see an upgrade into the peak category going forward once the risk-curve has been adjusted on the basis of post-loss experience.”

However, Mr Harms says one outcome of a hardening market might be to encourage opportunistic entrants into the market because there are signs of rate increases, as has happened here before.

“It remains to be seen how these new kids on the block – if and when they arrive – have the ability to stop this general trend from happening or whether this will reduce the

anticipated price increases to less severe levels.”

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Wherever you work, be it in an office or on a field, there are key roles to play and goals to achieve. For Vero it’s about working together to help brokers efficiently meet their clients’ needs. Whether it’s technology-enabled solutions via e2 and VeroCentral for simple risks or direct contact with underwriting specialists for mid-to-complex risks, Vero provides brokers with a range of service options.

To find out how Vero can help you meet your clients’ needs, speak to your Business Development Manager or visit www.vero.com.au

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Broking in a hard market

Hard work for a hard market: it’s a good time to really get to know clients’ business

It’s when good brokers come to the fore. Here’s some tips from survivors of the last one

By Jan McCallum THE “KNOW YOUR CLIENT” RULE HAS NEVER been more relevant as the market enters a hardening phase. Veteran brokers like Zurich Australia Chairman Terry Paradine say the last global hard market was in the mid-1980s, with the reaction following the collapse of HIH Insurance in 2001 being “a correction to a period of underpricing”.

Industry players who survived the market of the 1980s say brokers will have to work harder and smarter, keep tabs on how underwriters’ strategies are changing and make sure they retain clients’ loyalty.

Although they are divided on just how this market will play out, they believe many of the industry’s younger members who have not experienced harder times are in for a steep learning curve.

Many younger people in the industry have not been through a period where underwriters are prepared to reject risk and raise rates. Brokers will find themselves on a battleground where reinsurers and insurers want to raise prices to recover catastrophe losses, while clients facing sluggish economic conditions and rising costs are searching for ways to cut expenditure.

EBM Insurance Brokers Executive Chairman Alan 14

Bishop says a hard market puts the accent on broking skills.

“It’s when good brokers come to the fore because they have to demonstrate value at another level than just price,” he says.

Perth-based but nationally focused Mr Bishop adds he is yet to see the new hard market, but with the June reinsurance renewals approaching at the time of this interview he wouldn’t be surprised if reinsurers seek to recoup catastrophe losses.

Steadfast Executive Chairman Robert Kelly has just met with 1000 shareholders around the country and was shocked when he asked who had worked in a hardening market. Only 2% responded.

“It is a worrying time because you have a whole series of placement facilities out there and you wonder if the insurers will harden across the entire market or just individual policies,” he told Insurance News.

He is watching carefully to see if insurers apply the same rigours to all facilities, and says he will be “extremely concerned” if any insurer tries to increase pricing on individual risks and does not have that position across their portfolio.

Brokers are reporting increases in domestic and commercial property and insurers being sharper about distinguishing between risks and raising premiums for clients who have made claims.

Thistle JLT Managing Director Steve Ball says it is inevitable that insurers will want to change terms and conditions as well as raise prices. And he has a short reply when asked for survival tips: “Work harder.”

Here’s some of the experts’ tips for making the most of a hard market:

insuranceNEWS

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1. Know your client Visit them personally and get to really know their business. Apart from giving you a better understanding of their risk the clients will see that you value the business relationship. They are more likely to remain loyal if you have explained the market conditions and they see how you are working on their behalf.

Mr Ball says brokers have to be able to understand the client’s risk and how it applies to the insurance risk. He warns the exercise is not just about numbers.

“It’s a matter of being able to demonstrate what the risk to the insurer is, and how client A may be different from Client B so that you can achieve a better outcome for them,” he says.

While the internet has made communication faster and easier, Terry Condylios, Account Manager with Austbrokers Sydney, urges brokers to visit clients at their premises and pick up the phone rather than rely on email.

He recently won business from a client whose broker had not visited for five years so was unaware of new buildings added to the property that weren’t covered.

2. Have a strategy for offering the client value when their premium is rising This might be difficult for participants who have won business solely on price. Now is the time to rethink their business model and focus on value.

Not everyone is convinced that changing the insurer will pay off for clients looking for the cheapest price. Some underwriters are already starting to reject business they know is shopped around annually.

Steve Ball says a client with no claims may be better to max-

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imise the outcome with their existing insurer, and a client who has made claims and had a satisfactory result is probably better off remaining loyal.

Robert Kelly says it is important to keep clients informed.

“Work with your clients to tell them that the market is changing and then make sure your insurer is delivered every bit of information to make a decision to write your risk at an appropriate rate,” he says.

“Review all claims that the client has had and reassess the risk in terms of whether larger deductibles can be taken and reduced premiums achieved – or if not reduced premiums, the deductible attached to the risk so the client does not have a cashflow impact but a per risk impact.”

He also urges brokers not to burn underwriting bridges by dumping an insurer before canvassing competitors, because in a changing market the first quote might not seem so ridiculous when you start looking further.

“When the market moves there has to be some flexibility and understanding,” he says, acknowledging that players can get emotional about the process.

The early stages of a hardening market are often characterised by rapid and sharp adjustments, and Mr Kelly says brokers trying to negotiate can find underwriters have given support staff only limited room to move and are seeking an across-the-board increase. Any latitude will be difficult to interpret and may depend on the person assessing the risk.

June/July 2011

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3. Understand the risk to the insurer This relates to getting to know the client’s risk by knowing their business, and includes taking the time to go through their claims history and understanding how they can mitigate risk or have done so. If you can put yourself in the insurer’s position, you will be in a better position to argue the client’s case.

Mr Condylios advocates personal visits to underwriters. “If you want to get your message across to the underwriter don’t do it by telephone, do it face-to-face and do it in their office. Get in front of them and see their reaction and how serious they are about pursuing the options you are offering.”

Terry Paradine, Chairman of Zurich Australia and former Chairman and Chief Executive of Marsh Asia-Pacific, also advises brokers to stay informed about how the underwriting market might be changing – for instance, if an underwriter sees an opportunity to become more of a player when pricing is rising.

“It is generally about being more aware of what is going on,” he says.

4. Review your submissions process Mr Paradine says brokers must be prepared to put more time into preparation and draw more information out of the client.

“They will have to put more work into their submissions to underwriters to obtain the most competitive pricing. The quality of submissions to underwriters will have more of an impact in this type of market than in a soft market.”

Underwriters will ask more questions, demand more information and want more comprehensive risk surveys – “and some underwriters will choose not to write business in certain postcodes because of the risks involved”.

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Robert Kelly says insurers will want to reject risk, or take it with reduced capacity, increased excesses and/or reduced coverage.

He urges brokers to get terms well in advance.

Although the market is talking about a hardening in property classes, he believes it will spread to liability and particularly professional indemnity, where claims are building.

Mr Paradine is not convinced a hard market is coming, although he can see it in specific sectors such as property. He notes there is still sufficient capital in the global market to suggest that any correction will be fairly modest, but says brokers operating in some classes of business will have to prepare for a tougher line from underwriters.

Mr Condylios says many small and medium-sized business clients are experiencing tough economic conditions and looking to cut costs. He and other brokers believe this will hamper insurers’ efforts to raise prices.

insuranceNEWS

June/July 2011

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UAC, the peak bod bodyy for Australia’s Australia’s underwriting agencies, agencies, offers a huge resource of more than 70 specialist aagency gency members writing niche products across all lines.

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THE Resource

20/05/11 10:53 AM

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Putting his money where his mouth is Catlin’s founder and chief inspiration believes in facts, fairness and building a big presence in the Australian market

By Michelle Hannen

STEPHEN CATLIN SEEMS A GENEROUS man – generous with his time, with his knowledge and (unlike many self-made insurance success stories) generous with his company’s money. Catlin, the specialty property and casualty insurer he founded in 1984, has grown to become the largest syndicate at Lloyd’s with operations spanning the globe, building its reputation on paying claims.

While those outside the industry believe paying claims is what the insurance industry exists for, this view is not always echoed from within.

Mr Catlin tells Insurance News he is “appalled” by carriers who run for their lawyers rather than their chequebooks when faced with a legitimate claim. Brokers evidently agree. Speaking at the 2011 Steadfast Convention in Melbourne in April, his comment that “if it’s a claim that is justified, pay it and pay quickly” was met with spontaneous applause from an audience made up mainly of brokers.

Rather than get involved in aggressive price competition, Catlin has made its claims service its point of difference. It consistently tops the Gracechurch Claims Monitor’s independent survey of London 20

claims brokers as providing the highest quality claims service in the London market.

As with other companies, payment of claims will be top of mind at Catlin at the moment, with the company busy assessing and processing claims from the torrid 2011 run of catastrophes.

The company has put its bill for the Japanese earthquake and tsunami in March at approximately $US200 million, net of reinsurance and reinstatements, based on total insured losses of between $US20 billion and $US30 billion. This figure comes on top of the $US175 million Catlin previously flagged for the Australian floods and February’s Christchurch earthquake.

Undoubtedly the events of 2011 have left the industry shaken, and while reinsurance rates have already risen in those corners of the globe that have played host to the catastrophes, debate continues over whether the disasters have caused sufficient pain to turn a global soft market hard.

Mr Catlin is an advocate of controlled, sustainable rises rather than a kneejerk, emotive response where rates skyrocket across the board. Nevertheless he says the events of recent months have given pause insuranceNEWS

June/July 2011

for thought about the wider picture of global climate, about perceptions of risk in areas considered relatively safe and about whether links can be established in the upswing of seismic activity which has seen most places on the volatile, earthquakeprone Ring of Fire hit in the past two years.

Typically, Mr Catlin is putting his money where his mouth is. Rather than brand promotion via an ad campaign or sporting sponsorship, since 2008 Catlin has sponsored a major scientific expedition to capture data on the impact of global warming on the Arctic ice cap. The newest phase of the Catlin Arctic Survey is focusing on conditions in the Arctic Ocean that could cause changes in ocean currents influencing climate.

“The potential effects of global warming will have a direct impact on our business,” Mr Catlin said when announcing the sponsorship. “However, there are gaps in our knowledge and much of the evidence regarding the pace of global warming is not scientifically proven.

“Catlin is a company that manages risk based on hard facts, so we believe that obtaining this information is vital. The Catlin Arctic Survey will help inform all those who

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Catlin founder Stephen Catlin: when it comes to Lloyd’s, he’s as good as royalty

“The potential effects of global warming will have a direct impact on our business.

However, there are gaps in our knowledge”

must plan for the potential effects of global warming.”

Unlike the venture capitalists or shortterm equity providers that have emerged in the market in recent years, Catlin is one such business planning for the future. In 2010 the company recorded gross written premium of $US4.1 billion, which Mr Catlin forecasts will reach around $US4.5 billion this year.

The company is now structured to operate from six underwriting hubs globally – London, the United States, Europe, Bermuda, Asia-Pacific and Canada. They support 52 offices in 20 countries, but much of the business is ultimately written through its Lloyd’s syndicate, which has the largest market share of all Lloyd’s business at 18.5%.

When it comes to Lloyd’s, Mr Catlin is as good as royalty. In the troubled 1990s he served as Lloyd’s nominated director of Equitas, the pre-1993 liability run-off vehicle. He has also chaired the Lloyd's Market Association, and has been a member of the Council of Lloyd’s and of the powerful Lloyd’s Franchise Board.

But almost half of Catlin’s premium income is now generated outside London, a figure expected to increase. The business insuranceNEWS

June/July 2011

should double in size globally within five years, Mr Catlin says, but this growth is more likely to be organic than through acquisitions.

Catlin branched out to Australia in 2004, first opening a Sydney office, followed by an office in Melbourne last year.

“When we start something we do it slowly, we start it carefully,” Mr Catlin says of the time it has taken to become an established presence in this market. The company now has more than 30 employees in Australia underwriting products that include aquaculture, aviation, crisis management, construction, financial lines and professional risks, fine art and specie, general liability and livestock. They also provide reinsurance solutions.

But despite the initial cautious approach, he has bold ambitions for the local business and wants Catlin to be considered a top five player in brokers’ minds in each of its specialty markets.

Foreign reputations don’t count for much among local brokers, but the response from the Steadfast Convention shows that brokers like what Mr Catlin is selling. If his approach to claims payment is translated to

this market, he is likely to succeed.

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Pulling back the curtains The Insurance Council embraces a more open communications culture to rebuild trust and respect

By Terry McMullan

THE PROFESSIONALS AND SPECIALISTS WHO make up the general insurance industry have traditionally relied on the Insurance Council of Australia (ICA) to speak for them to the media, public and politicians about the big issues of the day.

The value of that reliance changed five years ago when a revamp saw the council step back from being the “go-to” organisation. Its media relations methods ranged from evasive and unhelpful to downright rude.

The massive summer floods this year involved hundreds of claims staff, loss adjusters and brokers, and it should have been an opportunity to demonstrate the industry’s commitment to its customers and the efficiency of its services.

The reasons why that didn’t happen have been a major talking point in the industry ever since. Confusion over how flood is defined by different insurers and anger as claimants in sodden homes realised they weren’t covered against flood boiled over into angry name-calling.

The industry’s view that universal flood insurance requires governments to seriously tackle issues like mitigation and mapping was buried in the fury over definitions and insurers’ refusal to pay claims on risks they hadn’t covered.

Television news reports around the world showed Brisbane claimants accusing their insurers of being cheats and liars, while senior politicians who should have known better got their kicks in, too.

The result so far has been a special review that may result in insurers having to decide whether or not they can continue insuring property; a standard flood definition imposed by a committee; and a government whose regard for insurance and insurers is, to put it mildly, jaundiced.

The industry couldn’t expect a fair go from the media during the floods debacle, and it didn’t get it. After five years of being ignored, the news media knew next to nothing about the collective insurance industry or its issues.

Insurance News has spoken to dozens of brokers and claims specialists who several months later are still angry. They feel their work after the floods was compromised and undermined by ICA’s insensitive and lacklustre approach.

Crisis management experts have told Insurance News ICA was obviously unprepared to handle a large-scale civil disaster. They say the council was also compromised by its lack of an open media relations culture and by seeming insensitivity to claimants’ plight.

The trashing of the industry’s reputation as a fair dealer was seen earlier this month in the an22

nual global “Insurance Banana Skins” risk survey by the London-based Centre for the Study of Financial Innovation. It said industry leaders elsewhere are mainly concerned with regulation, while the industry in Australia “sees its reputation very much on the line in the quality of its response to the disasters”.

The unnamed general manager of an Australian reinsurance company is quoted as saying the “lack of clarity about exclusionary language, the lack of desire by insurers to pay claims as a result of flood/water damage and general procrastination in policy wording, plus absence of an industry body with real power, will result in policyholders continuing to view this industry as an unprofessional group without gravitas”.

In a speech in Sydney earlier this month, ICA President Rob Scott admitted he’s now dealing with a “major reputational issue”.

He said it’s time to rethink how the industry can “tell our story and how we communicate with key stakeholders, the media and the broader community”.

“If we were successful, the key political response to the floods would not be targeted on insurance and potential insurance reform,” he said.

Calling on the council to formulate “a communications plan that will endure, rather than just reacting to the issue of the moment”, Mr Scott said that conveying “empathy and compassion” when communicating with the public is vital.

“When the message isn’t getting through, it is as much the problem of the person telling the story as it is the people listening.

“It is not appropriate for us as an industry to sit on the sidelines, attribute blame and wait for government to act. This is our problem and we must do what we can do to influence the debate and help deliver better outcomes to our customers.”

A few days after Mr Scott’s speech, ICA Chief Executive Rob Whelan announced a restructure in which the council’s communications directorate will be rebuilt under a new general manager. The incumbent General Manager, Paul Giles, has been moved into a new position handling government and stakeholder relations.

Mr Scott says greater influence in the policy debate will come through building “trust and respect among our key stakeholders, the media and with the community at large”.

Journalists reporting the lively world of financial services see it in simpler terms. ICA’s bunker mentality simply didn’t work, and a return to tried and true precepts like mutual respect, fairness and trust will be very welcome. insuranceNEWS

June/July 2011

“It is not appropriate for us as an industry to sit on the sidelines, attribute blame and wait for government to act. This is our problem…”

– ICA President Rob Scott

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New Zealand insurers in crisis

Too big to fail, too weak to save One insurer was saved, one was allowed to fail, and two are at risk

WESTERN PACIFIC INSURANCE ASKED THE NEW ZEALAND Government for a $NZ5 million guarantee two days after AMI Insurance said it was facing a shortfall in reserves to pay claims following the February 22 Christchurch earthquake.

The request was turned down because the New Zealand Treasury believed that stepping in to save it would have indicated that it was willing to help “weak insurance companies”. Treasury papers released last month show Treasury believed Western Pacific’s business model was not sound and it was at risk of failing even before the earthquake.

Personal lines insurer AMI, however, was a different case. Like AIG in the United States in 2008, it was judged “too big to be allowed to fail”.

The Christchurch-based mutual is New Zealand’s second-largest personal lines insurer with more than 450,000 customers – 85,000 of them in Christchurch.

The rescue package came after AMI admitted its $NZ600 million reinsurance and $NZ350 million in reserves might not be enough to meet claims following the February earthquake.

Reserve Bank documents released to the media last month contain AMI estimates that if the insurer has to rebuild 10,000 houses in Christchurch it will cost it $NZ1 billion-$NZ1.5 billion.

The Government provided a $NZ500 million financial guarantee

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under a deal that allows the state to take AMI over by paying $NZ100 million. AMI paid the Government $15 million to secure the rescue package.

It’s understood that the potential liability could eventually exceed $NZ1 billion, and Finance Minister Bill English has made it clear the Government doesn’t want to own an insurance company.

In spite of the guarantee, AM Best downgraded AMI’s credit rating two notches from A+ to A- with a negative outlook.

Last month the mutual’s chief executive, John Balmforth, left New Zealand on a month-long trip to insurance centres to negotiate additional reinsurance cover. AMI asserts that investors are “lining up” to take part in its recapitalisation program.

The government’s rescue of AMI hasn’t been without its critics.

Highly placed insurance sources in New Zealand have told Insurance News that AMI has a history of undercutting the market and retaining too much risk on its books.

The composition of the AMI board has also come into question following the Government’s appointment of experienced insurance professional John Pritchard as a director.

High-profile business consultant Richard Westlake pointed out that “not one of the existing board members appears to have a background in either insurance or risk… unless you count the

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NZ Herald

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Underpriced, undermanaged, under administration: The death of New Zealand insurer Western Pacific has raised questions and old history

By Ben Oliver

Relying on their insurer: Simon and Erin Nicol move out of their suburban Christchurch home after it was “redstickered”, meaning it will be demolished. Thousands of the city’s residents would have been left broke and homeless if AMI had been allowed to run out of money

ownership of racehorses in the latter category”.

AMI Chairman Kerry Nolan fired back, saying he didn’t fully subscribe to the view that directors needed to be experts in the field, and that “in our case, we have… John Balmforth, who, of course, has extensive insurance experience”.

But Mr Westlake says Mr Balmforth’s career “was mainly in corporate banking, not insurance”, and that some board members had been “long entrenched in their positions”.

While AMI’s directors and executives seem relatively sanguine about their skills, scrutiny of the composition of insurance company boards will be one of the new regulatory roles taken up by the Reserve Bank of New Zealand after October.

Reserve Bank officials will also be keeping a close eye on two other insurance companies that are said to be at “at high risk of failure”.

The companies in question have not been named.

The documents released last month say the New Zealand Government feared “contagion effects” and “massive disruption” to the industry if AMI failed.

Finance Minister English says there may be companies which are financially stressed, [but] “they have owners or other ways of raising capital” – suggesting that the insurers in question could have

Australian-based parents.

insuranceNEWS

THE SHORT LIFE OF Western pacific Insurance has come to an abrupt and foreseeable end. Amid a surge of earthquake-related claims that eventually swamped the niche insurer, Western Pacific was placed into voluntary liquidation in April, leaving 7000 New Zealanders and an unknown number of Australian and AsiaPacific policyholders scrambling to find alternative cover.

Pundits are now discussing if the company’s collapse is a failure of prudential regulation, underwriting principles or corporate management, or a combination of all three.

The collapse of the company is, sadly, yet another case study in what happens when risks aren’t priced appropriately and regulators don’t have the tools to act decisively.

While mutual insurer AMI Insurance – likewise routed by earthquake insurance claims – has been given a $NZ500 million Government bailout to ensure its survival, no such largesse has been extended to Western Pacific, leaving a $NZ3.8 million hole owing to unsecured creditors and $NZ1.9 million in unsettled claims [see side story].

Since launching in 2005 and receiving its first credit June/July 2011

rating of a “B-” from Standard & Poor’s in 2006, Western Pacific has styled itself as a niche insurer offering a specialised and competitive service to SMEs. The company was founded

by Queenstown business identity Graham Smolenski and his brother-in-law Jeffrey McNally, a Melbourne-based former broker who provided the insurance nous.

From the start, offering low premiums in specialised sectors was apparently Western Pacific’s modus operandi. But what the company called competitive prices is now being referred to by competitors as price-gouging.

“Generally speaking, where clients opt for a cheaper product and inferior coverage they do so because they don’t value their insurance coverage and take out insurance only because it’s necessary,” Sydneybased SRS Underwriting Agency Director Paul O’Leary told Insurance News.

Over the past few years, SRS Underwriting, one of Australia’s major Lloyd’s coverholders, has consistently lost business in Australia to Western Pacific “at prices less than half our terms and excesses”.

“Clearly this business was 25

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New Zealand insurers in crisis

being underpriced,” Mr O’Leary says.

Simon Thorn of liquidators Grant Thornton says Western Pacific’s book included a mix of liability cover, casualty/liability and commercial risks. In its first report, the liquidators note the company has $NZ4.69 million in assets listed, including $NZ2.6 million of premiums held by brokers and, as required by law, a $NZ500,000 security bond held by the Public Trustee.

Western Pacific had 7000 policyholders in New Zealand and about 155 earthquake claims. All these policies have been cancelled. But what isn’t yet known is the size of Western Pacific’s offshore book.

Mr Thorn told Insurance News that from his preliminary analysis the company had extensive business interests in Australia – indeed across the Asia-Pacific region – of which about 90% was managed through brokerages.

While he can’t yet put a finger on the size of the Australian book, it did include some limited property risks and “significant PI and liability cover”.

“There are a number of claims still to be assessed and quantified,” he says.

Mr O’Leary says the sharp rise in liability slips appearing across his desk “can only be attributed to the demise of Western Pacific Insurance”.

“The situation is somewhat reminiscent of what we saw in 2001, albeit on a much smaller scale.”

The slips appearing on Mr O’Leary’s desk are varied – from importers of Chinesemade goods to toy manufacturers, automotive importers and stockfeed manufacturers.

Tower Insurance, appointed by liquidators Grant Thornton as a “preferred sup26

plier” to find a home for Western Pacific’s book of business, is approaching its task with caution.

Tower Insurance Group Managing Director Rob Flannagan told Insurance News that Western Pacific will receive compensation from Tower based on the number of customers who move their insurance policies across. The amount of compensation or how it’s calculated was not disclosed.

“Tower does not currently take on significant commercial property risk, and this was a large proportion of the WPI client base.”

Where did it all go wrong?

Treaties with the company’s 15 reinsurers – seven of them Lloyd’s syndicates – were renewed as of December 31 for the 2011 calendar year, and the company’s single property risk exposure for any one loss was capped at $NZ500,000.

For catastrophic risk, Western Pacific’s exposure was capped at $NZ1 million – the same amount in place for the previous two years.

Despite the impact of the first Christchurch earthquake, Mr McNally said in January that “we have been able to renew our 2011 reinsurance treaty at the same retention levels”.

He promised 2011 would be a “year of opportunities” as the company continued to carve a niche as a “credible alternative provider of commercial lines insurance” to the SME market.

Two months later, those opportunities had dwindled.

While Mr McNally remained “confident about our future”, the company decided to temporarily halt new business while it assessed its risk portfolio.

“I decided it was time to stop, take a deep breath and assess our exposures,” he told Insurance News at the time. insuranceNEWS

Happier days: Western Pacific Insurance founders Jeff McNally (left) and Graham Smolenski at an insurance industry function

“We’ve taken the opportunity to also look at our cat exposures throughout the country.”

By March 25, the assessment process had been completed and Mr McNally’s confidence had now dissipated.

The company was placed in liquidation a week later.

Chairman Graham Smolenski attempted to explain the situation to Queenstown newspaper Mountain Scene a week after the company collapsed. The company was liable for at least the first $NZ500,000 in claims, but Mr Smolenski insisted that finding the cash to pay claims before reinsurance kicked in wasn’t the issue.

“The problem always centres on your level of reinsurance to cover the sheer volume of it all and the pressure on your organisation,” he said.

Finding the money to pay Western Pacific’s unsecured creditors and claims may prove difficult. Its latest accounts show an after-tax profit of $NZ241,091 and net assets of $NZ611,355, but even with forthcoming reinsurance payouts, Mr Thorn says it probably June/July 2011

won’t be sufficient to pay out creditors.

Despite some initial interest from New Zealand and international companies, Grant Thornton has been unable to find a buyer for Western Pacific, and has turned its attention to collecting outstanding premiums from brokers – a difficult proposition that requires brokers to honour contracts which aren’t worth the paper they are printed on.

Insurance Brokers Association of New Zealand spokesman Phil Snookes told Insurance News the association is advising brokers to get their clients insured before sorting out details with the liquidators.

An intriguing side note to the demise of Western Pacific is the simple fact that no one knows if the business would have been compliant under New Zealand’s looming prudential regime.

To heavily regulated Australian insurers, New Zealand’s current prudential framework seems woefully inadequate, even primitive. At present all an insurer needs to sell insurance from New

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Despite Mr McNally’s assurances, the rumours about Western Pacific’s financial situation were rife in the New Zealand insurance market Zealand is a decent credit rating and a $NZ500,000 guarantee.

But from October all that will change, with insurers required to pass stringent capital adequacy and solvency margin tests, making it more difficult to underprice risk and underreserve.

In his January letter, Mr McNally referred to the forthcoming Insurance (Prudential Supervision) Act, noting companies had been given three years to comply with the new framework.

“Western Pacific in anticipation of the legislation commenced work on our provisional licence application in the first half of 2010 and has in place a compliance/licensing team working towards our goal of obtaining the provisional licence at the earliest possible date,” he said.

Several years ago Western Pacific also considered applying for a licence to operate in

Australia, but abandoned it as too complex and unnecessary.

It’s doubtful the company would have met the Australian prudential regulator’s strict requirements, which led to small insurers losing their authorisations when the licence criteria were tightened in 2002. A similar consolidation is expected in New Zealand when the new legislation comes into effect.

Despite Mr McNally’s assurances, the rumours about Western Pacific’s financial situation were rife in the New Zealand insurance market.

Western Pacific was not a member of the Insurance Council of New Zealand, and had allegedly been knocked back twice. Chief Executive Chris Ryan says the council was well aware of Western Pacific’s limitations.

“There was market speculation around Western Pacific but that’s all it was,” he said. “We were well aware of their viability

and a few brokers did make some comments.

“From our point of view if people want to go with them despite the fact they are not a member of the Insurance Council, that’s their responsibility.”

As liquidators continue to pick apart what’s left of Western Pacific’s finances, speculation over some questionable fund transfers has also been brought to light.

Queenstown newspaper Mountain Scene says more than $NZ872,000 was transferred to companies linked to Mr Smolenski and Mr McNally over two years, reducing shareholder funds by $NZ350,000.

While legal, these transactions and others will be investigated by the liquidators.

No matter what the outcome, Mr McNally’s name is already embedded in the chronicles of the Australian insurance industry.

In 2002 the Australian

the world saved.

Securities and Investments Commission found that after receiving a quote from an insurer, his brokerage Allied Asia inflated the cost of premiums to clients and kept the difference. The increased premium was charged to clients without the knowledge or consent of the clients or the insurers that issued the policies.

Allied Asia’s licence was not renewed and the Federal Court banned Mr McNally from selling policies on behalf of unauthorised foreign insurer Atlantic & Pacific.

Allied Asia also failed to lodge audited accounts for the financial year ended 30 June 2001, and failed to lodge audited accounts within the extended timeframes for the years ended 30 June 2000 and 30 June 1999. None of this information appears on Western Pacific’s website profile.

Interesting times, and an interesting final report on

Western Pacific, await.

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insuranceNEWS

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Once bitten, twice shy Far North Queenslanders learned their lessons from Cyclone Larry

Reuters

By Tania Martin

Tougher houses, more insurance cover: houses wrecked by Larry in 2006 withstood Yasi in 2011 with only minor damage

FIVE YEARS AGO CYCLONE LARRY taught residents in Far North Queensland a lesson they haven’t forgotten – especially when it comes to having adequate insurance.

When Cyclone Yasi crossed the coast in February this year, they were ready. Five years after taking a beating and coming to the realisation that you have to have insurance to get your home rebuilt, the damage to people’s confidence and their homes was far less.

Insurance professionals who have been dealing with claims from Yasi say this time most residents were prepared and had their insurance plans in place.

“They had been bitten before and are once bitten, twice shy,” LMI Group Managing Director Allan Manning told Insurance News.

The people who had to pick up the pieces of their shattered lives after Cyclone Larry struck in March 2006 were the most prepared for Yasi, a deadly category 5 storm so large it would almost cover the entire 28

area of the United States, with a pre-landfall core more than 500km wide.

Yet despite the damaged buildings and the scenes of shattered boats at Cardwell, the misery after Larry – a considerably less destructive category 4 – was far worse.

A James Cook University report has shown that homes rebuilt after Larry by insurance companies using newer cycloneresistant building standards stood up far better to the force of Yasi, meaning the extent of damage was curtailed, limiting insurers’ payouts and minimising the time communities were out of action.

Insurance experts say residents who experienced Larry had learned the importance of being covered by the time Yasi arrived.

Dr Manning says that out of all his clients affected by both cyclones Larry and Yasi, only one had not reconsidered taking out insurance.

He says most “learned the hard way” that it’s vital to have full insurance and insuranceNEWS

June/July 2011

undertake regular reviews of their situation in case of a similar event.

Far North Queensland Insurance Brokers’ director Doug Olson says people have “definitely become more street-smart” about their insurance policies and knowing their rights since Cyclone Larry.

“They certainly have skilled-up in terms of their entitlements,” he told Insurance News.

And Dr Manning says although both storms hit some of the same areas as Larry, the damage was nowhere near as bad because of the upgraded building codes.

“It was the older buildings – buildings that weren’t build to code – that got damaged,” he says.

The Australian Building Codes Board said after Cyclone Larry newer housing generally performed well. “Conversely, the majority of structural damage was associated with older construction (more than 25 years).

“Introduction of revised standards for domestic construction in the early 1980s resulted in newer housing being able to withstand higher wind loads. Also, older structures are more likely to have deteriorated components (corrosion, rot, insect attack) leading to a reduction in strength along the critical load path.”

Similar studies are now being undertaken after Cyclone Yasi. Dr Manning is confident that the tougher building codes brought in after the 1980s provided a “protective barrier” for most homes damaged previously.

“In a lot of these areas the damage has been a lot less,” he said. “We are seeing the same with areas affected by bushfires.”

But Dr Manning says it’s a different situation for flood, with many insured homes being rebuilt in the same place to the same design. Although some engineering work has been done on some properties to reduce future flood damage, “some areas are just too dangerous” and houses in such areas should be relocated.

Doug Olson also believes a lot of the buildings that had been built “to code” had sustained their “integrity well” with that level of cyclone.

“The building codes have definitely been a plus for us and they do work.”

He says older properties in nearby Tully sustained significant damage while those built or modified since 2006 seemed to stand up to the test.

The only apparent damage suffered by newer homes in the Tully area came from

debris flying from older buildings.

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The global educator Joan Fitzpatrick’s all-embracing approach has transformed ANZIIF into an international force with a local focus

By Ben Oliver

IN A PARALLEL UNIVERSE, JOAN FITZPATRICK would be sitting in the international departures lounge of Melbourne Airport telling Insurance News how things have progressed since the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) merged with the London-based Chartered Insurance Institute (CII).

That isn’t how things turned out, of course, but in this fantasy world where things always happen the way they should it would have been nearly three years since ANZIIF’s mercurial chief executive was catapulted into the management hierarchy of the world’s largest financial services professional education body.

Had the merger between the two dominant insurance education bodies happened, the sector they work in would doubtless be a remarkably different beast.

However, such “what if” scenarios are not entertained

by Ms Fitzpatrick. The former barrister and special risks reinsurance underwriter has been chief executive at ANZIIF since 1997, and prefers not to waste time revisiting the events of late 2008, when the CII called off the merger citing “financial discrepancies” in ANZIIF’s accounts and alleged a second annual loss was forthcoming.

The CII was later forced into an embarrassing backdown after confirming it was the global financial crisis and not ANZIIF’s accounts which scuttled the deal – a point reinforced when the institute later reported a 2008 operating surplus of $251,000.

Despite the false claims that ultimately sank the deal, Ms Fitzpatrick says she doesn’t harbour a grudge.

“CII are doing their thing and we are still cordially related,” she told Insurance News. “We do compete with them in Asia, but their presence in Asia isn’t a big problem for us.

“At the end of the day, it was one individual at CII who spoke out of turn. There was quite a lot of aggression over there from trade press. The GFC happened and we were all swept up in that.

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“That’s life. We don’t think about it very much; we’ve moved on.”

While the merger was scuttled, Ms Fitzpatrick says the underlining principles that drove the deal in the first place still hold true.

“We really believe in that concept of a global insurance industry, where you have a mega, uber-global association that would set standards in programs but could have a local presence as well,” she says.

“I still really believe that.”

And Ms Fitzpatrick remains open to ANZIIF merging with another body – including the CII. “Under the right circumstances, I would never say never.”

ANZIIF has since put the dark days of 2008 firmly in its rearview mirror. It has strengthened its balance sheet and widened its international reach to the point that the institute is now well poised to deliver on Melbournebased Ms Fitzpatrick’s vision of a global body with a strong local focus.

Nine months after the merger fell through, the institute solidified its expansion into Saudi Arabia by translating its broking and loss adjusting modules into Arabic for the Saudi Arabian Monetary Agency.

It was a move that raised some muted comment from members in Australia who couldn’t see why an Australasian training body should be interested in expanding into markets half a world away.

But Ms Fitzpatrick is adamant the institute’s Middle Eastern dalliances haven’t been a distraction from its key markets in the Asia-Pacific region.

“We were approached by three countries in the Middle East and their insurance bodies to provide a quote, but we haven’t ever gone out and actively sought the business,” she says.

“I think the Middle East is very interesting, but our particular interest is not very active. Essentially we have licensed our product.”

Has ANZIIF’s interest in the Middle East caused any June/July 2011

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ANZIIF’s Joan Fitzpatrick: education bodies must deliver sophisticated services online

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friction with the CII, which has traditionally regarded everywhere west of Singapore as its territory? Ms Fitzpatrick doesn’t think so.

“It’s extra territory, but in terms of going head to head with the CII it hasn’t caused any problems.

“I see these sorts of opportunities as self-generating, and we do turn plenty away.”

ANZIIF is also assisting the Iraqi Ministry of Finance to bring the war-shattered country’s financial services sector into step with the rest of the world.

It is planning an extended training program for 25 managers and staff from several Iraqi insurers, the Ministry of Finance and Iraq’s Institute of Finance. And it’s negotiating a World Bank-funded capacity-building project for the Institute of Finance which, if negotiations succeed, will be implemented by early 2012.

Last year the institute strengthened its presence in China by partnering with the country’s Insurance Professional College to promote and market ANZIIFcertified education products and services.

The growth in ANZIIF’s satellite operations has been a key feature in the past few years, particularly in China, where the institute is set to launch a new Shanghai office in September and has applied for wholly foreign-owned enterprise status.

“Our main focus is the Asia Pacific,” Ms Fitzpatrick says. “On the life insurance side our biggest competition would be the Americans, and we are pretty strong on the general insurance side. But we haven’t tried to stretch out to India or other mega-economies. I think we are busy enough with China and southeast Asia.

“But Asia-Pacific has to pay for itself. We have done everything on a shoestring. We have been successful because we have been flexible and authentic and genuine.

“The biggest thing about the Asia-Pacific countries is that they are growing exponentially. These economies are fledging and immature and they need a strong insurance industry.

“In the ’80s and ’90s and before that, most of the insurance covers for those countries were ceded offshore.

Now they are building their own capabilities and retention.”

Global expansion, course development and industry position aside, Ms Fitzpatrick views the financial stability of ANZIIF as her greatest achievement after 14 years in the chief executive’s chair.

“The institute is a strong financial viable organisation,” she says. “It’s profitable and it’s secure in terms of its future, all of which makes me feel good.

“We have gone through lots of challenges. We successfully unified the organisation, we’ve been able to operate internationally and punch well above our weight, and our customer satisfaction levels are high.”

Working to repair the industry’s somewhat wretched image has also been important to her.

“We have a unique position in the industry. We are a professional standards education body. We span the whole industry but we are not promoting the commercial needs of individual companies.

“That gives us a great role to improve the image and credibility of the industry.

“Having said that, I don’t think we can do it all alone.

The industry needs to be proactive rather than reactive.

When you see what’s reported in the media and what’s said by politicians, the need to be proactive is more urgent now than it has ever been.”

While the insurance and financial services sectors face a crisis of confidence, the professional education sector faces other threats to its long-term survival.

Like the tertiary sector encroaching on the turf of organisations like ANZIIF. Or the possibility of being gobbled up by cashed-up international competitors – Washington Post-owned Kaplan’s purchase in 2007 of the education arm of major Australian financial services organisation Finsia is a case in point.

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Financial stability is important: Joan Fitzpatrick in her Melbourne office

But Ms Fitzpatrick says one critical area will decide whether training organisations can compete and thrive in the new millennium: social media.

“You really have to be able to deliver sophisticated services online,” she said. “People are instantly accessing knowledge and connecting to others and you have to be on track now in terms of how people find content and learn.

“We’ve invested millions in our IT systems already and we’ve gone through the trials and tribulations of building customised systems.”

ANZIIF’s million-dollar IT investment includes headhunting some highly regarded personnel. The arrival of former NAB Delivery Manager Chris Trott in the institute’s newly created position of Information Technology and E-Business General Manager underscores this focus.

“He was a real prize for us,” Ms Fitzpatrick says.

“The institute is now developing the next generation of online professional membership services, providing the means for our members to access a wealth of practical and technical information and connect, network and collaborate with each other on a grand scale.”

With 15,000 members and established revenue streams, ANZIIF can afford such expensive IT investments, but smaller players in the industry cannot – a point she concedes makes it harder for smaller bodies to compete.

“It’s really difficult for the smaller ones,” she said.

“For many it’s outside of their income to [invest heavily in IT].

“Critical mass is really important in this competitive landscape, particularly for the smaller ones, as students want a specialised service that is highly resourced.”

This is not to say Ms Fitzpatrick believes the industry June/July 2011

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should naturally consolidate as smaller players are forced out, shut down or bought out. On the contrary, she views the long-term survival of niche providers as paramount to a healthy training sector.

She says smaller providers must explore new alliances and structures to survive. ANZIIF has explored the possibilities of “setting up a system that celebrates and allows the difference but also provides a powerful backroom and good economies of scale”.

“It would be a happy medium where niche players don’t have to lose their focus and identity and they don’t have to be sucked up by a larger commercial entity, either,” she says.

One area of growth where niche operators could potentially turn a profit is in bespoke education solutions, an area Ms Fitzpatrick says is beginning it turn a profit, if not a large one.

“There is a very strong appetite for companies to work through their education needs,” she says.

“There is always going to be a place for the generic structure qualifications, but often beyond that corporations have special issues or specific skills they want to address.”

While tailor-made education solutions on a companyby-company basis sounds profitable, Ms Fitzpatrick said convincing companies of the monetary value inherent in education remains an obstacle.

“Nobody ever wants to pay anything for education,” she says. “People’s perception of what education is and what it costs to develop and produce is skewed.”

Perhaps in a parallel universe, education is receiving a fair one at price for its value.

But in this

least, the insur

ance sector’s next batch of talented professionals appears

to be in safe hands. insuranceNEWS

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Efficiency leap or slippery slope?

It depends who you ask. Inside the bold new world of contestable broker platforms

By Ben Oliver

SEXY, DYNAMIC AND INNOVATIVE ARE not words usually associated with the SME end of the commercial insurance spectrum.

Normally viewed as a stable market, the SME space is marked by homogenous risks, high volumes and a “set and forget” mindset. It’s a profitable patch that by some estimates has about a 10% chance of a claim and $2 billion in annual premiums.

But this steady little earner is set for a serious shake-up that will hopefully benefit brokers and their clients. Less positively, it may also squeeze insurers’ profit margins.

Welcome to the new world of contestable broker platforms.

In case you missed the memo, these platforms are seen as the Next Big Thing to change the way brokers do business – or at least the way they arrange and place business. Even the dominance of Ebix’s Sunrise Exchange platform, used by more than 900 brokers, could be challenged.

Contestable broker platforms list prices and features of insurers’ products in a simple onscreen form, making it much easier for brokers – and their clients – to compare what’s on offer.

Brokers commonly take an SME client’s risks to market every few years. While their advice can be expected to concentrate on which insurer is offering the best overall protection, some insurers say it will make it much easier for the client to base their decision purely on price.

One major insurer says it costs it about 34% of premium to acquire a new client, but only about 16% to retain them. Contestable platforms change the insurer/broker dynamic, making it possible for brokers to market risks to insurers much more frequently and to negotiate better policy terms for retained business.

A recent Merrill Lynch report says contestable platforms “allow the broker to obtain quotes very quickly from multiple underwriters on a panel relatively easily, without repeated input of data or other manual interventions”.

“This may mean a much higher level of service to this segment.

“There is also a possibility of more standardisation of the insurance products to allow 34

better comparability, which may make pricing the key differentiator between policies.”

The possible wins for brokers and their clients are numerous: cheaper, simpler policies for clients and a more frequent, more responsive and deeper level of service.

For brokers the advantages of simpler and more information-rich data is a nobrainer. The only ones not winning are insurers, some of whom are fretting over what impact the platforms will have on their margins.

Once brokers have worked out the benefits of streamlining systems in the SME space, what’s to stop them standardising placement in the middle market Insurers say the platforms will lead to the SME market being driven not by the quality of the product or the soundness of the broker’s advice, but by the premium.

They have every reason to be nervous, because the SME market makes up a large part of their business. The market is currently dominated by QBE (between $414 million to $500 million in market share), IAG ($350 to $400 million) and Suncorp ($330 million to $380 million).

Understandably, QBE is making the loudest noises about the perils of exchange platforms, to the extent that it has refused to insuranceNEWS

June/July 2011

support the Steadfast Virtual Underwriter (SVU), which has been developed by the country’s largest broker cluster group.

The Steadfast platform is claimed to be cheaper and faster than Ebix’s Sunrise Exchange, and is now developing occupation-specific professional indemnity (PI) and commercial motor.

Thirteen insurers are connected to the SVU for PI, eight for industrial special risks, five for liability and two for business packs, with a third insurer scheduled and on track to go live in September. A fourth insurer recently commenced integration.

Suncorp, the smallest of the big three in the SME space, is the most bullish about broker platforms, telling JP Morgan recently it sees them as a “key enabler” of its growth strategy.

Essentially, the fears of insurers are based on the experience of UK insurers. A report by JP Morgan says UK motor underwriting margins fell by 20% in the eight years following the launch of the country’s first online aggregator.

“Cherry-picking”, or anti-selection in the lingo of insurance IT aficionados, is another concern for insurers. They fear they will be forced to accept lower premiums despite forecasting a loss on that business – a phenomenon known as “winner’s curse”.

Connecting to these new broker platforms will also involve a monetary cost for insurers. While once they were plugged solely into the Sunrise system, platforms are now proliferating [see panel], forcing the insurers to adapt their technologies to be compatible.

Then there is the slippery slope argument. Once brokers have worked out the benefits of streamlining systems in the SME space, what’s to stop them standardising placement in the middle market? Or even high-end clients?

According to analysts, many of these fears are either exaggerated or unfounded.

“In our view we believe the impact of the emergence of contestable platforms will be greatest in the commercial SME/auto-rated market, given there is limited timely price comparison currently conducted and contestable platforms will allow for much

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Broker

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Exchange platform

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Standard policy wordings

Operational

Open invite

Aon

EMBS

Yes

Yes

No

The second-largest broker in the commercial space has limited the number of insurers on its platform to the majors.

Austbrokers

iClose

Launched in May, not yet operational

No

No

The iClose system was developed in conjunction with Ebix and will be connected to five insurers.

IBNA

BrokerCentral

Planned for launch in late 2011/early 2012

Yes

No

Still in development, but IBNA says it is working on establishing connectivity with a number of insurers.

JLT

Pub

Yes

Unknown

Unknown

Marsh

Gateway

Steadfast

Steadfast Virtual Underwriter (SVU)

quicker price comparability,” the JP Morgan report says.

“Middle market policies will also be written on contestable platforms, but we believe this impact will be more muted given these policies are already more actively shopped and there would not be an instantaneous price comparison given more entrenched relationships between clients and their underwriters.”

The Merrill Lynch report concurs, saying commoditisation of risk is only possible in the simpler SME market.

“It is stating the obvious but the level of complexity also goes up considerably as you move up the various segments,” it says.

Calculations by Merrill Lynch and JP Morgan also show that losses from tighter profit margins are not as terminal as some insurers predict.

Assuming margins halved across all SME classes from 20% to 10% due to contestable platforms, Merrill Lynch estimates about $140 million of profit would be at risk across the market.

JP Morgan says Suncorp has the most to lose, with a 5% profit margin compression converting into a 0.27% fall in group margin. Even in the unlikely event that profit margins shrank by 10% in this sector, Suncorp’s net profit would fall only 2.7% by 2012.

The risks of insurers’ margins being undercut by fly-by-night competitors is not a particular concern, with only Steadfast offering a truly open platform – Aon, Austbrokers and Marsh have limited membership of their exchanges to just the majors.

The impact of simpler and more thorough platforms won’t only affect insurers, however – there is also a potential downside for brokers if 36

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Yes

Yes

Yes

Yes

No

Marsh is neck and neck with Aon in the commercial sector and is hoping its new Gateway program will give it an advantage.

Yes

Steadfast Executive Chairman Robert Kelly is a big fan of standardisation; his new platform is no different.

they rely too much on technology.

“Overly commoditising as well as making the product purely price-focused could devalue the broker’s own advice in the longer term,” says Merrill Lynch. “This could even be used against the broker by the insurer, with a growing suite of direct portals allowing customers to purchase directly from the underwriter – particularly if pricing... is cheaper for the direct channel.”

What about cutting out the middle man entirely? Insurers could save between 2025% by going through the direct channel.

However, with brokers controlling 70-80% of the commercial insurance market, it would be a brave insurer that took such an aggressive step.

And commoditisation threats against brokers are two-fold. It’s not only insurers who could exploit auto-rated lines to sell direct – online aggregators could also gain traction if customers began to view brokers as little more than information gatekeepers.

While both JP Morgan and Merrill Lynch are sceptical of the rise of online commercial lines aggregators, there is no doubt a market in Australia is growing.

As broker advice at the SME level in the UK is more limited, customers have turned online – a salutary lessons for local brokers.

In the UK, the number of Google searches for “compare business insurance” since early 2008 has tripled.

In Australia, a number of online aggregators have set up shop including greatchoice.com.au, zippy.com.au and ozinsure.com.au.

Australia’s first online comparison site, bizcover.com.au, was launched in 2008 by Sydney-based insurance broker Mega Capital, offering professional indemnity and business insurance packages. insuranceNEWS

JLT has less than 5% of the commercial market, but some powerful niche operations.

It sources quotes from QBE, Chartis, Vero, WR Berkley, Hiscox and Dual, and claims to have sold more than 10,000 policies since launching.

The company expanded into New Zealand in February, becoming the first and only aggregator in that market.

“80% of the New Zealand professional insurance market is concentrated among three insurers,” BizCover Managing Director Michael Gottlieb says.

“We are confident that BizCover’s business model of a contestable platform will challenge the status quo and provide significant benefits to clients.”

In the UK, insurers have responded to online aggregators by forming marriages of convenience. Admiral created confused.co.uk in 2002 and is now the largest online comparison site, while Brit Insurance chose another path, acquiring commercial aggregator simplybusiness.co.uk.

According to the Simply Business website, the company now insures more than 160,000 small business customers.

All in all, contestable platforms offer risks and rewards for brokers and insurers.

For brokers, there is an opportunity to reduce costs, while insurers can reduce underwriting costs while maintaining a sense of individuality.

“Overall there are many permutations of how [platforms] could evolve, but we warn against the complacent underwriter that could be caught out due to slower processes and unsophisticated systems,” the Merrill Lynch report says.

“We cannot dismiss the risk that more and more business will be put on these emerging broker platforms which may, in

time, increase the overall impact.”

June/July 2011

CGU003

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We believe that customers deserve the best advice available when it comes to insurance. That’s why CGU works with Australia’s best Brokers and Advisers to give the right solution to customers based on local knowledge, business planning and experience. Our partnership brings more customers, more solutions, more often. Talk to your CGU account manager to understand how you can strengthen your relationship with CGU – Australia’s intermediated insurer.

The insurer is CGU Insurance Limited ABN 27 004 478 371 AFSL 238291.

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Ready, aim…

bushfire!

US insurance researchers examine fire hazards by burning a house down. Their findings should interest Australians

By Tania Martin

AN AMERICAN INSURANCE RESEARCH institute is proving what most Australian firemen have known for years – that the biggest bushfire risk homeowners face isn’t lines of flames but the flying embers that precede them.

It’s embers which caught many people by surprise during Victoria’s devastating Black Saturday bushfires in February 2009.

And for weeks it was the fear of windborne embers that kept many Yarra Valley and Dandenong Ranges residents on tenterhooks fearing their home might be next.

Some 16,000km away from the bushfirecharred hills of Victoria, the Insurance Institute for Business and Home Safety (IBHS) has been examining the causes of wildfire damage to domestic buildings at its research centre in South Carolina.

The centre is based around a unique building that can duplicate a wide variety of extreme weather conditions, which can be unleashed on ordinary houses built inside the facility for destruction testing.

It featured in Insurance News in December last year showing how a house in a simulated windstorm was destroyed, while an 38

identical house beside it which had been retrofitted with IBHS-recommended strengthening survived unharmed.

Recently the centre conducted its first full-scale fire demonstration to illustrate how easily embers can ignite some commonly used materials near or on houses.

IBHS Chief Executive Julie Rochman says most people don’t see the danger in embers, mistakenly believing that advancing lines of flames are the biggest danger in a bushfire.

“Rather, it’s embers or ‘firebrands’ that create spot fires by igniting vegetation, debris and flammable materials that lead to ignition of the exterior of a house, as well as embers blown or drawn into buildings through gable vents and other openings that can ignite a house from the inside,” she says.

“Our laboratory test vividly demonstrates that.”

The test was undertaken using powerful fan systems which can replicate a wildfire ember shower like that seen during a real blaze.

Ms Rochman says the centre is working insuranceNEWS

June/July 2011

with scientists to understand the causes and effects of firestorms, while also working with fire services whose personnel are on the bushfire front lines.

“It is critical that the work we do here in the controlled environment of the research test chamber is exactly what firefighters see and experience in the field,” she says.

Research collected from these kinds of tests will be used to develop a computerbased program which will allow architects and homeowners to subject new home designs to wildfire conditions.

The program will then provide recommendations on what can be done to decease the likelihood of ignition for each home design.

“Taking steps to make your home more resistant to an ember attack is the most important thing you can do to reduce damage,” Ms Rochman says. “Making a plan will allow you to leave when an evacuation is ordered and return home to little if any damage.”

She says wildfires can pass by a property within minutes, but the exposure to embers

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©2011 Insurance Institute for Business & Home Safety

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can linger for an hour or more.

And in many cases they are still a threat after firefighters have left the area.

That’s when ember-related fires can ignite.

The IBHS recommends a few simple ways of ensuring home safety during ember attacks, including the age-old rule of making sure your gutters are clear and reducing the amount of fuel on the ground surrounding the house.

But just as important is its campaign to retrofit older homes to make them more resilient to extreme events such as flood, fire and windstorms.

Apart from the use of the facility to demonstrate the effects of fire on a building, the IBHS also examined construction features, proximity to the fire, wind speed and direction, slope and the amount and type of vegetation. It also commissioned social research to better understand what motivates people living in wildfire-prone areas to take protective actions – and what would make the difference for those who do not.

The result is a detailed report, “Mega Fires: The Case for Mitigation”.

While the report focuses on California, the IBHS says one-third of homes in the US are now located in what fire safety officials call the “wildland urban interface”, and the findings and recommendations can be applied to all wildfire-prone areas across the country.

The IBHS also produced nine regionspecific wildfire guides on how to retrofit homes.

Some of the report’s findings: • Homes with the highest risk of burning are those adjacent to “wildland” situated on the perimeter of housing developments.

Properties positioned along the edge of a housing development on the downwind side were exposed to a substantially higher risk of being destroyed. It was generally found that properties along the edges of a housing development were nearly twice as likely to burn as properties on the first row back from the edge, and three to eight times more likely to burn than homes further back.

• “Interior” homes in housing developments which are situated less than 4.5 insuranceNEWS

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metres apart are at high risk from wildfire.

This finding elevates the importance of a community-wide approach to protecting properties against wildfire where the density of homes is high. “Cluster-burning” was not witnessed in homes located more than 14 metres apart.

• All homes, regardless of their value, can be best protected from wildfire by implementing appropriate loss reduction measures.

The value of a home was not found to be a major factor in the risk that it would burn. This suggests that any home can be protected by taking the proper steps.

Wind-blown embers, which can travel 1.6km or more, were the biggest threat to homes in the event known as the Witch Creek Wildfire.

This was a series of fires in southern California in 2007 which destroyed more than 1500 homes, burned out 2000 square kilometres of bush and killed nine people.

There were few, if any, reports of homes burned as a result of direct contact with flames.

• Policymakers need to take a more proactive, community-based approach to property protection.

The report says government leaders should critically review the costs of firefighting resources and implement effective mitigation efforts early.

• Homeowners need to retrofit their homes.

It says homeowners must become familiar with the affordable options available to retrofit their existing homes to increase their protection against wildfire, and local and state government leaders should encourage this education.

• New home construction in wildfireprone areas should be built using the “shelter-in-place” standards.

This is similar to the “stay” segment of Australia’s “stay or go” policy, under which a competent resident who chooses to stay makes an “informed and educated decision to use a properly prepared residential structure and site as a safe refuge while the wildfire passes by”.

• Financial and real estate markets must acknowledge the value of wildfire-resistant construction and retrofitting.

The report says the financial services industry, along with the real estate industry, must recognise the value of making these improvements to existing homes, and says new homes should be marketed for their ability to survive in wildfire-prone areas.

40

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Don’t follow the UK’s lead Australian brokers should hope a proposed client compensation fund doesn’t emulate the British mess

By Michelle Hannen

THE GLOBAL FINANCIAL CRISIS HAS put financial services regulation under the spotlight worldwide. Despite not contributing significantly to the economic malaise, the insurance sector has not been immune to regulatory examination.

The Australian financial ser vices industry’s strong performance during the crisis has been balanced by high-profile collapses such as Westpoint, Storm Financial and Opus Prime, prompting the Federal Government to review regulation of the financial advice sector as a whole. This has resulted in the Future of Financial Advice (FOFA) reforms, which will come into effect from July 1 next year.

While the draft version of the reforms indicates that brokers have been spared the worst of the reforms – such as the ban on commissions and volume payments – the Government is still considering whether to include brokers in its statutory “best interests” reform.

This will require intermediaries “to act in the best interests of clients and give priority to the interests of the client above any other interests”.

And brokers could be hit with a substantial new fee if the Government gives the go-ahead for the creation of a statutory compensation fund for retail investors, which is also being proposed under the FOFA reforms.

The proposed compensation scheme will assist investors who lose their money through the misconduct of a financial services provider.

The argument supporting a compensation scheme is that currently a claim on the financial services provider’s professional indemnity (PI) insurance is the only course of compensation. But in cases of mismanagement, PI cover is often not insuranceNEWS

in place or not sufficient, and a financial services provider that has ceased to trade or is insolvent does not have the capacity to pay compensation.

Richard St John, a corporate governance expert appointed by the Government to review the viability of a compensation scheme, looks closely at the UK’s Financial Services Compensation Scheme (FSCS) in his consultation paper on the subject.

The outline for a potential scheme proposed by Australia’s Financial Ombudsman Service (FOS) closely mirrors the UK model.

Mr St John says one of the strengths of the UK scheme is that it offers “second tier protection for claims which slip through the first tier protection, which is based on a mix of professional indemnity insurance and minimum capital requirements”.

But those representing UK brokers take a different view of the FSCS. Institute of Insurance Brokers (IIB) Chief Executive Barbara Bradshaw says the way the FSCS is funded is “patently unfair” on insurance brokers, who are in a funding class with all other intermediaries licensed to sell insurance – including secondary sellers such as vets, mobile phone retailers and car dealers.

A mis-selling scandal involving payment protection insurance sold by credit brokers – who are in the same funding class as insurance brokers – has resulted in huge claims to the FSCS, which in turn resulted in levies paid by brokers increasing nine-fold in the past three years.

A further 50% rise is flagged for the next financial year.

British Insurance Brokers’ Association (BIBA) Chief Executive Eric Galbraith says the escalating FSCS levy is “one of the biggest issues” facing UK brokers. A re-

June/July 2011

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“Small firms, including insurance brokers, are exposed to the liabilities of banks and other large institutions because of cross-subsidisation” view due to be conducted into the scheme’s funding model has been indefinitely delayed due to a redesign of financial regulation in the UK. Alan Mason, a principal at Sydneybased Professional Financial Solutions, consulted with FOS on its model for a compensation scheme. He says that while its model is “very closely based on the UK scheme”, it has “some very different features”.

He says the funding model for the FOS proposal is still being refined.

“We’ve been trying to rework the funding model to apportion the cost of losses back to the segment that caused the losses.”

Mr Mason says this would involve “much tighter” funding categories than those used for the FSCS, and would also cap compensation payments at 1% of the revenue of each funding pool.

He says the evolution of the FOS proposal has been based on a close examination of the UK situation, as well as feedback from Australian stakeholders.

But Ms Bradshaw maintains Australian brokers should be “extremely cautious” about the introduction of a compensation scheme, “and most certainly should not follow the UK model”.

“It is vital that brokers are not in the same funding block as others who do not transact business in the same way,” she told Insurance News.

She adds that a further danger in the UK funding model is that once the levies on one funding class are exhausted by claims affecting that class, the other classes are required to meet its additional compensation claims.

In practice, this could result in brokers having to pay for the wrongdoings of other financial services providers.

“So small firms, including insurance brokers, are exposed to the liabilities of banks and other large institutions because of cross-subsidisation,” she says.

Contacted by Insurance News shortly before his departure, National Insurance Brokers Association Chief Executive Noel Pettersen declined to share its position on the compensation proposals ahead of a meeting with Treasury and preparing its response to the Government’s consultation paper.

UK brokers are also facing a raft of 42

British broking leader Barbara Bradshaw: Australian brokers should be extremely cautious

BIBA chief Eric Galbraith: the escalating levy is one of the biggest issues for UK brokers

insuranceNEWS

June/July 2011

regulatory changes in order to address what their government perceives as “key weaknesses” in its financial regulation.

The Bank of England will have oversight authority for the entire financial system by the end of next year, scrapping the Financial Services Authority (FSA), which is at present responsible for insurance broker regulation.

Two new bodies will also be created: the Prudential Regulation Authority, which will be responsible for the day-to-day supervision of financial institutions that are subject to significant prudential regulation; and the Financial Conduct Authority (FCA), a business regulator which will also oversee insurance brokers.

BIBA is concerned that regulations under the FCA will be as onerous and expensive as those imposed by the FSA. It recently commissioned research which found that UK broker regulations cost three times more than the next closest EU country.

But BIBA says the only risks posed by brokers are that they could potentially provide low quality advice resulting in the mis-selling of products and the loss of client money. And as such, current regulations are “disproportionate and inappropriate”.

Mr Pettersen says there is no need for concern from Australian brokers because “we’ve been well ahead of what’s been happening in the UK”.

Ms Bradshaw agrees Australian brokers need not fear the advent of a FCA-style regulator in Australia. She says its creation in the UK is in response to the perceived failings of the FSA in regulating the banking sector prior to the GFC, a situation that did not occur here due to the robustness of the Australian Prudential Regulation Authority’s regulatory regime.

But there is a caveat: the GFC has prompted closer cross-border collaboration between international regulators, who meet frequently to exchange ideas. So some cross-adoption of regulatory methods is inevitable.

On a global basis the regulation of financial services businesses is only heading in one direction, and local brokers should keep one eye on the potential for global regulatory creep.

Catching up with Australia, page 50

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styleNEWS

From highway to high-rise

NTI has moved 29 storeys up into a showpiece of efficiency and flexibility

44

NATIONAL TRANSPORT INSURANCE (NTI) identifies very strongly with its customers in the trucking industry. For 16 years its headquarters at Springwood, south of Brisbane, stood sentinel over the thousands of trucks that pass by every day on the Gold Coast Highway.

But successful companies grow, and NTI now has offices across Australia and in New Zealand. It’s the market leader in the heavy commercial motor insurance market, and last year Chief Executive Tony Clark and his management team decided the company had outgrown the Springwood office.

While the drone of diesel engines may insuranceNEWS

June/July 2011

have been an evocative background noise to work with, they decided the time had come for NTI – which is jointly owned by CGU and Vero – to relocate to a more sophisticated locale, closer to the business centre in Brisbane.

GVA Project Control Group in Brisbane (PCG) was selected to find the right place and to supervise the design and fitout. The result is an office 29 storeys above the Brisbane River at 400 George Street, occupying a single floor that is actually marginally smaller in area than the old multi-floor Springwood operation.

But more efficient use of space and

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an emphasis on open-plan spaces and large amounts of natural light for staff working at state-of-the-art workstation clusters means the NTI operation is much more efficient, and very pleasant to work in as well.

And even if B-doubles and semis no longer roar past, NTI hasn’t lost any of its identity as the truckers’ insurer of choice.

Meeting rooms are named after major transport highways, giant stylised highway signs provide dramatic backdrops and the staff café boasts booths that give it the ambience of an old-style truck stop – even if its full-length windows provide a panoramic

Page 45

view of Brisbane and the surrounding suburbs.

PCG design team leader David Taylor says NTI’s executive team wanted staff and not necessarily the managers to get the best views.

“Open-plan settings were located around the perimeter of the floor and offices were placed closer to the building’s core,” he says. “The entire workplace feels light and airy, and at the same time it’s very energy-efficient.”

Meeting rooms have been designed for maximum flexibility through the incorporation of movable walls. They range from insuranceNEWS

June/July 2011

small “quiet rooms” to open-plan “touchdown benches” and semi-enclosed lounge areas.

It’s also a fun place to visit, with clever use of internal windows and semi-clear walls made of different materials to give visitors a glimpse into the world of NTI. And if you’re invited into the claims area, insist on being shown the table with a variety of roads and intersections painted on. That’s where the experts gather with audio-visual gear and toy trucks to establish exactly what did cause that accident.

Serious stuff, of course, but like we said,

a fun place to work.

45

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Steering in new directions

Burned-out: car thieves today are more likely to want to strip a car for parts

Vehicle thefts have halved in a decade, but thieves are becoming increasingly sophisticated

By Tania Martin

46

THE INSURANCE INDUSTRY’S MOVE TO support the reduction of vehicle theft over the past 12 years has more than paid for itself, saving insurers an estimated $2.4 billion and seeing a 60% reduction in thefts from 142,000 to less than 60,000 a year.

It appears the National Motor Vehicle Theft Reduction Council (NMVTRC) was just the answer the industry was looking for in the late 1990s to tackle the escalating problem of car theft.

The program was expected to last just five years when it was set up, but it’s still going strong after 12 years.

NMVTRC Executive Director Ray Carroll, a former policeman, says he never expected the project to be so successful, and claims it’s the only crime prevention initiative in the country that has been sustained over such a long period.

The insurance industry played a pivotal role in getting the council up and running, pledging to cover half its running costs.

It currently costs $2.2 million a year to fund the council’s work, with half paid by state and territory governments.

“The investment by the insurance industry has also been the largest and longest of any supporters of crime prevention in Australia,” Mr Carroll told Insurance News.

The council is the direct result of a request by the former Crime Ministerial Forum in the insuranceNEWS

June/July 2011

last 1990s for a taskforce to tackle the escalating problem of vehicle theft.

Mr Carroll was at the time the head of Victoria Police’s Crime Prevention Bureau, and the 22-year career cop had seen first-hand how car thefts continued to climb no matter how many times an offender was arrested and charged.

“As a detective I kept seeing this revolving door of investigating and arresting offenders,” he says. “They might go to jail or not, but they would soon be back out there on the street again doing it one way or another.”

He says it was this continual problem, which is faced by most police officers on a daily basis, that led him to wanting to be involved with the council.

The organisation is currently under a threeyear contract, which is due to sunset on June 30 next year. Mr Carroll says the insurance industry has been supportive, and while the council’s future is still uncertain he’s confident it will continue.

There are still major concerns over the stolen and unrecovered rate – one of the biggest cost impacts for insurance. Car theft currently costs Australia an estimated $610 million a year, of which $300 million is paid for by insurers.

However, the cost is a lot less than before the council was established.

Mr Carroll believes there is a still a lot more

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Top 10 short-term stolen cars in 2009/10 Holden Commodore VN – 1144 Hyundai Excel X3 – 881 Holden Commodore VL – 691 Holden Commodore VT – 639 Holden Commodore VP – 532 Subaru Liberty – 473 Ford Falcon EA – 464 Holden Commodore VS – 445 Nissan Skyline – 411 Toyota Camry SV22 – 403

Top 10 profit-motivated stolen cars 2009/10 Holden Commodore VT – 262 Nissan Skyline – 192 Holden Commodore VL – 187 Holden Commodore VN – 183 Holden Commodore VS – 167 Hyundai Excel X3 – 150 Holden Commodore VX – 134 Holden Commodore VR – 133 Ford Falcon EA – 130 Toyota Camry SV21 – 116

Short-term theft data for 2010 New South Wales: 11,157 stolen (down by 1801) Victoria: 7909 stolen (down by 1277) Queensland: 5450 stolen (down by 470) Western Australia: 3027 stolen (down by 630) South Australia: 2983 stolen (down by 594) Tasmania: 427 stolen (up by 186) ACT: 908 stolen (down by 487) Northern Territory: 785 stolen (up by 125) Overall: 33,646, down by 4948

Profit-motivated theft data for 2010 New South Wales: 5482 stolen (up by 256) Victoria: 2379 stolen (up by 235) Queensland: 1417 stolen (up by 104) Western Australia: 532 stolen (up by 20) South Australia: 711 stolen (up by 47) Tasmania: 132 stolen (up by 37) ACT: 476 stolen (up by 3) Northern Territory: 67 stolen (down by 2) Overall: 11,196 stolen, up by 700 48

NMVTRC’s Ray Carroll: innovative approaches have cut the rate of car thefts

work to be done, despite the council reaching its original target to reduce crime by 50% in the first 10 years.

He says vehicle theft remains a problem, but it’s not on the massive scale of 10 years ago, thanks to some innovative approaches to the problem.

Probably the best known of the council’s initiatives was the engine immobiliser program for older vehicles, which had significant impacts on short-term thefts. The program allowed older vehicles which didn’t have immobilisers – typically owned by people least able to afford such protection and also the most disadvantaged when their vehicles are stolen – to have the device fitted at heavily discounted prices.

Mr Carroll says the program has had an impact, but then so have increased concentration on the theft issue by police and community education.

Immobilisers are now fitted to about 65% of Australia’s car fleet, which equates to three out of every four vehicles parked in the street or car parks being safe from what Mr Carroll calls “the mythical 13-year-old with his screwdriver”.

Short-term thefts continue to be profiled as a crime for young people between the ages of 13 and 24, but the council believes that there has now been a major shift in the trend.

The most recent statistics show an 11% drop in the number of cars stolen in past 12 months.

That’s 4948 fewer cars being driven away by thieves.

“I think youth culture has changed to some extent over time,” Mr Carroll told Insurance News.

“Once it was something you did on a Friday or Saturday night, but now I think a lot less young people are inclined to do that.”

Despite a large drop in short-term thefts, profit-motivated offences, which are considered the most expensive type of vehicle theft for insurers, have only dropped by 20% since 1999.

He says this continues to be a key issue for the council, especially as criminals and their crimes continue to evolve over time.

Current trends show that thieves are using cars stolen for this kind of activity to sell parts on the black market or wholesale to mechanics.

“Legitimate repair shops which are buying insuranceNEWS

June/July 2011

second-hand parts can unwittingly be buying stolen parts, and there’s a small proportion of parts that go offshore,” Mr Carroll says.

Thieves are no longer so involved in rebirthing, under which a written-off vehicle is bought for its identification plate so it can be transplanted on to a stolen car and sold on, usually to innocent private buyers.

“They are actually now going to the trouble of rebuilding the damaged car with the stolen car’s parts,” Mr Carroll says.

“The other thing that is now consuming a lot of stolen cars is theft for scrap. Older cars can be taken straight to metal recyclers.

“We used to see lot of cars dumped in the street and stripped of the bits the thieves wanted, but less and less cars are being found stripped.

Now they’re stripping and then taking what’s left to metal recyclers.”

Mr Carroll says this is a “really big ticket item” for insurers, police and the council, even though it only equates to about 1% of the more than 600,0000 cars taken to scrap metal yards each year.

“It’s a challenge to decide what hoops you put in place for industry people to jump through to find that 1% of cars – and would they be happy doing it.

“There is a growing recognition in industry circles that the whole vehicle end-of-life system needs to not just be improved but actually managed.”

The NMVTRC is now looking at tackling the issue from an environmental perspective, as there is wide recognition that if those 600,000 vehicles are not dismantled or decommissioned properly they could pose a significant environmental issue.

“So we will be looking to see if we can help facilitate better managed end-of-life vehicle systems to make sure cars are decommissioned properly before they go to metal recyclers,” Mr Carroll told Insurance News.

“And if that is put in place on the ground we can build into that system a much more rigorous system to verify that the vehicle being presented for sale is legitimate.

“If we don’t do this it will just go on and on

and the problem will get bigger and bigger.”

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lawNEWS

Catching up with Australia: The law setting out British consumers’ insurance contract rights is 105 years old, and it’s overdue for a change

By John Wilkinson SOMETIMES IT TAKES A LONG TIME for British law to catch up with modern life.

In the 21st century, the UK is changing its insurance contracts law for consumer rights – something Australia was on top of as far back as 1984.

Consumer rights on UK insurance contracts have relied on the 1906 Marine Insurance Act which put the onus on the person applying for insurance to disclose every material fact even if the insurer did not ask for this information.

According to the UK Law Commission, the existing law is a trap for consumers who are usually not aware of the disclosure rules.

The commission found policyholders are being denied claims even when they act honestly. Even if a mistake had been made, the penalty is severe when the insurer refuses to pay a claim.

“Proposal forms sometimes state that the answers ‘form the basis of the contract’.

In law, this means that if any statement is incorrect, the insurer may refuse all claims, even if the mistake is unimportant,” the commission said.

One of the numerous cases cited as a reason to change the law was Lambert v Cooperative Insurance Society in 1975.

Mrs Lambert insured her family’s jewellery with the co-op, which didn’t ask about her husband’s previous convictions, and she did not mention them.

When Mrs Lambert claimed £311 for lost jewellery, the insurer refused to pay the claim due to non-disclosure.

The UK Court of Appeal held that the insurer was entitled to do so under the rules set out in the 1906 Marine Insurance Act. It found the husband’s convictions were important information that should have been disclosed and that would have influenced the insurer’s decision on whether to write the policy.

The Law Commission accepted that while the law is clear, it isn’t very fair for the consumer.

“The current law is complex and confusing,” the commission said. “To mitigate 50

the harshness of the 1906 Act, consumer insurance has been the subject of an array of industry codes, Financial Services Authority rules and Financial Ombudsman Service discretion.”

To overcome the problems of the old Act, the Law Commission has introduced a new bill into Britain’s House of Lords to set out what consumers should tell their insurer before taking out a policy.

The Consumer Insurance (Disclosure and Representations) Bill has been taken up by the ruling coalition government and will pass through both houses of parliament when it can be fitted into the timetable.

Law Commissioner David Hertzell, who is leading the push to change the law, says the bill achieves a long-needed balance between the interests of consumers and insurers.

“This is the first time that consumer groups and the insurance industry have reached a consensus on the issue of precontract disclosure,” he said. insuranceNEWS

“It is a notable achievement that will improve consumer protection while also enhancing the reputation of the insurance industry.”

The Association of British Insurers is supporting the bill, with Director of General Insurance and Health Nick Starling saying it will formalise what insurers have been doing for many years.

“By making such good practice common, the bill will bring greater transparency and certainty, and improve consumers’ faith in the insurance industry,” he said.

The bill proposes that if the consumer has acted honestly and reasonably, the insurer must pay the claim.

However, the consumer is expected to take into account a range of factors including the type of insurance policy and the clarity of the insurer’s questions.

If there is a dispute, the insurer can refuse to pay for items that are excluded in the policy, but must pay for the items that are covered.

The bill will also abolish “basis of contract” clauses, bringing it into line with recognised good practice.

In Australia, these consumer rights were enshrined in the 1984 Insurance Contracts Act. Section 54 of the Act explains how consumers are protected from insurers refusing to pay claims.

Insurance law specialist June Smith told Insurance News the Insurance Contracts Act says consumers have an obligation to give the insurer any information in good faith.

“The insurer has an obligation to the product, but it has the onus to follow what is in that product when dealing with claims,” says Ms Smith, a partner at Argyle Lawyers.

“The insurer has to show that the information they are given is a reason why they wouldn’t insure a consumer.”

Ms Smith says under section 54 an insurer cannot refuse to pay a claim just because they haven’t received certain information.

“The insurer has to show the disclosure was relevant before they can refuse to pay.”

June/July 2011

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companyNEWS

A textbook that explains insurance: Allan Manning’s latest publication spells out the things that people need to know – but rarely do INSURANCE IS JUST SOMETHING YOU have but never really understand. That’s the view of many people who buy insurance without really thinking about whether the insurance they obtain is even going to cover them against their specific risks.

They understand insurance is a necessity, but very few people outside the industry have a clear idea of how it works.

It’s those people who will benefit from Allan Manning’s new book, “It May Happen to Me!” Dr Manning, the Managing Director of LMI Group, is determined to demystify general insurance, putting pen to paper for the third in a series of books designed to help people understand the ins and outs of insurance.

This latest book aims to inform everyone – but especially small business owners – about the importance of having the right type and amount of cover.

It’s a departure from the others in the series – “In Case it Happens To Me!” and “It Did Happen To Me!” because it’s more directed towards the general public than insurance professionals.

A 40-year insurance veteran, Dr Manning says he would like a dollar for each time a business-owner has filed a claim

and then said to him, “I never thought it would happen to me”.

It’s this inherent lack of belief that something bad could or would happen that has left many people with either the wrong kind of insurance protection or underinsured.

The book was more than two years in the making, but Dr Manning told Insurance News there’s ”a few more in me yet”.

“People are not really understanding the importance of insurance, and it’s one of the most important contracts that you can have,” he says.

The book examines the issues facing businesses and individuals when looking at getting the right cover. From the beginnings of how general insurance first began to how it works and the true cost of underinsurance, it’s full of important information.

Dr Manning says in the 2010 financial year, the general insurance industry in Australia paid $16.3 billion in claims, which was an average of $44.6 million a day – proof that it “does happen to people, every single day”.

insuranceNEWS

June/July 2011

The book is receiving great support from the broking community since its launch in April, with many brokers buying copies to give to their clients.

“They are just walking out the door,” Dr Manning says. “It’s been very well received and we are getting a lot of positive comments on it.”

One broker told him that it was the textbook on general insurance that the industry has been waiting for.

“It’s very positive to hear, especially when you put all that work in to it.”

“It May Happen to Me!” is available through the LMI Group’s website and costs

$100 plus GST.

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companyNEWS

QBE speeds up the process: New online capabilities increase brokers’ ability to manage claims

Countering the cost of cyber-crime: Mobius Underwriting provides cover for online security risks THE THOUGHT OF A HACKER LOGGING INTO A PRIVATE network sends a chill down any IT manager’s spine. With recent media reports saying hacking has evolved from a pastime for computer-literate teenagers into a full-scale commercial, political and military strategic problem, it’s obvious the financial risks are also increasing.

Enterprise risk solutions specialist Mobius Underwriting Australasia is now offering data assets and network security insurance to guard against possible hackers.

Mobius Chief Executive Tim Higgins says the recent attack on the Sony PlayStation Network, which affected more than 1.5 million Australians with the theft of their personal information, demonstrates that data security is “no game”.

But it’s not just hackers and cyber-criminals that businesses need to be aware of. Computer networks can also take substantial hits that put them off the air. And the causes can range from human error, power failures, fraud and viruses to natural disasters or employee sabotage.

Standard property, liability or crime policies don’t traditionally cover damage or loss to intangible assets such as data systems, but Mobius is trying to breach “this gap in the market”.

Its new Data Assets and Network Security packages are designed to cover any damage or financial loss from accidental or malicious incidents to computer software, networks or data.

The cover is available for first-party losses suffered by enterprises as well as a company’s liability to third parties, which includes the misuse, theft or disclosure of confidential information held on a network.

Mr Higgins says as more people continue to shop online there is an increased risk that their personal information can be stolen.

Such incidents can seriously damage a company’s business relationships with suppliers, clients and regulators as well as erode financial performance and create investor concern.

Although data security insurance packages have been available in the United States in “various shapes or forms” for about seven

years, the Mobius product is a “first” for Australia.

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QBE IS HELPING BROKERS streamline their claims processes by rolling out enhancements to its Claimwrite system.

The changes will provide better claims management for customers on selected product lines, while offering increased finalisation limits for household claims and new straightthrough processing (STP) capabilities for business packages.

QBE has also introduced a new process that will allow brokers to register private and commercial motor vehicle claims.

Executive General Manager Intermediary Distribution Colin Fagen says the changes will “empower” brokers, with an easier method of processing claims.

He says the enhancements will provide a user-friendly system that generates instant claims number notifications and eliminates the need for forms.

“This is further supported by in-built business rules with the more complex claims automatically referred to a QBE claims officer,” Mr Fagen says.

The improved online portal will enable brokers to register and finalise straightforward claims of up to $5000, an increase from the previous $3000 limit.

This change could lead to more than 27,000 claims being processed and finalised each year on the Claimwrite system.

More than 80% of business package claims under $5000 can now be processed through the online portal due to the introduction of STP capabilities.

Mr Fagen says since Claimwrite’s launch in 2006 QBE has received continual June/July 2011

feedback through various customer satisfaction surveys. This feedback has led to the changes.

The new enhancements allow brokers to register claims for all sections of a business package policy, which includes transit, tax audit and employment practices as well as claims for private and commercial motor vehicle (excluding fleet) policies.

“In addition to other changes we’ve undertaken to our overall claims management process, these enhancements to Claimwrite have been in development and testing for over 12 months,” Mr Fagen told Insurance News.

“With the instant notification of a claim number and elimination of the need for claims forms, we expedite the process of getting the insured back on their feet,” he says.

“Access to an electronic claim file – not just for home, motor and business packages but for all products available on the system – provides brokers with complete transparency over the customer’s claim.

“This saves vast amounts of time which could otherwise be wasted waiting for return phone calls or emails.”

Claimwrite is available via QBE’s broker portal c.ch@ange or directly from CBS or WinBEAT. QBE says when the system is accessed through compatible broking packages it will eliminate the need for brokers to double-key information, as they are automatically returned to their broking package at the end of the transaction.

A comprehensive eBusiness Advisor training program has also been undertaken to sup port the system rollout.

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At Newline Australia we underwrite the following classes of insurance: Public & Products Liability; Professional Indemnity; Financial Institutions; Directors' & Officers' Liability and Crime

We specialise:

We understand:

We deliver:

Automotive Biotechnology Chemicals Clinical Trials / Research Defence - machinery, weaponry & protective equipment Engineering Labour Hire Life Science / Pharmaceuticals Medical Equipment / Products Mining Oil & Gas Rail Tyres - new, re-treading, lugging, repair and sales Veterinary Medicines Waste management Welding

Accountants Architects Design & Construct Engineers Environmental Consultants HR & Recruitment Consultants Insurance Brokers / Underwriting Agencies Law Firms Management Consultants Medical Malpractice Miscellaneous Risks Real Estate Agents Valuers

Banks Building Societies Credit Unions Fund Managers / Investment Managers Insurance Companies Managed Investment Schemes

Craig Rowsell

Stephen Mullaly

Christine Pistone

Regional Manager Underwriting Manager – Liability Ph: 03 9999 1908 Email: crowsell@newlinegroup.com.au

Underwriting Manager – PI Ph: 03 9999 1907 Email: smullaly@newlinegroup.com.au

Underwriting Manager – D&O & FI Ph: 03 9999 1905 Email: cpistone@newlinegroup.com.au

Key D&O: Insured firms can be not-for-profit, privately held, or publicly traded.

Start-ups will be considered.

All industry sectors, both commercial and financial, are underwritten.

Key Crime: Commercial Crime insurance is also offered to non-financial companies.

Newline Australia Insurance Pty Ltd | PO Box 16208, Collins St West, VIC 8007 | Ph: 03 9999 1901 | Fax: 03 9670 0045

www.newlinegroup.com.au ABN 81 118 089 651

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peopleNEWS

A long way to come for an exam

Debbi wins first Frank Earl award

Nice to be recognised: winning ANZIIF student Michael Beeston

WHEN THE GLOBAL FINANCIAL crisis plunged the UK into a deep economic gloom, Michael Beeston decided to move to Australia. A few days after he arrived, media reports started warning that the local job market was close to collapse.

He needn’t have worried. Within three weeks of arriving in Melbourne he had a job in the industry. And no wonder.

A risk expert with more than 19 years’ UK industry experience working in areas like audit and compliance, he was hardly a novice.

Now some six months after joining CGU in Melbourne, the 42-year-old Retail Risk and Compliance Manager is making his mark on the local industry by winning top honours in the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) Certificate IV in Financial Services examination.

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Mr Beeston was named the Student of the Year in his course and also received the highest marks for the insurance law regulation module.

“It was really unexpected,” he says.

“It’s nice to be recognised.”

He received a free ANZIIF membership and two certificates to mark his achievements.

Mr Beeston still can’t believe he’s done so well in his first few years in Australia.

He says it was especially surprising that he had scored the highest in the insurance law and regulation module as he’d only been in Australia six months when he took the exam.

Although he insists UK regulations are very similar to Australia’s, it was still a pleasant surprise to score 96% on the test.

“The fact that it’s all very similar must have helped me to a certain extent,” he told Insurance News.

The move to Australia was initially meant to start with a three or fourmonth holiday, but Mr Beetson hasn’t

got around to that yet. insuranceNEWS

June/July 2011

Life and work is sometimes a difficult act for any dedicated professional to juggle, but New South Wales broker Debbi Thorne (above) has thrown an extra challenging ingredient into the mix – professional education.

The Austbrokers Sydney Account Manager has had her dedication to professional improvement recognised as the winner of the National Insurance Brokers Association’s (NIBA) inaugural Frank Earl Memorial Scholarship.

And a special touch has been provided by the fact that Ms Thorne knew the late Frank Earl well, and regarded him as a mentor.

The new annual award commemorates the life of Mr Earl, a leading broker, professional education advocate and long-serving NIBA board member who died last year.

This is not the first time Ms Thorne has been recognised for her professional achievements, taking home the NIBA NSW Broker of the Year in 2008.

The scholarship, sponsored by Pacific Premium Funding, pays up to $10,000 for her to complete her Graduate Diploma in Financial Services through NIBA College.

NOVA 2883

A decision to quit the UK pays off for Michael

2883 No

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STEP UP …to a higher level of professional risks liability cover and service with NOVA Underwriting.

We have the experience and expertise that you and your clients deserve. Our products provide excellent cover, are easy to read, competitively priced and include some offerings not often available in Australia. They include: Professional Indemnity Directors & Officers Liability Management Liability Super Trustees Liability Business Expense Protection IT Liability Unauthorised Trading Association Liability Commercial Crime

For more information contact Malcolm Fletcher direct on 02 9226 7802 / 0405 736 024 or email malcolm@novaunderwriting.com.au

No matter the size of your account, we provide a high level of professional service to all intermediaries and their clients.

Phone: 02 9226 7888 Fax: 02 9223 9440 Suite 58, Level 11, 88 Pitt Street Sydney NSW 2000

Visit our website for an overview of NOVA, our policy wordings tell a great story... then call us to compare the level of service.

You’ll find NOVA shines!

Nova Underwriting Pty Ltd ABN 42 127 786 823 | AFSL 324767

www.novaunderwriting.com.au

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Through certain underwriters at Lloyd’s, NOVA have substantial capacity across all liability product lines and can write cover for most occupational sectors operating within Australia, New Zealand, PNG and the Pacific Islands.

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peopleNEWS Plenty to talk about as AIMS delegates gather After a tumultuous start to the year it’s not surprising the recent spate of catastrophes proved to be a major talking point at the annual Austbrokers & IBNA Member Services (AIMS) conference on the Gold Coast.

The emphasis at AIMS is on quality, so the exhibition area is much smaller than other organisations’ – “pods” are used rather than large display booths to encourage interaction – but the area was always a hive of activity.

Around 440 delegates took over the Sheraton Mirage for a few days of networking, talking, listening and even a bit of deal-making beside the pool.

Polar explorer Robert Swan, the conference keynote speaker, regaled the crowd with stories of his experiences as the first person to have walked to both the north and south poles. Other guest speakers included leading economist Saul Eslake and plastic surgeon Fiona Wood. Both emphasised the need for people to grasp opportunities and deal efficiently with adversity.

But, it wasn’t all about business and

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contemplation, with social outings including a dinner at the Gold Coast Arts Centre and an island cruise to McLarens Landing on South Stradbroke Island, where a sumptuous seafood buffet and plenty of calypso dancing were enjoyed.

This year many delegates brought their children along – it was school holidays in several states – and the AIMS organising committee provided a special program for them. Activities were broken into two age groups, and included trips to Sea World, craft activities, movies, a disco, sandcastle building and even a pyjama party. The sight of littlies parading past delegates with painted faces and carrying homemade kites was just one of those things that makes the AIMS conference different.

Back in the conference hall, one of the most talked-about events was a hilarious debate between industry leaders.

The conference finished with a grand gala dinner in the ballroom of the Sheraton Mirage.

Next year AIMS delegates will gather in Auckland from April 20-24.

Images by Ray Lawler Studios

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Host Employer Liability Policy (HELP) Protect your Public Liability from workers’ compensation subrogation claims. Quarantine this risk via our SIMPLE HELP cover featuring a standard $5,000 excess.

HELP can be taken out by the Host Employer direct or by the Labour Hire Company/Contractor on behalf of their client. No more GREY areas.

HELP provides an alternative BLACK and WHITE insurance solution.

This policy is recognised as the industry leader and is the only “complete” liability cover, specifically tailored for the labour hire, recruitment and group training industries.

1 Quote 1 Policy 1 Underwriter 1 SOLUTION!

Specialised Liability Solutions (SLS) We are a Lloyds cover holder specialising in difficult to place liability.

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www.lawsonsuwa.com.au Natalie Lings 08 9420 8010

HELP Labour Hire Companies Contracting Organisations Group Training Companies

Labour Force Professional Liability Policy (LFPL)

CONTACT US Kevin Corkery 0403 019 277

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Megan Sheehan 0409 914 899

LFPL Labour Hire Companies Recruitment & Placement Firms Group Training Companies

SLS Hospitality – Hotel groups, clubs, nightclubs Rail – including contractors Engineering & Chemicals Contract Cleaners

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SUMMIT 28

2807 su

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still

It’s what we cover and they don’t that sets us apart.

At Summit, we promised at the outset we would provide excellent coverage, sensible premiums and first class service. We delivered. And will continue to do so, moving forward with flexibility and innovation as others strive to catch up.

As a broker you know that flexibility is crucial when it comes to insurance for prestige homes. Their owners didn’t get where they are by wasting money, so how can they be expected to pay for cover they don’t need?

With Summit, they won’t. This will go a long way towards keeping your happy relationship with your clients.

When you place your client’s cover with Summit you can be confident that our guidelines will not change. You’ll also enjoy peace of mind from one of the broadest covers available and the security of cover 100% through Lloyd’s.

Summit Prestige Home Insurance is a specialist division of SRS Underwriting Agency Pty Ltd. ABN 89 113 929 516. AFSL 290518.

Enquiries welcome from brokers who want security, service, flexibility and a fast response.

Contact Sue Hutchinson or Karen Kearins Free Call — 1800 815 678 Or visit our website for more information www.summitinsurance.com.au

SUMMIT 2807 2807 summit a4 advert-1b.indd 1

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Austra

peopleNEWS

Expo marks a step forward for UAC The Underwriting Agencies Council (UAC) and National Insurance Brokers Association’s joint Sydney Expo and lunch has celebrated a new direction for the council as it continues to develop its own distinct identity in the industry.

Around 45 exhibitors and more than 300 brokers attended the event at the Novotel in Brighton-Le-Sands in Sydney’s southern suburbs last month.

UAC Chairman Damien Coates unveiled the council’s new logo and “branding position” at the lunch, saying it reflects members’ growing influence as the “third force” in the industry.

The new logo’s tagline – “THE resource” – emphasises the council’s standing among its members as a provider of support services; and for brokers as the body representing professionals dealing in specialist products.

Insurance News Publisher Terry McMullan gave his annual “warts and all” look at the industry over the past year, and St George Illawarra National Rugby League coach Wayne Bennett delivered an inspired address on the need to be consistent and focused and maintain a good work-life balance.

UAC General Manager William Legge says Mr Bennett’s speech reverberated with a lot of the expo attendees, as his comments could be related to most business-personal relationships.

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“The Professional Broker’s Choice” PROPERTY

LIABILITY

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Contact Us:

mark_difiore@ausuw.com kathy_corral@ausuw.com michael_andrews@ausuw.com danny_pereira@ausuw.com All other enquiries contact gary_marshall@ausuw.com

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Ph 02 9200 4000 Fax 02 9200 4099

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Ph 03 8629 8800 Fax 03 8629 8829

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www.ausuw.com

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peopleNEWS

Lunar fun and games for AILA’s young professionals A networking night out with a twist had young insurance and law professionals stepping back in time to their childhoods to enjoy a bit of frivolous fun at Sydney’s Luna Park funfair.

The Australian Insurance Law Association Young Professionals Network annual event attracted more than 450 people to Luna Park for some great rides and fabulous entertainment. From sideshows to the Ferris wheel or even the Tango Train, there was something for everyone.

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WH43651

And after taking the time to unwind, the young professionals enjoyed some great food and wine in the comforts of Luna Park’s Crystal Palace ballroom.

June/July 2011

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Claims service online, in no time.

With some exciting new enhancements to claimwrite, QBE puts you in control.

At QBE, we’re excited to announce new claimwrite capabilities which allow you to register more claims in real time. Based on your valuable feedback, these innovative updates have improved QBE’s online claims management system.

Now you can process and pay Household and Business Package claims less than $5,000*, without the need to contact QBE. Plus, you can also register Private and Commercial Motor Vehicle claims, and even appoint an Assessor.

The benefits are obvious! Simply enter the claim information and with the click of a button you can finalise the claim.

All designed to let you manage the customer experience and get them back to normal sooner.

The rapid turnaround times and increased capabilities lead to better business practices for you and your clients.

To find out more, take the time to talk to QBE today.

Time with QBE is time well spent. *Subject to meeting QBE’s Straight Through Processing criteria.

WH43651

QBE Australia Proud to be your NIBA General Insurer of the Year 2002–2010* ANZIIF General Insurance Company of the Year, 2010 To learn more about QBE’s latest initiatives, contact your local QBE representative or visit www.intermediary.qbe.com.au QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545. *Awarded to a QBE Group Company

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peopleNEWS

125 reasons to celebrate as QBE staff toast their company QBE employees have toasted the insurer’s 125th year in true style, enjoying cocktails and some great company at a number of functions in Perth, Adelaide and Melbourne.

The parties were just part of the festivities for QBE, which celebrates its official anniversary in October.

The insurer has come a long way since its inception as a one-man show in 1886 to now be ranked one of the 25 top global insurance companies with more than 14,000 employees in 49 countries.

Staff also took the opportunity to celebrate QBE’s 25-year principal sponsorship of the Sydney Swans AFL club as players unveiled a commemorative jumper in a round six match against staunch rivals Carlton.

The Swans didn’t win, but their jumpers drew plenty of attention with “celebrating 125 years” woven into the material. QBE has also signed on to support the club for at least the next five years.

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new_adv

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INSURANCE SOLUTIONS ON DEMAND

On demand solutions by Ebix Introducing Ebix iClose the next generation of e-commerce business solutions.

Developed after a thorough analysis of current facilities and research into industry technologies and standards.

Designed to bridge the gap between brokers and insurers, iClose streamlines ZRUNÀRZ DQG HOLPLQDWHV GRXEOH KDQGOLQJ

Current functionality will address areas such as: Negotiated Placements Claims Accounting iClose provides a secure, cost effective e-commerce platform that compliments existing market facilities such as Sunrise Exchange and Online Quoting.

To learn more about iClose On Demand Solutions contact 02 8467 3000 or email sales@ebix.com.au

new_advert_EBIX.indd 1

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peopleNEWS Young brigade wins again at Vero’s first Adelaide expo Generations X and Y have again proved that age is no barrier to success in the insurance industry after Vero hosted round two of its “Great Insurance Debate” at its first Adelaide Expo.

More than 140 brokers attended the expo at the Crowne Plaza Hotel, featuring an appearance by motivation speaker and AFL legend Tom Hafey.

The expo was also the perfect time to continue the debate begun in Perth a few months ago on whether the retiring Baby Boomers of the industry will leave a skills shortage behind.

Once again, brokers teamed up with Suncorp Chief Executive Commercial Insurance Anthony Day to secure another resounding victory over their older counterparts.

The future of the industry is obviously in good hands.

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peopleNEWS

ProRisk’s legal complexities seminars attract big audiences Hundreds of legal eagles and insurance professionals gathered at seminars across the country last month to discuss credit ratings and contract reviews. While that may sound a little dry, the large turnout proved that there’s a big need for discussions on such complex and vital issues.

The Professional Risk Underwriting (ProRisk) events focused on the importance of an insurer’s credit rating and the complexities inherent in contracts.

The events featured a number of experienced presenters, including ProRisk Underwriting Director and insurance lecturer Gary Gribbin and legal experts from DLA Piper, Fox Tucker and Dobson Mitchell & Allport Lawyers.

The seminars surpassed all expectations, with attendance double that of a similar nationwide program ProRisk held last year. ProRisk now plans to run more seminars in October.

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peopleNEWS

Allianz inspires tomorrow’s leaders Allianz training days are inspiring brokers and employees across the country to become better leaders.

Events have been held in Melbourne, Brisbane and Sydney, with attendees learning practical tips from motivational speakers.

In the latest series of seminars, Matt Church spoke about productivity and the art of work-life balance. The groups were then split into two for sessions tailored towards product and technical knowledge and business management issues.

Training days account for six Certified Insurance Professional program accreditation points and six Continuing Professional Development hours.

Allianz will continue running the seminars in Adelaide, the Gold Coast, Newcastle and Fremantle.

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maglog »

Page 74

An unsolicited and unsigned missive from an individual who describes himself as “old enough and well-paid enough to call myself a professional, but not silly enough to give you my name”

I HAD A LOVELY BREAKFAST THIS MORNING IN Melbourne, listening to a panel of our best and brightest industry leaders answer all the tough questions at the annual ANZIIF CEO Panel Executive Breakfast.

Our host from the Institute introduced “the insurance industry’s very own Laurie Oakes”, Gary Seymour of MacFunding fame, and Gary proceeded to grill the panel on all the hot issues of the day (yawn).

They included catastrophes, the alleged hardening market, international market capacity and associated reinsurance issues, and the rise and rise in influence of the Monsters Under the Bed – for which please read collectively cluster groups, fourth-tier junk bond underwriters in the direct space, contestable platforms and the three-way race between Julia Gillard, David Koch and a 10-year-old displaced kid from Ipswich to replace Bill Shorten as Federal Minister for Kicking the Insurance Industry.

I left the room and returned to the office dizzy with insights into the great minds present, but my head also spinning with unanswered questions.

Questions like, why does everybody pick on our industry friends from South Africa? We all understand there is just not enough time in a 90-second infomercial slot on KerriAnne to draw the poor punters’ attention to the $15,000 sub-limit for flood on page 63 of the brightly coloured and highly user-friendly PDS. We all get why we should leave the good people of KAK’s audience to review and consider the full wording in the privacy of their own home and with the benefit of their finely honed financial literacy skills and intimate knowledge of the Insurance Contracts Act, and to find out the less-important details on their own. What’s all the fuss about?

I also had questions like, why does the big chief of one of this country’s leading broking organisations think his brokers don’t have any place dealing with their clients’ domestic insurance needs? We all know a lot of people like to shop online or buy their home insurance where they get their milk or postage stamps these days, but last time I checked there were still millions of Australian consumers of risk insurance who like to receive service and have a relationship with a trusted adviser, an expert, an advocate.

As a HM-WASP (heterosexual-male-white-Anglo-SaxonProtestant, and unfortunately NOT really a Hairy-Man-With-A-Sexy-Profile) I have great empathy for the panel made up of six of the best examples of same I have seen in some time. But I’m not much of a morning person, and frankly at 7.15am on a Friday morning I would much prefer to be waking up to a completely different type of person.

This left me also asking the question – is this the best we 74

can do? As an industry, and as an industry association, can we really not put together a panel with even just a small token amount of diversity of background, thinking, approach?

And most critically, where were the women?

I like women. I have several in my life, both personally and professionally. No, not that sort of professionally. I’m talking colleagues. Team mates. Supporters. Competitors.

Trusted friends and mentors.

I like how they think. I like how they relate to people.

I like that they have a completely different perspective on many things to my own. Most of all I like that in my life they are equal to me in every way, except that they take longer to get ready in the morning and they go to the toilet in small, orderly groups.

The women I live and work with are great leaders of people, including me. They are strong and organised and they don’t put up with any bullshit. They are smart and innovative, and they solve problems on the run.

They care about the people around them, show great empathy and respect to everyone, and they are not afraid to show their emotional, as well as their intellectual, intelligence.

I returned to my office after breakfast to a world where a lot of things just don’t make sense.

We are in a market which, to any reasonable person, is out of control. We now have a three-speed rate market – at one extreme going up by 300%-plus on toxic risks that nobody should have ever written at unsustainable rates, but there was just too much capacity; sitting still in the middle when we all know they should be going up post-cats; and incredibly still going down at the “premium” end of the market where volume is vanity and people just never learn.

We have a regulatory environment gone mad where political expediency and polls in the press see our politicians and regulators not just reacting to consumer sentiment, but in fact whipping it up into an anti-insurance industry frenzy.

And we are an industry that is in danger of dropping the ball on some of the fundamental things that we do. We sell pieces of paper with promises written on them. We promise that when the worst happens, the insurance policy will respond to help them out.

To believe those promises, our customers need to know us, to trust and respect us. We need to have a relationship with them that they know they can count on when their chips are down.

And who are the best people in the world at building and managing relationships of trust – women.

Where are the women in leadership positions in our industry? And where were they this morning?

As a professional, I for one would like to see more skirts

and tights, fewer suits and uptights. Thank you.

insuranceNEWS

June/July 2011

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