JUN/JUL 2012 - Insurance News (the magazine)

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GETTING ON WITH IT: ZURICH’S NEW BOSS

June/July 2012

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QUAKES: BEWARE BRICK BUILDINGS

VICTORIA’S FIRE LEVY FURORE

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Contents 8 Newsmakers » 12 FSL confusion » Victoria’s fire levy phase-out is turning into a nightmare.

14 Optimistic Opportunist »

Where others see downsides, Mike Wilkins sees opportunities. Meet the man leading IAG’s emergence as a regional player.

20 It’s safer inside »

Earthquake deaths highlight the hazards of unreinforced masonry buildings.

26 Troubled waters »

Ship charterers are caught up in new rules that widen responsibility for oil spills.

28 The credible spokesman »

Robert Hartwig blends facts and old-fashioned PR to project and protect the US insurance industry’s image.

33 Getting on with it »

Daniel Fogarty takes over at Zurich and promises to keep driving down the business improvement road.

38 Flood: the next steps »

Inquiry. Report. Consultation. Now it’s time for some government action. Here’s a roundup on progress so far.

40 Standing out from the D&O pack »

Fierce competition has sparked innovation and is keeping insurers nimble.

44 Overloaded and out of luck »

companyNEWS

54 The SRS formula » 20 years on it’s still working well, says its founder.

57 Cutting a deal »

Insurer and broker scheme together (legally).

58 Bits and pieces »

Vero updates its SME products.

58 Platinum class »

iaAgency targets offices, businesses.

58 Updated »

Zurich adds to commercial motor cover.

peopleNEWS

60 QBE’s foundation for success » 63 64 66 72 74 76 80

This staff-based program is donating money and expertise, and the personal return is just as valuable.

Records fall at the NIBA/UAC expo » Generation Z goes to court » AIMS adopts the long view » AILA takes peers to the pier » Darwin welcomes MGA » Insight digs deep, works hard, has a ball » Young Eagles fly high »

82 maglog »

Insurers tell the Rabaul Queen inquiry why the ferry was probably working outside the limits of its cover.

47 Good sports »

Winners need passion and commitment, and Sportscover grows using the same formula.

53 Shopping around »

Austbrokers’ renewed focus on acquisitions is yielding some encouraging results.

June/July 2012

Cover: Mike Wilkins, Managing Director, IAG Image: Kym Thomson

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newsmakers at

Reuters

Broker to pay for claim

Insurance for flood towns dries up Suncorp has withdrawn from writing new cover in parts of Queensland following last year’s floods, with Personal Insurance Chief Executive Mark Milliner telling governments to get moving on disaster mitigation.

Milliner says Suncorp has stopped writing new business in Roma and Emerald (above) in western Queensland after paying out $150 million in claims and receiving $4 million in premiums in the past two years.

He says Queenslanders can expect premiums to continue to rise and cover to be restricted if there is no urgent action on disaster mitigation.

“Not building a $2 million levee in Roma seven years ago has come to a $500 million public and private sector repair bill, and this comes back to local residents through increased rates, increased utility costs and higher insurance premiums,” Milliner said.

Recent flooding in Wagga Wagga highlighted the power of levees, with estimated damage costs reduced by $100 million due to work completed there.

“Our preliminary examination shows that, on average, appropriate mitigation lowers premiums by about 50% in towns at risk of flood,” Milliner said.

Suncorp quits flood towns and calls for mitigation action – May 7

Fogarty replaces Doyle Daniel Fogarty has been named the new chief executive of Zurich General Insurance for Australia and New Zealand.

Fogarty is at present Executive General Manager Corporate at Zurich Australia. He replaces Shane Doyle, who announced his resignation in April.

Chief Executive General Insurance Asia Pacific Johnny Chen said in a statement that Fogarty was selected from a field of

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international candidates.

“Daniel brings not only significant experience in general insurance, but a thorough understanding and belief in our strategy, our customers and our organisation,” he said.

Fogarty joined Zurich in 2009 from Suncorp.

He will take over as chief executive when Doyle leaves the company at the end of June.

Fogarty takes top job at Zurich – Breaking News, May 18

A Brisbane brokerage has been ordered to pay more than $2.7 million over a rejected claim.

Kotku Bread sued Vero Insurance and broker 786 International (Aust) Pty Ltd, which trades as Osman Insurance Brokers, after fire destroyed its bakery at suburban Capalaba in August 2010.

Queensland Supreme Court Justice Peter Applegarth found that the broker had not told Vero about the amount of expanded polystyrene sandwich panelling in the bakery’s internal walls.

Much of the case revolved around whether an automatic question related to expanded polystyrene content was

answered or whether the employee chose “nil”.

“I conclude that if the correct answer to the question had been given, Vero would have declined to insure the risk and Kotku would have obtained alternative cover from another insurer,” Justice Applegarth said.

Finding the brokerage failed to discharge its contractual duties to the client and also breached its duty of care under common law, Justice Applegarth awarded Kotku $2,706,300.

He also awarded interest at 10% from the date that a successful claim would have been paid in 2010.

Brokerage ordered to pay client $2.7 million – May 7

“It is very difficult to explain it to clients, particularly when we don’t know exactly what the insurance companies are going to do.”

– Melbourne broker Terry Lane on Victoria’s fire services levy problems

Neal gets his team together QBE has announced immediate changes to its Group Executive structure as it makes the transition from Frank O’Halloran as Group Chief Executive to John Neal (right).

In addition to Neal and O’Halloran, the Group Executive comprises: Steven Burns, Chief Executive European Operations; Neil Drabsch, Group Chief Financial Officer; Colin Fagen, Chief Executive Australian & New Zealand Operations; John Rumpler, President and Chief Executive North America Operations; Jenni Smith, Group Executive Officer People and Communications; Jose Sojo, Chief Executive Latin America Operations; and George Thwaites, Group Chief Risk Officer.

Asia Pacific Chief Executive Mike Goodwin will leave full-time employment with QBE on July 27, but will remain a non-executive director on some of QBE’s Asia boards.

Under the revised structure, Chief Financial Officer Neil Drabsch will take on additional responsibility for the Group Investment division, Investor Relations and Internal Audit.

Group Chief Risk Officer George Thwaites will take on additional responsibility for Group Actuarial, and Chief Underwriting Officer, North America Operations Jim Fiore has been appointed to the new role of Group Chief Reinsurance Officer.

QBE says Mr Fiore will manage QBE’s outwards reinsurance, including

insuranceNEWS

June/July 2011

external reinsurance placements and oversight of QBE’s captive reinsurer Equator Re. The inwards reinsurance business, QBE Re, will remain reporting to Jonathan Parry in London.

Group General Counsel and Company Secretary Duncan Ramsay will also report directly to Mr Neal.

QBE makes changes at the top – Breaking News, May 2

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FIGURE THIS

$1 BILLION General insurers’ combined net profit for the January-March quarter

$8.5 BILLION

Getty Images

General insurers’ combined gross written premium in the January-March quarter

Broken shelves, broken supply chain: more than 400,000 rounds of parmigiano cheese were damaged in factories around Bologna in northeastern Italy when a massive earthquake struck the region in May, killing six people and reducing homes and historic buildings to rubble. These cheeses were ageing at a factory at San Giovanni when the racks holding them collapsed. The loss is expected to cost more than €200 million and affect the global supply of the region’s famed cheese.

Steadfast closer to listing Steadfast is moving towards a public listing after members voted at an extraordinary general meeting to adopt a new constitution.

Chairman Robert Kelly says the resolutions adopted at the EGM will “enable the company to be Australian Securities Exchange compliant”.

“That was the final hurdle and now frees up the organisation to list,” he said.

“We will also have to appoint a new board as part of the public offering.”

The meeting approved two resolutions: to adopt a new constitution and, if that was not passed, to amend the constitution.

All votes were by proxy, and auditors said voting in favour was as follows: Far North Queensland 75%, Queensland 100%, South Australia/Northern Territory 100%, New South Wales 94%, Victoria/Tasmania 100%, and Western Australia 96%.

Steadfast members vote for listing – May 28

Breaking the chain Severe weather events have a bigger impact on Australian businesses than on those in other parts of the world, a new survey has revealed.

It says 85% of Australian-based companies had a supply chain disruption in the past year, with the most common cause – in 73% of cases – being adverse weather.

IT or communications breakdowns accounted for 41% of business disruptions, and outsourcing failures 32%.

The global survey by the UK-based Business Continuity Institute was conducted for Zurich to measure threats to business continuity and supply chain management.

It found only 7% of respondents globally can confidently state that all their key suppliers have business continuity arrangements.

Weather hits Australian businesses harder, survey shows – May 7

D&O decision stalls It’s back to New Zealand for an appeal against the Bridgecorp directors’ and officers’ (D&O) decision after the Centro shareholder class action was settled without resolving the question of D&O insurance being applied to damages.

The Bridgecorp decision threw the D&O market into turmoil last year when the New Zealand High Court ruled that a receiver had first claim on D&O policy proceeds when that claim might exceed the amount of cover, effectively denying company directors and executives funding for legal defence costs.

Parties on both sides of the Tasman have been waiting to see which case would get a court ruling first, as the judgement will be used to argue later cases.

Now it will be up to the NZ Court of Appeal, which has not set a date to hear the Bridgecorp appeal.

Bridgecorp appeal back to New Zealand – May 14

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Paying up for reform The Federal Government will be increasing broker and adviser licensing fees to cover the cost of the Future of Financial Advice (FOFA) reforms.

The cost of applying for an Australian financial services licence will rise from $287/$575 to $1485 for a corporate and $159/$351 to $825 for an individual.

The renewal fee for licensees will rise from $351 to $549 for corporates and from $144 to $225 for an individual.

The increased fees will cover the additional $23.9 million the Australian Securities and Investments Commission (ASIC) requires to implement the FOFA reforms.

According to papers from the Federal Budget, ASIC will spend $3.1 million in the next year implementing the reforms but expects to receive $4 million from the increased fees.

In the 2014 financial year, expenditure is forecast at $7.7 million and income at $10.4 million.

Broker and advisers to pay for FOFA – May 14

$6.6 BILLION General insurers’ combined gross incurred claims for the January-March quarter

$16.5 BILLION General insurers’ combined gross incurred claims for the January-March quarter last year

$30.2 BILLION General insurers’ combined net assets for the January-March quarter

$28.3 BILLION General insurers’ combined net assets for the January-March quarter last year

1.2 MILLION+ Number of people aged over 50 injured in the past six months, according to Apia research 9

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newsmakers at

Hooked on insurance

October 1, and stamp duty on compulsory third party motor premiums will rise from $6 per registration to $20.

The increase in general insurance and motor taxes means total insurance duties will rise from a budgeted $51.6 million this financial year, to $70.9 million in 2012/13 and $79.4 million in 2013/14.

The Budget papers show the insurance fire services levy is expected to raise $16.2 million in 2011/12, $16.4 million in 2012/13 and rise by $200,000 every year until 2015/16.

The insurance levy will contribute to total fire services levies of $56.9 million in 2012/13, up 3.8%, derived from insurance policies, council taxes and a levy on motor vehicles.

Governments have become increasingly hooked on tax revenue from gambling, but they don’t do too badly out of insurance, either.

The latest Federal Budget has dug into the Australian Reinsurance Pool Corporation for a special $100 million dividend on top of a new annual $75 million “dividend”, while the Victorian Government is having a last grab at policyholders before the fire services levy is abolished on July 1 next year. It is also taking $471 million from its WorkCover monopoly over four years.

While each new natural disaster highlights the level of underinsurance, and the number of people who choose not to insure their homes at all, governments continue to raise the cost of the product by loading up taxes on policies and drawing dividends out of the organisations that have built up reserves.

A calculation by LMI Managing Director Allan Manning shows that a $1000 insurance policy in country Victoria will cost an extra $950 in fire services levy, with a $195 GST and $214.50 stamp duty loaded on. That’s a total $1359.50 in taxes on top of the basic $1000 premium.

As with the Federal Government framing its Budget, the states – particularly on the eastern seaboard – are trying to maintain spending when tax receipts are falling, and their insurance agencies are easy targets.

The insurance industry’s comparatively low profile means that much of the detail is hidden in the Budget papers and does not make headlines. This is what happened with the dividends from the Australian Reinsurance Pool Corporation.

The Government has allocated $26 million a year over four years to the National Partnership on Natural Disaster Mitigation, leading Insurance Council Chief Executive Rob Whelan to say a more far-sighted Budget would have invested in measures to protect towns that are flooded frequently.

Unfortunately, this year’s taxes on the insurance industry are mostly headed for consolidated revenue rather than investment in the lessons learned from 2011.

Tasmania to increase insurance taxes – May 21

Governments still treat insurance as a cash cow – Analysis, May 14

Tasmania raises insurance taxes The Tasmanian Government has increased insurance taxes in its 2012/13 Budget as the state looks for other sources to compensate for falling revenue.

The rise has been criticised by Insurance Council of Australia Chief Executive Rob Whelan, who says the increase will raise the average household’s cost of insurance on a home and two cars by $31 to $155.

“The Insurance Council, along with other interested stakeholders, engaged in extensive consultation with Tasmanian decision-makers throughout 2011 on ways to improve the Tasmanian state tax base,” he said. “This measure runs counter to that process.”

Insurance now accounts for 7.5% of Tasmanian taxes, up from 6%.

Stamp duty on general insurance premiums will rise from 8% to 10% from

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June/July 2012

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FSL CONFUSION Victoria’s fire levy phase-out is turning into a nightmare

By Michelle Hannen

BARELY TWO YEARS AFTER THE Victorian Government decided to phase out the controversial fire services levy (FSL) on insurance policies, the transition to a new property-based levy is a mess that has left insurers, brokers and policyholders concerned and confused.

The recommendation to convert from funding Victoria’s metropolitan and country fire services via a levy on insurance policies to a levy on property ownership came out of the royal commission investigating the Black Saturday bushfires of 2009.

The transition between the two systems has already been delayed by a year, but was – finally – supposed to commence from July 1 this year, with the levy on insurance policies being abolished from July 1 next year.

But just weeks from the beginning of the transition year, the government of Premier Ted Baillieu has failed to provide any detail of the shape of the new levy or the form the transition will take.

The Government is aware of the risks the transition period poses, writing in its options paper on the transition to a levy through council property rates that the transition will have to be “carefully managed”.

“If insurers continue to collect the FSL in full until June 30 2013, this may create an incentive for property-owners to defer taking out or renewing insurance in the months immediately prior to June 30 in order to avoid the FSL,” it said. “Those property-owners who choose to remain insured and pay the full FSL may consider that they have contributed ‘twice’ to the fire services in the first year of the property levy.”

It concluded: “It is preferable that the Government actively manages the transition process to ensure the interests of policyholders are protected.”

That options paper was released in June 12

2011 and listed two ways a transition from an insurance-based FSL to a property-based FSL could work, with the recommended option a tapering approach whereby insurers would reduce the FSL paid on insurance premiums in the 2012/13 financial year on a pro-rata basis, depending on when the policy fell due.

The paper said Western Australia had successfully transitioned away from an insurance-based FSL in 2003 using such a model “which proved to be feasible and easy to communicate to stakeholders”.

The alternate transitional model – a decoupling approach – provided for insurers to pay 50% of the total FSL to the Government, with the balance to be funded by a discounted property levy.

This approach meant that all insureds would be charged FSL at the 50% rate on their property insurance regardless of when in the year their policy renewed, raising questions of equity and fairness.

By its own admission, the State Government indicated that such a transition “has not been successfully implemented in other jurisdictions”, and that the tapering model was its preferred approach.

Consultation closed on September 30, 2011 with the timetable for the introduction of legislation to define the structure of the new property levy and detail the transitional arrangements listed by the Government as “early 2012”.

Six months on and no such legislation has appeared, with the Government telling Insurance News on May 28 further detail will be provided “in the coming weeks”. As a result, the timetable of the transition period has been thrown into chaos, and led to calls for the transition to a property-based levy to be pushed back by yet another year in order to ensure an orderly and equitable transition. insuranceNEWS

June/July 2011

But plans for an orderly transition period seem to have been abandoned. They will involve neither the tapering nor the decoupling approach mooted by the Government last year.

Instead, when announcing the State Budget in May, the Government took the extraordinary step of declaring a final FSL of $580.5 million, to be paid by insurers for the 2012/13 financial year. This represents a full year’s worth of FSL, rather than any reduced amount.

How and when the property levy is introduced remains uncertain, with the Government stating at the time of the Budget that it would provide further details of the format and introduction of the property ownership-based levy in its 2012/13 budget update in December.

Not surprisingly, insurers have reacted to the demand for a full year’s FSL by raising their FSL rates, with the levy on some commercial premiums for Victorian country policyholders now approaching 100% of the premium cost. The cumulative addition of GST and stamp duty taxes on the levy is now pushing the total tax charged on the policy well above the premium itself, while levies on some homeowners’ policies are nearing 50% of the premium.

The Government has also forced the Insurance Council of Australia (ICA) to stop issuing advisory FSL rates calculated by actuaries to its member companies, on the grounds that it is anti-competitive. This has resulted in each insurer having to make its own calculation of the FSL it owes the Government, based on its expected market share at the end of the 2012/13 financial year. With different insurers implementing different rates – and at least one holding back rises in personal lines levies – the confusion is widespread.

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Because the FSL on insurance has historically been a rolling annual charge based on total premiums collected in the prior period, insurers have to date typically been able to recoup any shortfall in following years.

But because 2012/13 represents the final opportunity for insurers to collect an adequate amount of FSL, most are taking a conservative approach. Rates are rising – despite a 10% fall in the total FSL due to the Government in the next financial year compared to 2011/12.

The FSL for commercial business in the state’s country areas was bumped from 65% to 85% in the second half of last year, and in the past two months QBE, Allianz and CGU have all increased that further, to 95%, while their FSL rate for commercial policyholders in metropolitan Melbourne is now 54%.

CGU and QBE have increased the residential levy to 28% from 18% for city customers and to 46% from 36% for country policyholders, while Allianz has opted to hold residential rates at 2011 levels. In addition, QBE plans to renew its rates each quarter to ensure its FSL collection is on track.

As this edition of Insurance News went to press, Suncorp was still reviewing its FSL rates on commercial and personal lines property products.

Insurers have lobbied through the Insurance Council for anti-avoidance measures in its FSL legislation – when it is finally released.

But brokers have told Insurance News that insurers are also acting independently to protect themselves. QBE has begun the process of tightening policy terms, such as stipulating that they will not refund the unused portion of FSL in the event of policy cancellation, nor extend settlements to allow risks incepted before the end of the FSL period to be paid for later. It will also not allow

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short-term policy extensions which are then followed by 12-month renewals after the insurance FSL period is abolished, and brokers expect other insurers to follow.

Brokers say they are on the front line and have been left to try to explain the mess to irate clients. Many are bewildered and angry. They told Insurance News policyholders are beginning to ask for changes to renewal dates to avoid paying a disproportionate amount of FSL. They also want to reduce sums insured as a direct result of the higher FSL charges, and brokers expect underinsurance to become more commonplace.

Neville Marshall, Director of Ballaratbased Lillingston & Marshall Insurance Brokers, says his farming clients have been particularly hard hit by the FSL increases, with farm premiums also rising and only a small pool of insurers taking on farming risks.

He predicts that significant amounts of business will begin to change hands between insurers as clients – and their brokers – seek the best deal.

Michael Wilkinson, Managing Director of Wilkinson Insurance Brokers at Lilydale, on the northeastern outskirts of Melbourne, says most of his clients live in rural areas.

He describes the rising impost on country policyholders as “horribly wrong”. insuranceNEWS

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“Brokers who were telling clients the FSL would be reduced and eventually phased out have been put in a difficult position trying to explain the backflip,” he says.

But he doesn’t blame the insurers for taking action to ensure they are not left facing an FSL black hole. “The insurers’ behaviour is 100% logical. You can’t blame them.”

Who Mr Wilkinson does blame is the Victorian Government “for causing absolute havoc”.

“There will be clients who go underinsured or uninsured come June 30,” he says.

What little goodwill the insurance industry has in the community is being destroyed by the assumption that insurers are gouging policyholders, with the uncertainty created by the Government’s dithering and delays serving nobody – except perhaps the Victorian Government, which may well end up the beneficiary of a double amount of FSL and all the associated taxes like stamp duty by June 30 next year.

While the phase-out of the FSL in Victoria will eventually be a good thing and lead to an increased uptake of insurance as affordability improves, the industry has been left to contemplate the price it must pay for the change.

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Optimistic Opportunist Where others see downsides, Mike Wilkins sees opportunities.

Meet the man leading IAG’s emergence as a regional player

By Michelle Hannen

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INSURANCE COMPANIES ARE IN THE BUSINESS OF taking risk. The trade-off for taking on the risks of others tends to be a somewhat less risky approach to their own business strategies. But not for Mike Wilkins, self-proclaimed optimist and Managing Director of top-three insurer IAG. Whether pioneering Australia’s insurance presence in Asia or acquiring a business in quake-ridden New Zealand, it seems Mr Wilkins sees opportunity where others see risk, and is willing to act while others take a wait-and-see approach.

“Unfortunately in this industry there are a number of unknowns,” Mr Wilkins says. “In a business like this you’ve got to be optimistic. If you’re not an optimist in insurance then you’ve really got some troubles.”

The doubters believe first-mover advantage is a myth and that Asia still poses significant risks for Australian businesses, but Mr Wilkins does not subscribe to that school of thought. Instead, he believes that in taking on the risk and acting first, right now businesses can buy in at a significant discount and companies not looking to Asia currently do so at their peril.

“We think that the Asian opportunity is there, here and now,” he tells Insurance News. “The growth profile in Asia is going to be much higher than we will enjoy in more developed markets.

“We think that organisations which miss that opportunity really are doing themselves, their shareholders and their people a long term disservice.”

The Asian strategy, he says, is straightforward. IAG is searching for growth, having almost exhausted its potential in its mature home markets of Australia and New Zealand.

Asia is the logical move based on the size of the opportunity it presents – plus IAG’s proximity to the region and what it can offer in terms of insurance know-how.

“We think the 21st century is really going to be the Asian century.”

The Asian Development Bank has forecast that Asia’s annual consumption will reach $32 trillion by 2030, accounting for almost half of all consumption globally.

Most of that consumption will take place via an expanding middle class using its newfound wealth to accumulate assets that will need protection.

Mr Wilkins sees that resulting in the “rapid emergence” of insurance businesses in Asia.

IAG’s current Asian footprint includes a 26% stake in SBI General Insurance Company in India, a 49% stake in AmG Insurance in Malaysia, a 99% stake in Safety Insurance and NZI in Thailand, a 20% stake in Chinese insurer Bohai Property Insurance and a 30% stake in Vietnamese motor insurer AAA Assurance Corporation.

But he adds that while it wants to be in Asia, IAG is not running blind. He says the company is very aware of “not just jumping in” and making sure it takes the time to find the right opportunity.

As a result of rules on foreign investment, most of its businesses are joint ventures with local partners. Mr Wilkins says IAG would like to own larger stakes in those businesses, but the joint venture approach works by uniting IAG’s strong technical insurance skills and knowledge of bringing product to market with its local partner’s brand, distribution footprint, customer base and understanding of the market’s idiosyncrasies.

“One of the things that Australian businesses in particular have to do when they’re going to Asia is to understand the differences,” he says. “I think a lot of organisations... have assumed that the criteria for success internationally is the same as the criteria for success in our home markets, and that because we have a significant position in our home markets, we can translate that easily into a significant position in other markets.

It doesn’t necessarily follow.”

The current endgame in Asia is for it to be generating 10% of IAG’s gross written premium (GWP) by 2016. Mr Wilkins says the recently announced acquisitions in Malaysia and Vietnam lift Asia from 3% to 6% of IAG’s GWP currently, and that the remaining 4% will come through both organic market growth and further acquisition.

At the top of Mr Wilkins’ Asia shopping list is Indonesia, a country he says “can’t be ignored”.

“It’s 230-240 million people rapidly emerging, and it’s a market we like for a few reasons: good stability, reasonable regulatory environment and also the fact that foreigners can own up to 80% of a business.”

IAG’s Asia strategy sustained some damage recently when the Indian Government shelved plans to lift the cap on foreign ownership in insurance operations from 26% to 49%. The decision prevents IAG from almost doubling its exposure to the Indian market, where it forecasts its joint venture will be underwriting $1 billion in GWP by 2016. It effectively robbed IAG of $230 million in premium income.

Mr Wilkins admits the decision was a blow, but – true to his style – he remains optimistic that the foreign ownership restrictions will be lifted over time, as has happened in other countries.

“We were fortunate that we were able to get a dispensation to go to 30% ownership in Vietnam,” he says. “That’s higher than usual.”

He says IAG increased its share of the Malaysian business from 30% to 49% once the foreign investment cap there was lifted to 70%. But the group is “not in a position [to go to 70%] with our partner at this stage, but we’re very happy that we’ve got 49%”.

The change of mind by the Indian Government highlights the unpredictability of doing business in developing countries in Asia and underlines the risk that still remains in IAG’s Asian growth plan.

On the whole, the investment community is broadly – but also cautiously – supportive of the strategy, even though China remains a sticking point.

Most analysts question any insurer’s ability to generate a profit in China. Mr Wilkins says simply that IAG’s acquisition in August last year of a 20% strategic interest in Chinese general insurer Bohai for about $100 million was a carefully undertaken process and the culmination of a search that began in 2004.

At the other end of the region, in New Zealand, IAG took another risk, shelling out $NZ380 million in April to acquire teetering mutual insurer AMI. That was a move that had jaws dropping.

After 18 months of almost-continual earthquakes, aftershocks and tremors, many critics questioned the logic of buying a business with a concentration of risks and its headquarters in Christchurch, despite the ring-fencing of its earthquake claims.

A man who clearly sees opportunity where others see risk, Mr Wilkins is unmoved by the sceptics. “New Zealand is no riskier a place today than it was before

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Mike Wilkins career timeline: 2008-present Managing Director and Chief Executive, IAG

2007-2008 Chief Operating Officer, IAG

1999-2007 Managing Director, Promina Group

1994-1999 Managing Director, Tyndall Australia

the first earthquake in Christchurch in 2010.”

He says AMI is a misunderstood business because of its Christchurch location. “Yes, AMI has property exposure but it’s primarily a motor insurer. Most people think that it’s totally a South Island-based entity, but it’s not.”

While he concedes that AMI’s exposure in the South Island is “probably a couple of percentage points” higher than the overall proportion of the population based there, he says the majority of its business “is actually in the North Island, which is where the population is”.

“AMI brings with it an additional 500,000 customers, a great brand and a complementary distribution footprint to the one that IAG has in New Zealand.

“We will now have in excess of 40% market share in New Zealand and around 60% in the motor market.”

But while Mr Wilkins sees no greater risk in New Zealand today than there was previously, Australia is a different story.

“We do think that there is something changing in the environment,” he says. “We can’t quantify what that is but we think it’s there. The urban concentration that we’re seeing along the eastern seaboard has something to do with it.”

Rising reinsurance costs in this corner of the world have been well publicised over the past year, but the insurance cycle and short memory of the market are equally as well known among industry participants.

Historically, Australia and New Zealand have been viewed by reinsurers as a diversification play against European windstorms and Atlantic hurricanes and many are expecting reinsurance pricing will return to its previous level after a few relatively benign years.

Not so Mr Wilkins, who describes the recent rise in reinsurance pricing as a “new world order”.

“The reinsurance cost increased by about a third. What we’re factoring in for the future is our reinsurance costs have gone up from about 6 cents in the premium dollar to about 8 cents,” he says.

While optimism and a willingness to invest in growth fuels Mr Wilkins’ enthusiasm for expansion in the region, IAG’s most far-flung asset – its British business – is one asset that spoils the positive picture.

16

The UK business remains a problem, albeit a far lesser one than that which he inherited when he took over the reins of the company from Michael Hawker in May 2008.

He admits IAG made a big mistake in the UK that it is trying to avoid in Asia – assuming it understood the local market, especially because of the common language and similarity of government and legal systems.

The remediation and turnaround story of that business is ongoing, but with only a $5 million loss recorded in the first half of 2011/12 he can at least see the business is now heading in the right direction.

“We’ve had to be fairly brutal to do that, but unfortunately that was the thing that was necessary,” he says.

IAG recently announced a strategic review to consider the future of the UK division with a change of strategy or a sale of all or part of the business possible outcomes.

Mr Wilkins is wary when asked about the long-term game for IAG in the UK, saying only that his priority is to give the business a future “by getting it structured in the right way and in the right segments of the market”.

Nonetheless, he says IAG’s expansion “will be more concentrated in Australia, New Zealand and Asia rather than the UK” – a comment adding fuel to the market speculation that a sale of the UK business is most likely.

Through its UK business, Mr Wilkins has a keen and ever-present reminder of what things can look like when risk goes wrong. But the experience has not dampened his optimism or curbed his appetite for action when opportunities arise.

“All you can do is you use history, you use models, you have to make allowances for the fact that there are going to be some unknowns, recognising that you’re not always going to get it right.”

That’s not an admission you would hear from many chief executives in the insurance industry, but the record shows Mr Wilkins is very much his own person and is willing to take a contrary position when it’s warranted.

Journalists and politicians agree he is one of the few senior executives in the local insurance market willing to stand up and voice a politically unpopular opinion.

Asked by Insurance News what makes a good leader, he

insuranceNEWS

June/July 2011

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IAG in Asia: The story so far Goal: For Asia to contribute 10% of the group’s gross written premium by 2016 Thailand

Malaysia

1998: Acquires 22% of Thai motor and general insurer Safety Insurance.

2005: Acquires 30% of AmG Insurance.

2008: Increases its stake in the joint venture to 49%.

2005: Acquires an undisclosed share of Royal & SunAlliance (Thailand), which is renamed NZI Thailand.

2006: Increases its stake in Safety Insurance to 98%. Safety and NZI are currently being merged with the new entity 99% owned by IAG.

2012: AmG announces the acquisition of Malaysia’s biggest motor insurer Kurnia Insurans, making AmG the largest general insurer in the Malaysian market.

China India

2011: Acquires 20% of Bohai Property Insurance Company Ltd, a Chinese motor and general insurer.

2008: Establishes a new general insurer in a joint venture with the State Bank of India, SBI General Insurance. IAG owns 26% of the business, while State Bank of India owns the remaining 74%.

The remaining 80% is state-owned.

Vietnam 2012: Acquires 30% of AAA Assurance Corporation, Vietnam’s sixth-largest motor insurer.

is typically direct. He says it is about setting a vision and creating the right environment for people to be able to realise their potential.

He is unimpressed by the “hero leadership cult of the 1980s and ’90s” and describes himself as “someone who strives to lead with humility”.

And despite his willingness to speak out on industry issues, he emphasises that industry leadership it is not what he’s aiming at.

“I think IAG as a participant in the insurance sector in Australia needs to actually take a position on the various issues for the interest of the industry.

“I don’t necessarily see myself personally as a leader in that regard, but I think that the organisation needs to express its opinion and to make sure that the issues we’re seeing are brought to the fore.”

To that end, Mr Wilkins elected to put IAG at the centre of the current debate into the understanding, availability and affordability of insurance following the 2011 natural disasters. He recently hosted an inaugural “Risk Summit” which brought together representatives of government, the private sector and communities.

He says the genesis of the risk summit – the kind of initiative more typically associated with an industry body such as the Insurance Council of Australia – was to ensure the momentum for change was maintained following last year’s devastating Queensland and Victorian floods.

While many in the industry might have been hoping that the government interest in flood insurance and the operations of the industry which followed the catastrophes would die a slow death as they faded from memory, Mr Wilkins saw an opportunity to seize the agenda and push the case for increased mitigation spending and improving the community’s understanding of insurance.

He says these are outcomes which will benefit not just IAG but also the wider industry.

“I am optimistic because I think that the time is right to have that discussion, while the memories are still sufficiently close to the surface.

“We wanted to promote some debate around risk in the community because we think that it’s something that 18

comes to the fore at times of significant perils issues, in particular; but then it tends to fall away.”

Observers agree Mr Wilkins is at the top of his game building IAG, although his professional history shows an unusual number of successes throughout his career.

His period in the spotlight began in 2002, when the former chartered accountant masterminded the $2.1 billion float of Royal & SunAlliance’s Australian assets and the formation of Promina.

In 2006 Promina was sold to Suncorp for $7.9 billion.

Mr Wilkins was brought back into the industry in 2007 by then-IAG chief executive Mike Hawker to help restore

“I think that the organisation needs to express its opinion and to make sure that the issues we’re seeing are brought to the fore.” the group’s fading fortunes. Mr Hawker left the following year, and within a few months of taking over Mr Wilkins was embroiled in a tense war of wills as IAG rebuffed a $7.4 billion merger proposal from QBE. Since that time the group has stabilised around Mr Wilkins’ management team, which he quietly restructured in his first couple of years in the job.

IAG is now seen as a solid performer, with analysts expressing general satisfaction with its expansion plans while expressing concern at the UK operation’s losses and the perceived slow pace of change at CGU. Both are a work in progress, and as Mr Wilkins noted in a 2003 interview as he was consolidating Promina: “This is a long-term business and we need to structure it and manage it in that way.”

Eleven years later, it’s a viewpoint that still rings true.

insuranceNEWS

June/July 2011

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It’s safer inside

Fatal rubble: a street in the centre of Christchurch after the major quake in February last year

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Earthquake deaths highlight the hazards of unreinforced masonry buildings

By Jan McCallum and Elizabeth Redman

NZ Herald

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insuranceNEWS

THE CANTERBURY EARTHquakes have focused attention on old, unreinforced masonry buildings which are now considered a seismic time bomb.

But the events in Christchurch have shown that people living and working in the buildings are often safer than those outside them.

Unreinforced masonry buildings have walls and other parts of the structure like chimneys made of such materials as brick, cinderblock or tiles, which aren’t braced by reinforcing.

As the events in Christchurch demonstrated, such buildings can kill people who happen to be walking past or those in more modern neighbouring buildings.

New Zealand has 3867 unreinforced masonry buildings, and a technical report commissioned for the Canterbury Earthquake Recovery Authority (CERA) has found it would cost more than $NZ2 billion to reinforce them. That is more than their combined worth of $NZ1.5 billion.

New Zealanders, and particularly building-owners, are being told they have to consider what level of protection they want – and how much they are prepared to pay for it.

Many of the buildings have become uninsurable, says Head of Marsh New Zealand Grant Milne.

“The general rule of thumb is that insurers are not keen to touch them at all.”

June/July 2011

Mr Milne says some owners are choosing to not use buildings and leaving them empty.

Clients with property portfolios are looking at buildings they want to quit – if they can find a buyer.

Cover may be declined, offered on an indemnity-only basis or provided for demolition only. There is no replacement cover available.

Mr Milne says the risk insurers will accept varies according to location. Owners in Christchurch and Wellington, which is also rated as a high earthquake risk, may consider themselves lucky to get demolition-only cover, while owners of older buildings in Auckland will have a better chance of some indemnity-only cover.

CERA Chief Executive Roger Sutton says unreinforced masonry buildings “and particularly the things that fall off them” kill people.

But although the Canterbury region has lost many of its historic buildings in the earthquakes, the greatest loss of life in the earthquake of February 2011 came from the collapse of the CTV tower, built in 1986, and the Pyne Gould building, which was erected in 1963.

Of the 185 deaths in that earthquake, 115 people died in the CTV tower and 18 in the Pyne Gould collapse. Both are being investigated by the Canterbury Earthquakes Royal Commission into building failure.

Of the remaining 42 building-related deaths, all but 21

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one were due to falling masonry.

“Only five of those deaths were inside buildings where the building failed.

“Some died in good buildings, hit by unreinforced masonry buildings,” Mr Sutton says.

NZ Society of Earthquake Engineers Executive Officer Win Clark says architectural elements such as parapets, gable ends and facades caused the greatest damage when they fell during the shaking.

The buildings they were mounted on often remained standing, and it was rare for the occupants to be injured.

Mr Clark told Insurance News buildings can be retrofitted and

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the options for owners are relatively straightforward.

“On a national basis it’s a very large sum to do this work, but as an individual building owner if you identify what is needed to restrain the parapets or gable ends and put in place a program to carry out the work over five or 10 years, looking at cashflow and matching to ability to pay, it’s a relatively painless process.”

Mr Clark acknowledges it can be difficult to get owners to accept the need to start on a detailed assessment to identify the work needed, costing it against cashflow and then implementing a work schedule.

He says a lesson from Christchurch is that New

Zealand needs to have a debate about the level of securing buildings, and how much the country is prepared to pay.

“What is the expectation of the population in a significant earthquake event?

Christchurch was a very large event, particularly the February 22 quake.

“And how much can the country afford and then strike a level that is acceptable to the population and society and their ability to pay.”

The difficulty in Christchurch is the need to balance the cost of repairs and increased safety regulation against the desire to get the city’s rebuild underway.

Buildings can be retrofitted

to improve their stability in an earthquake, but Mr Milne says even this does not guarantee owners will get insurance.

Mr Sutton says many small businesses work in unreinforced masonry buildings and may not be able to afford to move, but a balance must be achieved between safety and a quick post-quake recovery.

He says it was never an option to rebuild the centre of Christchurch from scratch.

“Our commercial building stock is valued at several billion dollars and we simply can’t afford to get rid of them all. The value in those buildings and other infrastructure in the CBD means relocating is not an option.”

Expect premium rises New Zealanders brace for even more rises as reinsurance costs bite %

%

40

40

35

35

30

30

Contents insurance

25

25

Dwelling insurance

20

20

15

15

10

10

5

5

0

0

-5 2000

2002

2004

2006

2008

2010

-5 2012

Source: Reserve Bank of New Zealand HOME INSURANCE COSTS have risen 40% in New Zealand this year and there is more to come.

New Zealanders have been warned to expect more increases in their cost of insurance as reinsurance premiums continue to rise.

Residential insurance premiums have already jumped, as shown by the graph from the Reserve Bank of New

22

Zealand, using data from Statistics New Zealand.

The increase reflects a trebling in the levy for the state-owned Earthquake Commission, which insures land and up to $NZ100,000 of damage to houses before the rest of the claim is passed on to private insurers. The levy is now 15 cents per $NZ100 insured.

The Reserve Bank’s May Financial Stability Report notes

insuranceNEWS

that many New Zealand reinsurance treaties renew for July 1 and further increases in cover are expected.

Reinsurance costs in both Australia and New Zealand are estimated to have risen on average 50% last year.

The bank says aftershocks continue to occur in Canterbury province and are still affecting some insurance markets.

June/July 2011

“Availability of new property insurance remains limited in and around Christchurch, and nationwide there have been insurability questions on high-risk properties,” the report says.

It says insurers have reduced exposure to future events by increasing excesses, changing how limits operate and moving away from uncapped replacement cover.

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A killer in the street

City of Newcastle

Wherever earthquakes strike, brick buildings turn deadly

Newcastle cleanup: buildings shaken apart

UNREINFORCED MASONRY is a killer wherever large earthquakes strike. New Zealand is now addressing the problem in the wake of the Christchurch quakes, although the cost of fixing the 3867 unreinforced masonry buildings around the country identified as needing strengthening would be at least $300 million more than the buildings are worth.

Masonry, usually in the form of bricks, is one of the oldest and most common building materials and has usually been considered the most durable.

However, it depends on a strong, unyielding base and is susceptible to failure in the twisting action associated with seismic activity.

In Australia few regulations related to the earthquake resistance of buildings exist – a reflection of the country’s low incidence of major earthquakes.

However, the Newcastle earthquake of December 28 1989 proved that Australian cities are not impervious to earthquakes, and that when the ground shakes, brick buildings are prone to collapse. Nine people were crushed when part of the Newcastle Workers’ Club 24

collapsed, three died when shop fronts fell on them and one person died from shock. More than 160 were injured.

More than 50,000 buildings were significantly damaged, and 3000 were demolished.

Insurance Council of Australia statistics show an insured loss of $862 million, or more than $3.2 billion in today’s values.

Earthquakes have been recorded in all parts of Australia since one was listed as “causing alarm” in Newcastle in 1842. A force 7.6 quake – the largest ever recorded in this country – rocked parts of Western Australia in 1906. That state is by far the most earthquakeprone region of Australia, although all states and territories have experienced quakes at some time in the past 200 years.

In the United States, California is the most earthquake-prone state. Few quakes occurred during the part of the 20th century when southern California was quickly growing, and unreinforced masonry buildings were popular, being quick and simple to erect.

The San Francisco earthquake in April 1906 killed 700 people, with the damage made insuranceNEWS

even worse by fires that raged through the city. The force of the quake is estimated today at 7.8.

Over the next 20 years a series of quakes along various Californian fault lines illustrated the hazards of unreinforced masonry buildings. A quake in 1918 in San Jacinto leveled the entire town, with only two buildings surviving – one made of concrete and the other of wood.

Buildings collapsed in Santa Barbara in 1925, with 13 people dying under collapsing buildings. Few structures escaped damage.

But it was the Long Beach earthquake of March 1933 that finally forced legislators to act.

Built on alluvial soils, the thickly populated business area of the city was flattened and 115 people died.

Building codes were changed to ban unreinforced masonry buildings. Some still exist, but laws passed by the California Senate in recent years have forced cities to identify buildings that are earthquake hazards. The law does not specify the remedial action that must be taken, leaving it up to each community.

June/July 2011

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Troubled waters

It might not be your ship, but you could end up being held responsible: the Chinese coal carrier Shen Neng 1 leaks oil on the Great Barrier Reef in 2010

Ship charterers are caught up in new rules that widen responsibility for oil spills

By Jan McCallum

26

COMPANIES CHARTERING VESSELS that sail Australian waters have a new risk to add to their potential liability – they may now be charged over oil pollution.

Oil spills on the eastern seaboard have galvanised the Federal Government into action and it has added charterers to the list of potential offenders if there is a spill.

Holman Fenwick Willan Partner Hazel Brewer says that previously a discharge of oil or oily mixture into the sea meant that only the owner and master of the vessel committed an offence under the Protection of the Sea (Prevention of Pollution from Ships) Act 1983.

As well as now including charterers, the maximum penalty has increased from $55,000 to $2.2 million for individuals and insuranceNEWS

June/July 2011

from $275,000 to $11 million for corporations.

The law applies to the various types of charterer, including demise/bareboat charterers who essentially lease the ship without the crew and stand in the shoes of the shipowner. It also applies to voyage or space charterers, who buy space on a ship for their cargo.

Ms Brewer says one issue with the legislative change is that it applies to charterers generally, when some have no control over the vessel and how it is maintained and operated.

She believes many of the latter group will be surprised to find out the extent of their liability.

Charterers who essentially hire space on a voyage “can now be held strictly liable for oil discharge from a chartered vessel, irrespective of whether they have any control or influence over the operation of the vessel, or any direct involvement in the event causing a discharge – for example, following a collision resulting from the negligence of both masters�.

Ms Brewer warns that although the legislation is yet to be tested, traders who are chartering vessels to load or discharge in Australian ports should be considering what additional protection they can negotiate.

Charterers need to check their level of insurance and whether their cover extends to oil pollution.

Associated Marine National Manager of Hull and Liability Insurance Barton Phillips says charterers have to look at their charter party contract of charter and ensure there are robust indemnity provisions with the vessel owner or operator.

He says charterers also need to revisit the liability provisions in their insurance to ensure their policies provide cover for liability irrespective of negligence. “They need to ensure these insurance policies adequately cover the prospect of their being strictly liable,� he told Insurance News.

Limits should also be reviewed, given the substantial increase in penalties for an oil spill, Mr Phillips says.

Ms Brewer says charterers can consider additional insurance cover as well as negotiate terms that push the responsibility back to owners as far as possible, such as by seeking to have shipowners indemnify them against liability.

The intention of the changes is to ensure that those who benefit from shipping transport have an interest in preventing oil pollution.

The tightening of the legislation follows oil leaks from two ships on the east coast.

When the Pacific Adventurer was holed off Brisbane in March 2009, more than 270 tonnes of oil was washed on to the southeast Queensland coast, with the Australian Maritime Safety Authority estimating the two-month clean-up involved about 2500 people and cost $34 million. The ship’s owners agreed to pay $25 million in compensation.

The Shen Neng 1 lost four tonnes of oil when it ran aground east of Great Keppel Island in Queensland in April 2010.

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The credible spokesman Getting the message across: III President Robert Hartwig speaks to local media after a tornado tore apart the Alabama town of Tuscaloosa

28

insuranceNEWS

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Robert Hartwig blends facts and old-fashioned PR to project and protect the US insurance industry’s image

By Terry McMullan LAST MONTH WAS NATIONAL BIKE MONTH in the United States. Across the country newspapers and magazines included in their coverage of the various events and bike-related debates and issues an informative and easily read article on bicycle safety and insurance.

The article was written by the Insurance Information Institute (III), a unique organisation that serves the US life and general insurance industries by providing timely, targeted information for the media and public.

When there’s a tricky issue that has gained the attention of lawmakers at state or national level, the III will have an expert there to explain the intricacies they’re dealing with.

When natural disasters strike, the III will be on the spot shortly after to provide information and advice on insurance and emphasise the industry’s support for the affected community.

For example, when tornadoes shredded the Alabama town of Tuscaloosa in April last year, III President Robert Hartwig flew in to brief reporters, talk to local and state government officials and visit people who had lost their homes.

His message was simple and consistent: the insurance industry exists to put things right; it would pay some 165,000 claims worth more than $US2 billion; and it would be there to support the community in its rebuilding efforts long after the television news crews had left.

Dr Hartwig’s activities included a visit to the mayor to present him with a cheque on behalf of the insurance industry to restore a children’s playground.

The media, of course, was on hand to record one of the few bits of good news coming out of Tuscaloosa that day.

Taken with his emphasis on the industry’s ability to pour money into rebuilding the stricken community, Dr Hartwig’s message was powerful and positive, and the local media reported it that way.

There was also a message that was more suited to state and national TV crews: the Tuscaloosa disaster wouldn’t affect premiums.

As Dr Hartwig was making his points to journalists and TV news crews on the scene, the same message was going out from III headquarters in New York to media around the country via email and Twitter.

This thorough approach is all part of what Dr insuranceNEWS

June/July 2011

Hartwig calls his “front line job”, which involves getting the industry into the frame, ensuring reporters have background facts they can use in articles and putting them straight when ignorance arises.

While he accepts the involvement of communications and public relations specialists speaking for individual companies in the 24-hour media cycle, he points out that he and the other III spokesmen rely entirely on facts to make their points. “Spin” is not a word he likes.

“The PR people stick to ‘message points’ even where they don’t make sense,” he tells Insurance News in a wide-ranging interview in his Manhattan office. “I use research and facts. You don’t need anything more than that.”

Discussing the Australian industry’s travails following last year’s floods, he agrees that flood insurance is a difficult area for insurers anywhere.

The US industry’s stance on the flood issue is more complex than that of the Australian industry, thanks to the US Government’s debt-ridden National Flood Insurance Plan.

You’ll find the details on the III website, which also contains comprehensive evidence of the scale of the flood problem in the US, how it is handled and what individual homeowners can do to protect themselves.

The III information leaves political and regulatory wrangling to the associations that represent specific industry interests in the US – groups like the Independent Insurance Agents & Brokers of America and the American Insurance Association.

Those organisations aren’t members of the III. Instead the institute’s membership is made up entirely of individual companies – intermediaries as well as insurers.

Dr Hartwig has a PhD in economics and joined the III in 1998 after working in insurance and reinsurance. He became chief economist the following year and president in 2007.

He shrugs off the suggestion that the institute is seen by US media, governments and regulators as the “honest broker” for the sector, pointing instead to the institute’s simple mission statement: “to improve public understanding of insurance – what it does and how it works”.

The one thing the III doesn’t do on behalf of the US insurance industry is lobby. While Dr Hartwig is a familiar figure on Capitol Hill in Washington and in state legislatures presenting 29

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information on industry matters, lobbyists contracted to the various associations do the negotiating.

If that doesn’t make the III unique in the world of insurance, it certainly has no parallel in Australia.

The local life insurance sector is bound to the Financial Services Council and two separate organisations represent life intermediaries. General insurance has the Insurance Council of Australia (ICA) representing the insurers, the National Insurance Brokers Association and the Underwriting Agencies Council.

ICA speaks strictly for the insurers, but is usually (and sometimes wrongly) regarded as speaking for the entire industry. Its poor public relations performance after last year’s floods resulted in an overhaul that has concentrated on building new relationships with the mainstream media. Its government relations performance at state and national level remains, at best, patchy.

Although ICA provides statistics and facts to the media, its ability to speak definitively on the industry’s behalf is compromised by its overall mandate to protect its member companies’ interests.

However, the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), a longestablished education organisation with links to the life and general insurance sectors, appears to be trying to take up the “understanding insurance” role.

In August 2010 ANZIIF launched an information and advice website called Know Risk. It has won limited industry support, and Insurance News understands that despite a relaunch last November Know Risk has failed to gain a significant level of financial backing.

Compared with the range and authority of the III’s website content, the ANZIIF site is at present very limited in its scope. It would require considerable ongoing investment before it could hope to be recognised as a reliable and balanced source of insurance information.

Dr Hartwig says the III provides definitive information that is recognised and used by the media, governments, regulatory organisations, universities and the public as “a primary source of information, analysis and referral”.

In addition to direct contact with its various “audiences”, the institute publishes pamphlets and books on a wide range of insurance-related subjects, including advice and industry statistics.

It says it is “generally recognised to be the most credible and frequently used single source of information and referral for the widely diverse insurance industry”.

The III also provides services as varied as original research and publications with the National Bureau of Economic Research and The Wharton School, through consumer publications and fact books to maintaining the National Insurance Consumer Helpline on behalf of the entire US general insurance industry.

Not that the III’s concentration on the facts can always protect the US insurance industry from an occasional mauling. General insurers came under sustained attack in 2005 from legislators, the media and lawyers after Hurricane Katrina flooded New Orleans.

“It took two years of litigation for the insurers to defend the language and intent of their policies,” Dr Hartwig tells Insurance News. “If they hadn’t prevailed the cost of policies in the Gulf Coast area would have tripled.

“In these cases the individual gets portrayed as the victim up against the Goliath corporation, and 30

Good news among the bad: Robert Hartwig (left) presents a cheque from the insurance industry to Tuscaloosa mayor Walt Maddox

“The III is generally recognised to be the most credible and frequently used single source of information and referral for the widely diverse insurance industry.” all we can do is point out that the industry dealt with 1.7 million claims and paid out $US41 billion.

“Mississippi and Louisiana are two of the most hostile places in the US for insurance cases, and several lawyers are in jail for trying to bribe judges.

“Some of those cases might have been thrown out before they began in other jurisdictions.”

Dr Hartwig says the III is constantly changing its information mix as circumstances change. “We have to make proactive and wise use of traditional and new media,” he says.

A discussion with Insurance News on Australia’s industry issues intrigues him – not because they’re all different from those in the US but because the Australian approach to information is so comparatively fragmented.

As the US industry’s most familiar public face, particularly after disaster strikes, Dr Hartwig says the III has to keep pace with change. The information and opinion landscape is changing as people increasingly take to the internet.

But he has no difficulties with that, because the III’s commentary on behalf of the industry is always based on solid information, without prejudice or point-scoring.

“Facts,” he says with a smile. “My best friend is facts.” insuranceNEWS

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Getting on with it Daniel Fogarty takes over at Zurich and promises to keep driving down the business improvement road

By Terry McMullan

A FEW MONTHS AGO DANIEL FOGARTY WAS HARD AT WORK ensuring the company’s challenging reform process happened efficiently. As wingman to chief executive Shane Doyle, he was responsible for putting together the pieces to complete the plan they had hammered out together.

Today he’s No 1 at Zurich, with Mr Doyle packing his bags at the end of June after just over a year in the top job and heading for Europe to work for Dual International.

The abrupt departure of the charismatic Doyle could have been destabilising to an Australian operation going through such a thorough revamp, but the local board and senior managers far away realised the need for swift and decisive action on a replacement. insuranceNEWS

And Daniel Fogarty was sitting there with the experience and the track record to pick up the reins.

Today he’s philosophical about the burst of activity that saw him move from a challenging business role to an even tougher one. And he believes the change at the top hasn’t rattled the company’s staff.

“A lot of staff have said to me, ‘It’s great that we’ve got someone we know running Zurich Australia because we can continue with what we’ve already started’,” he tells Insurance News.

“I think the great thing about us appointing from within is we’re saying we’re going to continue on the same strategy. We’re very proud of what we’ve achieved at Zurich in the last couple of years.”

He also points to Mr Doyle’s statement that he was leaving behind “a talented leadership team, a sound and globally aligned June/July 2011

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general insurance strategy and a business structured to deliver more effectively to the specific needs of our corporate/midmarket and SME segments”.

“I actually started at Zurich six months before Shane started,” Mr Fogarty says. “So when Shane first arrived, he and I sat down and went through discussions on what the business needed.

“He and I worked together on the first strategy paper he needed to present to the board. So I’ve been a core part of developing the strategy with Shane. That makes me well-positioned to make sure that we deliver on the strategy.”

Mr Fogarty’s emphasis on continuity is important. His bosses in Hong Kong and in Europe just want to see action on the strategy they’ve signed off on.

“I think the great thing about appointing an Australian to this role is it shows that Zurich is committed to the Australian strategy,” he says. “It recognises the ability of the people we have here in Australia, and they’re just telling me, get on with it.”

“It” is a program to refocus Zurich Australia’s business around brokers and customers, and Mr Fogarty says the results are already very positive.

“The success we’ve had in our package area is just great,” he says.

“When we started going on the journey of improving the package business a lot of people worried we wouldn’t do it right. But we’re a broker-focused company so we did it right because we kept that focus on the broker.

“And now they’re sending us lots more business.”

That’s an indication that Zurich’s global change process, which has caused such upheaval at the company, is at least doing what it’s meant to. One of its primary aims was to build a business that had more depth in its relationship with general insurance brokers and life insurance brokers.

The change came relatively late to the Australian headquarters in North Sydney. In March last year the company followed its global counterparts and began a program to split the life/investment and general insurance arms into two separately managed businesses.

Zurich Corporate in Switzerland explained the aim of the new structure was to “enable us to give an even greater depth of support and service to intermediaries and customers”.

Mr Fogarty says focusing on what customers need “and also really understanding what happens at claims time” have been two very important facets of the program.

“We want to deliver an outstanding claims experience,” he says.

“We structure our products so we can deliver a good claims experience.

“The big thing at Zurich is how we can be much more marketfacing. That’s one message I’ve been giving to staff this week. I’ve been asking, ‘Look, if I can be market-facing how come you aren’t two or three times more market-facing than I am?’

“And we want to understand our brokers and our customers more than we do today. I think we understand the broking market well – after all, we only distribute through brokers.

“But my challenge to my team is that we should be the absolute best at delivering through brokers, because that’s our only channel.

“We believe that commercial customers need advice, and that’s why we support the broker channel. But we should be number one in it.”

Of course, all his competitors think they should be, too, and Mr Fogarty agrees the Australian insurance market is no place for the faint-hearted. “I don’t think there’s any area you can take your eye off, and no business you don’t have to compete for.

“You’ve got a lot of providers who want to deliver insurance here, and we have to all compete hard for our dollar.

“We’re probably in a price-adjustment market more than a hard market, and it is still very competitive.

“We are doing it better in certain lines, but we’re not doing it better in every line. And that’s really my challenge now – to make sure that we are doing it better in every line.”

He has plenty of evidence that the strategy is working. For example, the results from Ebix Australia’s Sunrise Exchange platform have shown Zurich achieving the largest sales in the package business over several months.

“We’ve also got our turnaround time on quotes right down, so we’re also number one in turnaround times,” Mr Fogarty says.

“At our big end of town Global Corporate business we’re also going well – it’s an expanding business for us. And the middle market area of our business is where we’ve been spending a bit of time asking how we can be much more relevant for brokers.”

“Relevance” is a word that crops up often in Mr Fogarty’s comments. It covers the way customers think about Zurich’s offerings, as well as how business customers can be steered towards brokers.

“We’re seeing many more platforms coming through, particularly in the package end of the business, so that brokers can manage their costs better,” he says.

“The brokers’ job is to provide advice; our job is to provide the underwriting and the claims.

“The challenge that’s happening in the market is, how are customers actually reacting to that? From our experience the customers who get advice are better placed with their insurance claim. But customers are also voting with their feet and going direct [because] some don’t want to pay the distribution costs.

“The market has been worried about the direct channel in commercial insurance for the past 10 years, but you look at the statistics and the market hasn’t changed that much; it’s still about the same amount of intermediated business as it was 10 years ago.

“So yes, brokers are changing, and they’re also trying to manage their businesses better. Succession plans and what happens with the Steadfast float are also interesting topics in the market.

“But what’s certain is that we’ll still have brokers, we’ll still have customers who need advice and we’ll still have underwriters like us who want to provide the capacity in the market so that customers can be protected from their risks.

“Most satisfying about all this is that brokers are rewarding our drive to be more relevant and much more market-facing than we have been in the past.”

Mr Fogarty has plenty of academic and business qualifications to

“Most satisfying about all this is that brokers are rewarding our drive to be more relevant and much more market-facing than we have been in the past.”

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run almost any kind of company. A chartered accountant who originally worked for KPMG, he has a BCom from the University of New South Wales, a Masters in Management from Stanford Business University in California and he is also a Fellow of the MIT Sloan School of Management.

He spent five years at Suncorp Insurance in Brisbane before joining Zurich in 2009 to manage its SME and packages business, and was promoted to Chief Operating Officer the following year.

Before Suncorp he worked for Westpac for 15 years in a variety of roles that eventually saw him introduced to the bank’s general insurance operation. And general insurance is where he has stayed ever since.

At the time of his appointment to the top job, he was executive general manager for the company’s corporate business, which also covers the mid-market segment. It was a role he was given because it was seen as crucial to the success of the new strategy.

Mr Fogarty sees Zurich Australia capitalising more in the future on its global reach, pointing out that even as the decks were finally clearing from the summer floods of 2010/11, the Sydney claims team was transferring its expertise to claims coming in from the Japanese earthquake and tsunami of March 11 last year.

“The Christchurch events have been managed by us as well,” he tells Insurance News. “We actually helped the rest of the network because we’ve got experience from the floods – probably more experience than we’d like in dealing with catastrophes.

“But dealing with catastrophes is still an issue for us. There are some Australians who just can’t get insurance, and you know they’re things that as an industry we need to look at.

“The image of our industry is still something that we haven’t got right. And I think we’re challenged on that, depending on what the event is.

“I think we came out of the fires in Victoria well because we all cover fire. But we didn’t come out of the floods in Queensland as well because we don’t all cover flood.

“The whole market has been challenged by catastrophe, and the whole market is looking at their exposure on catastrophe.

“Far North Queensland has been a challenge for the industry, and we’ve made sure that we’re still supporting brokers up there.”

And flood? “If we start pricing right for flood, some people won’t be able to afford it. But then they need to have discussions about how they’re going to limit the risk.”

That raises the question of Zurich’s long-term commitment to the New Zealand market – an issue that has stirred some discussion across the Tasman after the insurer dropped all earthquake cover south of the northern city of Hamilton.

Mr Fogarty is adamant that Zurich is in the New Zealand market for the long run, because as a global insurer with a global focus it has to be there.

“We’re one of the few truly global companies, and New Zealand is part of the globe. As I recall it’s one of the top 40 trading nations, so having a presence in New Zealand is an important thing.”

He shrugs off a recent comment by a leading Australian analyst that Zurich’s local operations could possibly be an acquisition, pointing out that apart from the group’s need to maintain a global reach, its Australian arm is a significant part of the global business.

Mr Fogarty certainly sees himself dealing with a rock-solid business with a lot of growth opportunities in front of it. But there are still sub-issues to be dealt with.

“Every time I talk to brokers they want to do more business with Zurich. And we’ve made it harder for them in some cases,” he says. “We ask that extra question or we don’t get back quickly enough.

“Really the opportunity for Zurich in Australia is to be consistent about our strategy and really deliver for brokers. And I think people want to deal with a global brand.

“Another opportunity is in bringing the benefits of global Zurich to Australia. We’ve been patchy at doing that in the past.

“At the big end of town we have a lot of Australian multinationals that we service elsewhere in the globe. One of my aims is to find out how we can do that more with mid-size customers that invest in Asia or in Africa or anywhere else.

“They provide an opportunity for us to work as a global insurer, because that’s what we are.”

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Flood: the next steps Inquiry. Report. Consultation. Now it’s time for some government action.

Here’s a roundup on progress so far

By Elizabeth Redman

WHEN COMMUNITIES GET ANGRY, GOVERNMENTS HOLD inquiries. The summer of 2010/11 was made memorable by natural disasters, and the months that followed will be remembered for the number of inquiries that examined the problems and suggested solutions.

Well, some of them. Four key inquiries were commissioned after the 2010/11 floods: the Natural Disaster Insurance Review (NDIR); the Queensland Floods Commission of Inquiry; a House of Representatives inquiry into the insurance industry’s response to extreme weather events; and the Independent Review of Brisbane City Council’s Response to the January 2011 Brisbane Flood.

Government responses to the recommendations have varied widely, from the Brisbane City Council’s self-declared 81% response rate to the Federal Government’s assurances it is “consulting” and “considering”.

The House of Representatives Social Policy and Legal Affairs Committee tabled the report “In the Wake of Disasters: Volume One: The operation of the insurance industry during disaster events” early in May. It concentrated on the industry’s claims-processing arrangements and dispute resolution processes. At the time of going to press Insurance News understands the Government expects to release a response to the report by mid-June.

All that a spokesman for Financial Services Minister Bill Shorten would say was: “We are considering its recommendations and we will respond in due course.”

The report recommends budget funding for the Insurance Law Service to provide a temporary physical presence in areas of need after natural disasters. The Federal Budget in May made no mention of it.

The committee’s chairman, Graham Perrett, isn’t surprised.

“It was obviously a very, very tight budget so I’m not surprised it didn’t make the cut,” he told Insurance News. “I’m still optimistic and hopeful that it will be funded.”

The report also recommended a number of legislative changes to be made by July 1 this year, including forcing insurers to offer flood cover as standard.

“It’s going to be a very crowded few months if that is the case,” Mr Perrett says.

Some changes to federal laws have started taking shape. In response to the report’s recommendation the Government create a standard definition of flood – also recommended by the NDIR – and the NDIR’s recommendation of key fact sheets, the Insurance Contracts Act was amended in March to allow the creation of regulations to make the changes.

The regulations are expected to come into effect in early June.

The NDIR report was made public last November, and the Government has already accepted other recommendations such as 38

insuranceNEWS

funding a flood risk information portal, helping lending institutions to remind borrowers about their insurance annually, and removing the General Insurance Code of Practice’s provision that says it doesn’t apply after natural disasters.

But it is still consulting on the proposal that insurers must offer flood cover and may allow consumers to opt out.

Submissions on its consultation paper were due by March 30.

In May, Minister Shorten’s spokesman said the Government was “considering the submissions and will respond in due course”.

The consultation paper didn’t cover the question of affordability. The NDIR recommended an affordability mechanism in the form of a government reinsurance facility that would provide premium discounts on flood insurance. In its initial response to the review, the Government said it would “consider” and “consult” on the affordability recommendations.

Meanwhile, the market is moving. Some personal lines insurers have already started offering flood cover with no opt-out provision, and consumers have reported substantial premium increases.

NDIR Chairman John Trowbridge says insurers are searching for a good solution.

“Some companies are being very brave and risking part of their loyal client base for a longer term goal,” he told Insurance News.

“It’s part of a transition to some future where flood cover is much more widely available.

“The one thing insurers can’t do on their own is deal with the affordability problem. The Government is going to play a role as well.

“We’re not entirely sure what it will be or when because we haven’t seen the outcome of the first consultation, and they’re yet to conduct a second.”

The Queensland Government is also “consulting”.

The Queensland Floods Commission of Inquiry report was released the week before the March state election. At such a critical time, neither state leader could be seen to be ignoring the report.

The recommendations were accepted in full on the day of their release by then Premier Anna Bligh and then Opposition Leader Campbell Newman.

As the new premier Mr Newman has restated his support for the recommendations. He listed the start of their implementation among the priorities for his government’s first 100 days.

But a progress report published after 30 days in government says the response to the commission report is “being prepared in consultation with relevant stakeholders” and that “negotiations for better flood mitigation funding arrangements for Queensland have been initiated with the Commonwealth Government”.

A spokesman for Queensland Infrastructure Minister Jeff Seeney says the Government is “working on the recommendations now” but a completion date isn’t known.

“It’s a work in progress – it’s ongoing,” he told Insurance News.

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“The one thing insurers can’t do on their own is deal with the affordability problem.

The Government is going to have to play a role as well.”

– National Disaster Insurance Review Chairman John Trowbridge

The Brisbane City Council is a different story. The board evaluating the council’s disaster response reported its findings in May last year. The council accepted all the recommendations and in June last year published an itemised list of its planned responses to the recommendations, complete with scheduled timeframes.

Last December the council published an update showing it had implemented 81% of the recommendations.

The only recommendations not implemented were those that weren’t scheduled to be carried out yet.

Apart from that, 74 of the recommendations from the State Government commission of inquiry interim report applied to the council and it has implemented 90% of those as well.

University of Queensland Emeritus Professor of Civil Engineering Colin Apelt was on the Flood Response Review Board, and says he appreciated the council’s commitment to action.

“From time to time I’ve been involved in studies like this and the study seems to sit and go to dust,” he told Insurance News.

“They set themselves a really serious time target, which impressed me. I was really impressed with how determined the council was to learn from the experience and take action from any future events.”

Some of the remaining recommendations are more complex, such as feasibility studies into flood mitigation equipment, including levees at the Rocklea Markets and backflow prevention devices in the CBD. Backflow prevention devices stop water flowing back up stormwater pipes when it would otherwise leave a swollen river through a drainage network and flood city streets.

But there can be serious problems with their implementation, Professor Apelt says.

In good weather they can easily be forgotten and might get stuck open or shut through lack of maintenance. Some of the devices require electronic controls, which causes problems if power goes out during a flood. And if a device is closed to prevent backflow but really needs to be open, water pressure has to build up behind it to force it open, meaning flood levels can be higher.

It’s an apt metaphor for actions following the various flood inquiries. Pressure is building for governments to act on the reports, but they may need additional stimulus to get them moving. For now, a lot of the issues listed as needing action risk being silted up and forgotten.

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Standing out from the D&O pack Fierce competition has sparked innovation and is keeping insurers nimble

By Jan McCallum

40

“While the D&O policy forms have previously been led by the US and UK markets, recent experience shows that Australia is now looked to as a market that is leading innovation,” he told Insurance News.

An example is the response to the increase in shareholder class actions.

“The Australian market has recognised that these claims against the company were exhausting the existing programs, and so leaving the directors uninsured.

“The Australian market has now developed a separate company securities cover that provides a separate policy for the company’s protection, and insuranceNEWS

so allowing the directors to retain their own protection.”

Mr Scott-MacKenzie says the US market has recognised that directors there face the same concerns and he is seeing insurers start to look at the Australian policy forms for solutions.

Zurich’s London-based Global Chief Underwriting Officer Special Lines Paul Schiavone says there are more than 50 carriers globally writing D&O, and Australia has 20 to 25 companies selling the cover.

He estimates the Australian D&O market is worth around $200 million and says although there have been major claims, Australian pricing continues to June/July 2011

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Opinion is divided as to how much broader covers can get, but industry experts say the competition has given clients better, more tailored options for protection and kept insurers nimble and responsive to any events that will have an impact on D&O cover.

Chartis Commercial Institutions Manager Jeremy Scott-MacKenzie says Australian D&O policy forms are some of the broadest available globally.

fall because there are so many European and US carriers trying to get into the market.

As a result, D&O policies keep getting broader, with new covers and wordings emerging as insurers seek to differentiate their products.

Marsh NSW FINPRO Manager Craig Claughton says covers are already so wide it is hard to break new ground, but he has seen developments “at the edge” and says many of them offer valuable benefits to clients.

Spousal cover, for example, can help someone who gets dragged into litigation because they are married to a company director, which is often a concern for private companies that are identified as family businesses.

Insurers are also moving to cover raids by regulators, which can involve significant legal bills. Mr Claughton says costs for executives and directors can mount when regulators serve notices requiring information to be provided, even when there is no allegation of wrongdoing against them.

“Regulators can cast their nets quite broadly now.”

He says cover for pecuniary penalties such as fines has also become broader, when the law allows these to be insured.

The covers have had to respond to increasing globalisation. Extraditions within Asia following legal and commercial disputes have focused directors’ attention on the risks resulting from Australia’s growing trade with Asia.

Many clients frequently travel there, and it is an area where they are identifying risks and looking for cover if they have to fight extradition proceedings.

There are also tax costs if those proceedings mean they live abroad long enough to

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come under a foreign tax jurisdiction and need to seek specialist advice.

Mr Schiavone says global companies are interested in being provided with global covers, but it is illegal in some countries to insure a risk from outside that country. China and Indonesia fall into this category, forcing foreign companies to buy cover from local insurers.

The small to medium enterprise sector continues to enjoy very broad cover and there is little sign of rates firming as insurers diversify their portfolios to include this lower risk segment.

As a result, insurers have responded to the particular characteristics of the sector.

“No longer are these segments receiving a stripped-down D&O cover, but rather these forms now contain the cover traditionally reserved for the corporate sector,” Mr ScottMacKenzie says.

Technology has made these packages more accessible to brokers, enabling them to tailor a product to meet a client’s needs and budget.

“They may choose not only

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which insurance protections they require, what limits and deductibles are desired, and indeed whether they want to aggregate or separate the limits available under each coverage.”

Although there are no signs that the D&O market is hardening, Mr Scott-MacKenzie is seeing insurers become more selective about the risk they will accept, particularly in areas such as financial services that have been hit by shareholder class actions following the global financial crisis.

But while he is seeing increased underwriting scrutiny and substantial rate increases there has not yet been a significant restriction on covers.

He does see the corporate market at a point of stability on coverage.

“The breadth of cover is at the widest it has ever been over the past decade, and while there has been modification of covers to respond to current litigation trends, there has not been any concerted growth in coverage in the last 18 months,” he says.

Mr Claughton agrees that executives in industries that

insuranceNEWS

have suffered large losses are likely to find the market less accommodating, and says those who can expect closer attention include directors and officers associated with financial institutions, valuers and financial planners wanting professional indemnity cover.

Shareholder class actions have become easier to pursue due to the emergence of litigation funders, who usually take the cases on a no-win, no-fee basis, running cases that are beyond the financial means of individual shareholders.

The largest claim payments in the past five years have been on shareholder actions, but Mr Claughton says this is not deterring insurers from writing cover and there is still an oversupply of capacity and new players interested in entering the market.

He admits to being puzzled by this degree of interest, given the competition, and wonders what newcomers believe they can add to the market.

“It’s good news for purchasers, but I’d qualify that by saying there are problems in some industries and those that

June/July 2011

have suffered large losses might find the market more difficult than others.”

Mr Claughton says insurers have seen Australia as a stable economic environment with good regulation, but since the global financial crisis there have been a number of highvalue claims, particularly against financial institutions, that are disproportionate to Australia’s size in the global economy.

“If they thought this was a safe territory that does not prove right statistically.”

The latest challenge to D&O covers, and one that is forcing insurers to innovate, has come via the High Court of New Zealand’s decision on the failed finance company, Bridgecorp, which has eroded access to legal costs when there is a competing charge on a policy. When Bridgecorp went broke and its directors faced civil and criminal actions, its directors called on their D&O policy to pay their defence costs. But Bridgecorp’s receivers asserted a charge over the policy for amounts they intended to claim from the

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“The remedy lies with the Australian courts and the government needing to take urgent action and correct the apparent absurdity created by the Bridgecorp decision.”

directors and the court ruled in their favour.

Directors and executives, as well as their insurers and brokers, were left wondering whether D&O policies could operate as intended to provide funds for insureds facing litigation. Australian D&O experts immediately saw the decision being applied here

because of similar law in some jurisdictions. The decision is being appealed, but the insurance market has responded quickly to give clients protection.

Mr Scott-MacKenzie says there have been a variety of responses by insurers to Bridgecorp.

“Some have taken a watch-

insuranceNEWS

and-see approach, while others have provided coverage options for the informed client.

“In turn, policy coverages have taken various forms. One of the early solutions was an excess policy structure that responds only to the risk of ‘Side A’ unindemnified claims, but leaves the ‘Side B and C’ company reimbursement and company securities risk on the company’s balance sheet.”

He says more recent solutions are “companion policies” that act as a contingent cover in the case of a charge.

“The key issue for the board and their brokers is to be informed of the Bridgecorp decision, and make a conscious decision: whether they accept the risk of a charge being placed on a policy, or whether the board seeks the D&O to be failsafe and will not accept the gap in coverage that has been created.”

He believes insurers’ policy responses are “at best a stopgap measure” to ensure directors’ and officers’ legal costs can be met in a timely manner.

“The solution for the difficulties faced, where there are

June/July 2011

multiple claims with multiple competing charges such as a class action, cannot be dealt with through mere contractual changes,” Mr Scott-MacKenzie says.

“The remedy lies with the Australian courts and the government needing to take urgent action and correct the apparent absurdity created by the Bridgecorp decision.”

The Bridgecorp appeal and any response by legislators is likely to keep D&O cover in the news for a while, but even bigger challenges may be looming.

Globalisation has given companies access to many new markets, but regulators and other interested groups are on their trail. Mr Schiavone sees global class actions as an emerging risk as lawyers target multinational companies in their various countries of operation.

While insurers are getting tougher in some areas, it’s going to be a buyers’ market for some time to come, and companies will continue to be forced to find ways to differentiate themselves from the pack.

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INSURERS IN PAPUA NEW Guinea would not have covered the doomed Rabaul Queen if they had known the passenger ferry carried many more passengers than it was licensed for.

The number of people who died when the Rabaul Queen sank in February will probably never be known. The commission of inquiry into the sinking of the passenger ferry has heard it was overloaded and not built to sail in rough waters.

Some 230 passengers and crew were rescued after the ferry capsized and sank in bad weather off Finschhafen around 6.15am on February 2. The ship was sailing from Kimbe on the island of New Britain to Lae on the main island of New Guinea.

Another 219 people have been reported missing and four bodies recovered, but there is confusion as to who was on board and many victims were 44

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June/July 2011

children younger than three, who did not need a ticket.

New South Wales judge Warwick Andrew is heading the inquiry into the cause of the disaster, seeking evidence leading to any criminal act or civil responsibility and why so many people died.

The inquiry, sitting around PNG between April and June, has heard that the vessel was licensed to carry 295 passengers and a safe minimum of 10 crew, and no more than 310 people altogether.

But survivors have said the boat was so crowded there was no room to stretch out their legs, that there were no public announcements and that the life jackets were locked up.

QBE declined to insure some of the fleet owned by Rabaul Shipping, and in 2009 Aon brokered the business to Pacific Assurance, which was the

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Overloaded and out of luck Insurers tell the Rabaul Queen inquiry why the ferry was probably working outside the limits of its cover

National Geographic

By Jan McCallum

insurer when the ship sank.

QBE PNG Operations Manager Bruce Avenell told the inquir y the company gained Rabaul Shipping as a client when it acquired the business of Zurich Pacific Insurance around 2001.

In 2009 it decided not to insure 13 of the company’s vessels but did offer cover on eight of the fleet, including the Rabaul Queen.

Mr Avenell said over the years there had been a number of claims when vessels were grounded, including that of the MV Kuanua, which ran aground near Lae in 2009.

He said declinatures of cover were made because some vessels did not meet requirements related to their condition, others did not meet age requirements and some did not meet either.

Various documents presented to the inquiry have shown different figures for the number

of passengers the Rabaul Queen could carry. A 2006 application for insurance said it was licensed to carry 350 passengers.

Mr Avenell said insurers are not liable for any loss attributable to a lack of seaworthiness where the vessel is operated in an unseaworthy condition.

Pacific Assurance Marine Underwriting Manager Martin Sengele told the inquiry the company had not had any condition and valuation report prepared on the Rabaul Queen prior to or after insuring the vessel.

The ship was insured for 800,000 kina (around $400,000) with a 15 million kina (around $7.5 million) protection and indemnity limit when it sank, but Mr Sengele told the inquiry in April that no decision had yet been made on the claim.

Pacific Assurance Chief Executive Paul Affleck said the company relied on government insuranceNEWS

agencies responsible for licensing the vessel when it decided whether or not to underwrite the risk.

These included the National Maritime Safety Authority, which issues survey certificates to vessels stipulating the maximum number of people they can carr y. The Rabaul Queen had a current certificate when it sank.

Mr Affleck said Pacific Assurance relied on the vessel operator to operate within the parameters permitted and would not have insured the Rabaul Queen if it had been aware the vessel would carry more passengers than allowed under the licence.

The Rabaul Queen’s last voyage started from Buka, in Bougainville Province, on January 30. The inquiry was told that Aon forwarded Pacific Assurance an email from the shipping line’s owner Captain Peter Sharp on February 2 saying he had received June/July 2011

reports that the ship had sunk and that a mob in Buka were threatening to burn his three ships. The ships were towed out to sea and burned some weeks later.

Captain Sharp told the inquiry he believed at the time of the sinking that 367 passengers and 14 crew were on board.

The inquiry heard Captain Sharp blamed large waves for sinking the vessel. The Rabaul Queen’s captain, Anthony Tsiau, also blamed waves and rejected overloading as a possible cause.

There was a gale wind warning in force at the time and Captain Tsiau had not obtained detailed weather and ocean forecasts before leaving Kimbe.

The inquiry was told the Rabaul Queen was one of the largest regular passenger ferries in PNG but was designed for smoother waters, not the rough seas the ferry was sailing in when it sank.

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Ouch. Tennis champion Kim Clijsters takes a painful tumble at the Australian Open in Melbourne. Tennis Australia is just one of Sportscover’s high profile clients

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By Jan McCallum

INTERNATIONAL INSURER SPORTSCOVER HAS proved that the niche model works, and it’s now taking its expertise further afield and expanding in the leisure business.

Chief Executive David Lamb, who joined the Melbournebased company in February from Chartis, wants to expand Sportscover’s geographic footprint further, seeing plenty of opportunity to grow in sports and leisure here and abroad.

Sportscover is already a significant international success, with gross written premium approaching $20 million, and

now it’s looking at 10% growth in the next 12 months.

About 60% of the business comes from sport, 30% from insuring leisure activities such as tourism and sports facilities and 10% from contingency business, offering cover for cancelled events or against large prizes.

Mr Lamb sees considerable upside in the leisure business, saying there are many similarities between sport and leisure when it comes to insurance and understanding risk.

It can be difficult for an outsider to come into a family business as the chief executive, although Mr Lamb says he

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June/July 2011

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“A passion for sport does matter. When a claimant, client or broker gets in touch it is important that we understand their sport.”

– Sportscover Chief Executive David Lamb

knew Sportscover founder and Group Chairman Peter Nash and Managing Director Chris Nash for years beforehand as an underwriter when he managed their account.

Peter Nash, a former Australian Rules footballer and coach who founded the business in 1986, “has stepped back and given me my head and opportunity to run the business while being available if counsel is needed”.

Mr Lamb took over from Peter’s son Chris, who will now focus on the company’s expansion into Asia.

Apart from the geographic expansion, Mr Lamb’s role requires plenty of attention to the group’s processes.

He says planning and processes have been intuitive in the past as the business grew, so he is devoting time to focus on establishing closer relationships with brokers and their clients.

He has added claims staff to increase client service and management, with the aim that a client should not meet the claims person for the first time when they make a claim.

Establishing the relationship means assigning accountability, so brokers will get one account manager and one claims relationship manager.

The expectations of the insured will be established at the start of the contract: what claims experience they want, timeliness of response, how they wish to communicate and their expectations.

The organisation tends to employ people with a sporting background and Mr Lamb is no exception. He coaches an under-21 A grade women’s basketball team, scuba dives regularly and is a keen supporter of the Collingwood AFL team.

48

He has previously coached and umpired Australian Rules football and cricket.

He says sport is “woven through the fabric of the business” and employees’ knowledge and passion for sport is vital to maintaining customer relationships.

“A passion for sport does matter,” he tells Insurance News. “When a claimant, client or broker gets in touch it is important that we understand their sport.

“Our clients are passionate about their sport and if you aren’t interested, it shows.”

He says many clients have been with Sportscover for more than 20 years, and the fact that staff understand their sport and what drives the participants is a key part of retaining clients.

Longevity also counts. Peter Nash established the business in the 1980s in frustration at not being able to obtain bespoke sports cover, and Mr Lamb says the commitment he built into the business is recognised in the sporting world.

“Sports insurance is our reason for being – it is not a stocking filler. A lot of large insurers dabble and have come and gone in the past 25 years.”

Sportscover established its own Lloyd’s syndicate in 2006. It had already been operating successfully in the UK, but the move to establish its own syndicate was considered brave at the time given the traditions of Lloyd’s as an organisation strongly rooted in the London market.

Mr Lamb says having the security of Lloyd’s has proved to be a very successful move, giving the company local credibility in the Lloyd’s market.

“It has been a tremendous asset to the business. Having

insuranceNEWS

June/July 2011

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“Our risk managers are going out with iPads using technology and their own experience to help clients manage the risk.”

Lloyd’s security is paramount. It gives comfort to clients and brokers, and having our own syndicate is quite different to having to approach other providers.”

A number of Sportscover executives have gone to the UK market to write business, and he says the gulf between the UK and Australia is not as wide as might be perceived.

The historic ties between Britain, Australia and other Commonwealth countries have enabled common understandings, with many shared sports as well as similarities in their insurance markets.

Sportscover shares Lloyd’s vision of expanding in Asia, where growth will come from growing economies and demand for asset protection.

Chris Nash stepped aside from the chief executive role to focus on Sportscover’s Asian expansion, and the company has already opened an office in Shanghai where it writes a variety of lines including personal accident for high profile, individual amateur athletes, liability, and event cancellation on local and international events.

The group’s contingency arm has also written prize indemnity on the chance of athletes achieving a certain medal or a team achieving a certain tally of medals.

Mr Lamb sees China as a medium-term investment. “It is early, very formative and about the future.”

Closer to home, Sportscover is growing in New Zealand although that country has a slightly different medical and legislative regime with the no-fault accident compensation system.

Sportscover employs around 100 staff, with 35 in its Melbourne head office, and is looking to expand geographically here.

Mr Lamb sees potential for growth in the leisure business, which shares many features with sport.

“There is some crossover in terms of people participating in organised sport and leisure. The underwriting approach is quite similar.”

He says more business can be written for tourist attractions, leisure centres and swimming pools, either private operations or owned by governments.

“We have spent most of our time focused on sport and there is a lot of upside in leisure so we are looking to work with brokers to identify their expertise and strengths in certain fields. We are talking to the stronger national and state-based firms to work with them and partner.”

The contingency business is a steady earner, a “niche within a niche” business that offers an indemnity so that promoters can offer a large prize in exchange for an insurance premium to cover them in the event of someone winning. It also provides cover for organisers who will suffer loss if their event is cancelled.

Mr Lamb says the sports business will continue to grow incrementally, and Sportscover’s geographic reach is spreading as it partners with sports that operate on a national basis.

He sees the firm’s sponsorship program as part of its holistic approach to sport, demonstrating a commitment by supporting grass-roots activities.

The grants program has supported community-based sports such as BMX bikes and dinghy sailing and sponsored 50

professional cycling, hockey and amateur football.

Although sports funding and expenditure is closely linked to the fortunes of the economy, and therefore is prone to suffer in a downturn, Mr Lamb says the niche isn’t as volatile as might be expected.

“When budgets are tight for the family on the weekend, they might spend a little less on sport and retail,” he says.

“However, because sport is incredibly well resourced by a volunteer network it is not too badly affected. Even if unemployment rises, people still continue with their sport, because it’s relatively inexpensive.”

The market is affected by trends, however. There was a drop-off in interest in sports after the Sydney Olympics and an uptick in the profile of tennis in China after Li Na won the French Open last year.

Mr Lamb says sport has gotten safer, with more effort going into risk management and the introduction and acceptance of mouthguards, headgear and defibrillators at sports grounds.

But he says that is countered by Australians’ increasing willingness to sue over injury. While the number of accidents has gone down, claims and awards have risen.

Liability, personal accident, medical expenses not covered by Medicare and loss of income remain the core covers, but there is also increasing interest from amateur sports codes in directors’ and officers’ (D&O) cover.

“Fortunately we haven’t seen much in the way of significant sizeable claims for those amateur sports people,” Mr Lamb says. “But a lot of clients are starting to buy D&O.” Mr Lamb says Sportscover has played an active role in sports risk management through its risk management arm, Venue Rating Agency (VRA), and the organisation is committed to finding a balance so risk is managed without killing off the essence of the sport.

He says having its own risk arm enables Sportscover’s risk managers to work with insureds. Even just visiting an arena to assess if the ground is in a fit and proper condition has proved to be a positive move.

“We have helped with some of the innovation here. Our risk managers are going out with iPads using technology and their own experience to help clients manage the risk.

“It is not just an insurance cost proposition – risk management is integral, and having a risk management arm allows us to visit these risks before we write.”

Sportscover was active in working with the Victorian Football Association to implement the “blood rule”, where a player who has an open wound or is bleeding must leave the field to be treated.

Mr Lamb says because staff participate in a wide range of sports, the company will feel quite comfortable writing activities that are not well known in Australia or which are considered unusual or dangerous. These include such activities as “Tough Mudder” 20km obstacle courses, touch football and some martial arts.

To Mr Lamb and the Sportscover team, all sporting activities deserve the certainty that insurance cover brings. “We will have a long hard look at any sport that is presented.”

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Shopping around Austbrokers’ renewed focus on acquisitions is yielding some encouraging results

By Elizabeth Redman

Welcome to the team: from left, Fabian Pasquini, Ray Ball, Ron Broadbent, Paul Wilkes and Greg Evans

BROKER GROUP AUSTBROKERS always has its eyes open for brokerages that would fit into its line-up. And as Baby Boomer principals grow older and start considering life in the slower lane, the group’s unique proposition makes sense.

But as broker market dynamics have changed over the 27 years Austbrokers has been in business, its focus has evolved.

Principals of brokerages and financial services companies are younger now as the Baby Boomer exodus continues.

Their requirements are different. They’re more likely to be looking at growth, and joining Austbrokers can be an ideal way to achieve it.

The group takes a 49-51% stake in its member companies. It allows principals to keep their structure, culture and personnel, while offering its expertise to make them more efficient and grow. That can include financing for expansion.

As the industry has changed, so has Austbrokers. Six months ago it created the new role of General Manager Acquisitions and Development and appointed Fabian Pasquini to the job.

A 13-year Austbrokers veteran – he was formerly Regional Manager for Victoria, South Australia and Western Australia – Mr Pasquini knows what he’s looking for.

“We’re in the marketplace day in, day out so we know what’s happening in terms of available opportunities,” he told Insurance News.

“Any smart operator who’s thinking of selling or part-selling his or her business would always approach Austbrokers.”

One example of a successful partnership is Country Wide Insurance Brokers, based in Western Australia.

Austbrokers bought a 50% stake in Country Wide in May last year. Country Wide Managing Director Ray Ball says the business was forced to consider its succession planning options when two partners decided to leave.

“I remember the first meeting with Austbrokers in our boardroom,” Mr Ball told Insurance News. “We’d been talking for 10 or 15 minutes and we knew these were the right people.”

He says Austbrokers “strikes a balance” between providing support that enables the business to grow, while also allowing Country Wide to keep its name, personnel, culture and structure.

“The main benefit is that through their experience and the fact they own part of our business, they can become more involved,” he says.

“But they don’t get involved in day-toinsuranceNEWS

June/July 2011

day management. They don’t come in and tell us what to do. But they do give us advice, and we can call on them if we need to.

“They’re very much about letting us go about our day-to-day work.”

Mr Ball says Austbrokers has provided invaluable business help, showing Country Wide where it has been underperforming and how to improve.

For example, they recognised a need to improve their collection of outstanding premiums.

The company has centralised its claims processing, reducing costs and allowing staff across its nine branches to focus on sales.

And now Country Wide is considering making some of its own acquisitions.

Although there have been a couple of hiccups along the way and there are still some improvements to make, Mr Ball says Country Wide’s bottom line has improved significantly in the past 12 months.

Mr Pasquini says the Country Wide partnership has benefits for Austbrokers, too.

“It strategically gave us a foothold in Western Australia, which is a growing economy,” he says. “And Country Wide had a foothold in the rural sector of Western Australia, which was an attraction to us.”

Mr Pasquini says Austbrokers’ other successful recent acquisitions include Melbourne-based Hamilton Insurance Brokers, where the group gave founding partner Bob Hamilton the support he needed to retire.

The remaining shareholder has been able to focus on his clients, while Austbrokers has offered business support and better relationships with underwriters, Mr Pasquini says.

Austbrokers also bought Film Insurance Underwriting Agencies through its wholly owned subsidiary Austagencies. It complements Austbrokers’ existing film insurance business, Latitude Film & TV. “Those two business have become the number one film underwriting business in Australia,” Mr Pasquini says.

Although he can’t say what’s in the acquisition pipeline, Austbrokers is working on “a few” at the moment.

“We’re somewhat more active in the marketplace, and we are engaging with the market in a stronger way and creating more opportunities as a result.”

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companyNEWS

The SRS formula 20 years on it’s still working well, says its founder PAUL LYNAM ENJOYS THE HURLY-BURLY of an ultra-competitive market. The founder and chief executive of major underwriting group SRS says being “quiet achievers” is what drives his team. And he has a business formula that he believes is keeping the Brisbane-based group quietly achieving in one of the world’s toughest insurance markets.

“We’re underwriters, not wholesalers, and that’s the past and future success of SRS right there,” he says. “We let our underwriters and high service standards do the talking.”

Mr Lynam placed the first insurance policy written by SRS into the Lloyd’s market in 1993, and nearly 20 years later the company is still working with many of the Lloyd’s underwriters who supported them then.

He says positive feedback from the Lloyd’s market has come about by SRS basing its underwriting divisions on the Lloyd’s syndicate model.

“We have a proven management team that really has grown with the business, and we have market-leading expertise.”

SRS currently writes 13 contracts into the Lloyd’s market, and its claims authority “is in keeping with local market practices”.

“We have worked alongside many of our underwriters for the past two decades, so it stands to reason that we have a very comprehensive underwriting authority and decision-making capability.”

SRS has been independently operated since its formation, and Mr Lynam says it has always been agile in responding to market opportunities.

That has resulted in a wide spread of products, including liability, construction, prestige home, professional risks, motor and accident and health.

Mr Lynam says he believes no other coverholder provides “such breadth of market presence, whether it be from a geographical or product perspective”.

Backing his claim for high-quality service is specialised staff who Mr Lynam says are among the best in their fields. “They work with Lloyd’s underwriters who are prepared to recognise the depth and character of the business,” he says.

The company has become well known at Lloyd’s through close contact and good business. Mr Lynam and his senior team visit London often, and he says the Lloyd’s partners are regular attendees at SRS internal conferences.

Underwriting Director Paul O’Leary says underwriters need to have a consistent approach through the cycles, “but just as 54

important is the ability to recognise the opportunity which exists in certain market segments”.

“North Queensland has been a challenge for us, but we’re prepared to write the region if the risk profile is right. We have reassured the market of our willingness to support well-run and managed businesses in north Queensland.”

With no end in sight to the flat liability market, Mr O’Leary says SRS has worked hard to demonstrate a broad appetite for risk.

“We have substantial capacity, skilled underwriters who are able to offer bespoke cover and endorsements and again, as with all our products, recognised leading syndicates at Lloyd’s.”

He points to the example of the Queensland floods, which presented enormous challenges for the construction sector.

“The construction industry was hit with major losses and rebuilds after Cyclone Yasi and the Brisbane flood,” he says. “SRS was able to step up to the mark with some of the strongest technical underwriting available in Australia.”

Mr Lynam says the floods also came with challenges for their Summit high-value home product, which had considerable exposure through riverfront mansions. “The losses were significant, but our claims report card was one I am very proud of.”

He’s also proud of the SRS professional risks division, which he says “provides the most satisfaction to management”.

“In a class widely recognised as the most competitive in the market, we have built a portfolio from scratch into a robust sustainable class within our business,” Mr Lynam says. “With 38 competitors in that class of business we’ve needed to be at the forefront of product development, identifying gaps in the market and providing a first-class claims service.”

He says the claims service was put to the test recently when a medium-sized accounting business insuranceNEWS

involved with banking products had a staff member “involved in a fraud in the tens of millions of dollars”.

“The claim was first notified in December and settled at the first mediation in February,” he says. “Renewal of the policy was offered and accepted by the client in June.

“And that’s the type of claims response that should dispel the myth of Lloyd’s being poor claims-handlers.”

SRS chief Paul Lynam: quiet achievement rules

© A June/July 2011

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companyNEWS

Cutting a deal: Insurer and broker scheme together (legally) THE APPOINTMENT THIS MONTH OF VERO as the sole under writer for the Fire Protection Association of Australia (FPAA) is a good example of how the distribution of insurance products can work.

The FPAA is the nation’s peak technical and educational fire safety organisation. Its broker, Alan Wilson Insurance Brokers (AWIB), operates the association’s insurance scheme.

Managing Director Alan Wilson says Vero got the nod because “their communication was clear and concise and the feedback they gave us on their business model was excellent”.

AWIB, which is based in the Victorian regional centre of Traralgon, is now working to establish a similar insurance scheme in New Zealand and has had preliminary enquiries from Fiji, the UK, China and other parts of Asia.

Vero teams worked with AWIB’s business development manager to devise the scheme. SME Schemes Portfolio Leader Yvonne Studley says Vero sees strong growth potential through its association with the group.

“This is a ver y good example of looking closely at the broker’s needs and engaging other parts of the organisation to work together on fulfilling them,” she says.

Public liability insurance is compulsory for

FPAA members, and there are plans to also make professional indemnity compulsory, too.

The FPAA scheme offers product liability, business pack and other standalone products.

The scheme is available for fields such as alarm monitoring, certification, training, product testing, supply of hydrants and portable extinguishers, sprinklers, fire engineering, bushfire planning and design, bushfire safety, risk consultancy and systems maintenance.

It also grants cover for mine sites, airports, oil rigs, boats and petrochemical works.

The scheme has advantages for FPAA members with complex needs, Mr Wilson told Insurance News.

“They’re dealing with an underwriter and a broker that understands their industry and the complexity of the work they do,” he says.

“Then when a claim occurs, the broker and the claims team understand what needs to be done to pay the claim or defend the claim.”

AWIB is offering the Australian Competition and Consumer Commission-approved insurance scheme wholesale to other brokers.

Mr Wilson says the strong financial backing of the scheme is a key advantage for policyholders, who he foresees will see their premiums remain “relatively static”.

www.pscunderwriting.com.au Broad Cover & Competitive pricing to reflect the Hire & Rental Industry needs Our Hire & Rental insurance package provides your clients with competitive pricing, broad covers and endorsements specific to the industry for areas of cover that have been traditionally harder to access.

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We include: Theft by Hirer, Transit, Dry Hire, Hired In, Full Accidental Damage, Hire Stock Australia wide Get a Quote: Download application form and email to distribution@pscunderwriting.com.au

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companyNEWS

Bits and pieces: Vero updates

Updated:

its SME products

Zurich adds to commercial motor cover

VERO HAS ANNOUNCED PRODUCT updates to its SME, liability and personal insurance products.

The SME offering now includes management liability cover, including cover for directors’ and officers’ liability.

Legal power, which covered the legal expenses of a business defending its legal rights in disputes, has been removed from the policies. Vero says the cover has had a very low uptake and subsequently it has been unable to price it appropriately.

The definition of “tax audit” has been extended to include an official inquiry, investigation or examination into the insured’s liability to pay tax.

Cover for audit of self-managed super funds has been removed from the Enterprise business insurance policy but remains available in the standalone Tax Probe Plus product.

In the Enterprise motor trade policy, optional cover for driving customers’ vehicles has been removed from the legal liability section because it is actually available in another section.

While machinery breakdown cover will still be available in the policies for non-complex occupations, it will no longer be available for some complex occupations.

Instead, a standalone equipment breakdown policy will be available.

Vero’s SME business insurance pricing is no longer solely occupation-based. The company says it now also considers account location and type of construction to more accurately price risk.

Vero’s liability cover has also been updated. New features of the broadform public and product liability include product recall expenses coverage with a sublimit of $1 million and errors or omissions coverage with a sublimit of $500,000. The property in care, custody or control sublimit has been increased from $250,000 to $500,000.

Additionally, the product disclosure statements for home insurance have been converted into a new, easier-to-read format, Vero says.

Vero’s public and product liability products have also been expanded with a number of new features that came into effect on June 1.

The improvements expand the breadth of cover as well as introducing elements that were not available previously.

These include such additional benefits as product recall expense cover, product errors and omissions cover and what National Liability Underwriting Manager David Leighton describes as “a substantial increase” in the care, custody and control sub-limit.

“The decision to broaden the cover is a reflection of the growing risk appetite that Vero has in the liability classes,” he said.

Platinum class: iaAgency targets offices, businesses UNDERWRITING AGENCY IAAGENCY is offering two new business insurance products, one each in the Australian and New Zealand markets.

Platinum, the Australian offering, targets offices and retail business in capital cities and major towns with total insured values of $5 million or less.

Minimum premiums start at around $1400, iaAgency General Manager Chris Collins says.

The policy coverage is ISR Mark V, including around 50 risks covering ever ything from property theft and key replacement to statutory authority fees.

The policy is combined with a commercial liability package and machinery breakdown cover can also be offered.

Mr Collins told Insurance News Platinum offers “superior cover for office risks and certain retail risks”.

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He says capacity is a major advantage, with Chubb under writing the product.

The New Zealand policy, Forefront, is also offered by Chubb and has limits up to $NZ10 million.

It includes employment practices liability; directors’ and officers’ liability; trustees liability; crime insurance; statutory liability; kidnap, ransom and extortion insurance and internet liability. iaAgency facilitates Chubb quotes for New Zealand brokers, Mr Collins says.

He says Platinum offers “100% allocation of defence costs, cover for private equity raisings, worldwide cover, comprehensive crime cover and a protected limit of liability for the company’s executives”. iaAgency has operated since November last year. insuranceNEWS

June/July 2012

ZURICH HAS STRENGTHENED its commercial motor insurance product, adding new features and cover.

The insurer will triple vehicle additions from $100,000 per vehicle to $300,000.

This allows policyholders to acquire one or more additional vehicles which will be insured immediately up to the value of $300,000, provided they inform Zurich of the vehicle's details within 30 days and pay any additional premium required.

It will also increase the total loss of encumbered vehicles cover from 15% to 20% of market value or sum insured value, whichever is less. And it has announced cover increases for removal of debris/load, funeral expenses, journey disruption and nonowned trailer liability.

The changes came into effect in mid-May. Some elements will stay the same. There’s still a single policy wording for commercial vehicles, light and mobile plant and heavy transport. Up to 15 vehicles can still be insured electronically.

Announcing the changes, Zurich’s Head of SME Underwriting Peter Jones says the product “will continue to be market-leading”.

“We’re confident that these changes will be well received by both brokers and customers,” Mr Jones says.

“Already this calendar year we have had significant growth rate in our gross written premium – it’s up 40%,” he says.

“Additionally, our strike rates so far this year are 33%.

“I am confident that with these additional features and increased coverage, our product will be even more compelling for our brokers.”

Mr Jones says Zurich continues to offer its customers a choice of repairer and is one of the few remaining insurers to do so.

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QBEâ&#x20AC;&#x2122;s foundation for success

QBE Australia Claims Manager Dianne Walles with a young friend at Coen State School on Cape York Peninsula, preparing for the end-of-year performance and prize-giving ceremony. After a week in Cairns helping organise an internal monitoring and evaluation framework for the Cape York Aboriginal Australian Academy, Ms Walles flew to Coen to help develop a risk assessment plan at the school, conduct individual student assessments and assist teachers.

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This staff-based program is donating money and expertise, and the personal return is just as valuable

By Elizabeth Redman THEY SAY SUCCESS COMES from a strong foundation, and QBE’s corporate responsibility initiative is no exception.

Set up last year as a workplace-based program, the QBE Foundation matches some staff donations dollar for dollar, concentrating on vocational development projects.

The foundation has already donated hundreds of thousands of dollars to local communities and even more to its main charity partners.

Staff suggest charities to support and the foundation meets every three months to make decisions.

In the 14 months since it was set up the foundation has partnered with Lifeline, KidsXpress, A Start in Life, Singapore-based Mainly I Love Kids and New Zealand-based Kids Can, providing donations and volunteer support.

In addition, Youth Off The Streets, House With No Steps and United Way have benefited from the program.

QBE Foundation Australia Asia Pacific division Chairman Shaun Standfield says QBE has always engaged with the community, but the foundation makes it easier to be consistent across the company.

“This is one way of collating it in one area and getting more visibility about our commitment,” he told Insurance News.

The foundation shares the

expertise of QBE staff as well as making donations. The insurer’s employees have been seconded to work with indigenous development organisation Jawun and youth support group the Reach Foundation.

Jawun, meaning “friend” or “family” in the Kuku Yalanji language of north Queensland, links indigenous and corporate Australia.

QBE employees have travelled to communities as scattered as Cape York in Far North Queensland, Redfern in inner Sydney and Shepparton in regional Victoria.

Indigenous leaders set the priorities for such projects, including family income management, school attendance case management, student education trusts, business planning for local businesses and helping not-for-profit organisations with financial reporting.

The benefits to indigenous communities are obvious. But Jawun also lists benefits to its corporate partners: participation helps retain staff, develop leadership skills, build brands and reinforce corporate values.

QBE Professional Indemnity Claims Officer Maya Lazarus is an example of the benefits that flow both ways.

She says she has “made friends for life” after completing a Jawun secondment. Based in Sydney, she spent four weeks insuranceNEWS

In the frame: Bryan Chitra worked with the Reach Foundation

“The foundation shares the expertise of QBE staff as well as making donations.”

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New beginning: QBE’s Maya Lazarus (seventh from left) and other corporate delegates on the site of the Block redevelopment

working full-time with the Aboriginal Housing Company (AHC) in Redfern.

She helped with the AHC’s insurance program, moving its business from a Melbourne broker to the broker’s Sydney office. The broker visited the Redfern office to discuss changes to the AHC’s policies.

Ms Lazarus says the organisation now has a local insurance contact and more peace of mind.

The AHC has government funding to redevelop infamous indigenous housing project the Block, creating a mix of social housing, student accommodation and retail space.

She had previously worked at a Sydney University college, so student accommodation was a perfect fit. She wrote a business plan, helped the architect with floor plans, took the AHC managers on college tours and provided contacts.

She also helped the AHC deal with government bodies and corporate correspondence.

Jawun does important work by connecting different indigenous groups, Ms Lazarus says.

“I thought all the Aboriginal organisations were united but they’re not like that,” she says.

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“It’s good that there’s an organisation that can bring them together and help them out.”

QBE Senior Internal Auditor Bryan Chitra helped in quite a different way. Rather than providing business advice, he spent a weekend supporting

They participate in physical activities together, such as an Amazing Race-style obstacle course, kayaking, running, synchronised swimming and a flying fox. Group sessions also allow young people to share their stories and emotions in a safe environment.

“Corporate participants gain the understanding that they can make a difference in the community, simply by listening and trying to understand others.” young people at the Reach Foundation’s Camp Maasai program.

The camp includes a mix of corporate professionals and young people aged from 12 to 18, who were often from tough home environments. insuranceNEWS

The camp builds resilience and self-confidence, in line with Reach’s early intervention philosophy that aims to reduce serious problems such as depression, substance abuse and homelessness later in life.

One task involved climbing a June/July 2011

pole, attaching a rope to a harness and jumping off.

“That alone could mean a lot to someone who’s breaking through their own fears,” Mr Chitra says.

He gained a deeper appreciation of others’ experiences during the camp.

“People are not just what you see in front of you,” he says.

“There’s all these stories behind them. There may be adversities they had to go through as a kid or young adult, and going through those adversities is what makes them, them.

“Corporate participants gain the understanding that they can make a difference in the community, not by doing something big but simply by listening and trying to understand and appreciate others.”

Mr Standfield says taking time to focus on others is key to the QBE Foundation’s work.

“You get caught up in insurance every day and sometimes you lose track of the things going on in our communities.

“We build relationships out in the field, not just in the workplace. It gives us an opportunity to talk about what value the insurance industry adds to communities.”

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peopleNEWS

Records fall at NIBA/UAC Expo A record number of exhibitors and brokers poured into Melbourne’s Crown complex last month for the annual Melbourne Expo, organised by the National Insurance Brokers Association with the support of the Underwriting Agencies Council (UAC). Underwriters say the constantly growing interest in UAC members’ products is a very positive sign in a competitive and – in some classes – hardening market.

A lunch that encouraged even more networking between brokers and underwriting agents followed the expo. The guest speaker at the lunch was former Victoria Police Armed Robbery Squad member Iain Findlay, who these days engages in less dangerous pursuits like being a member of the AFL Tribunal.

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peopleNEWS

Generation Z goes to court Powerpoint presentations and hefty speeches went by the wayside as Zurich General Insurance introduced a mock court and cast of colourful characters for its Generation Z Forums series.

Around 700 brokers attended the 11 events across Australia and there was plenty of buzz about the light-hearted, interactive format.

One fictional case where a broker declared he offered “independent” advice highlighted ASIC’s regulation of broker advertising, while another covered directors’ and officers’ insurance and raised the Bridgecorp case’s implications.

The speakers also touched on the likely impact of the carbon tax, OH&S harmonisation and the fire services levy.

Zurich’s Head of Customer and Product Proposition Nick Cook played the role of court judge and LMI Group Managing Director Allan Manning was on hand to provide insights as an expert witness.

Zurich managers were called as witnesses to outline policies that could have aided the characters.

All in all an entertaining way to get some messages across. No one was jailed in the making of the Generation Z forums.

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peopleNEWS AIMS adopts the long view Top speakers, fantastic entertainment and a packed program of business-based activities are hallmarks of the annual AIMS Convention.

AIMS, the acronym of A&I Member Services, brings together delegates from the 40 Austbrokers and 80 IBNA broking companies for several days of networking and hard work, interspersed with spectacular entertainment.

This year’s convention in Auckland emphasised its theme – “The Long View” – with an opening presentation by NASA astronaut Greg Chamitoff, whose commentary was backed by awe-inspiring photographs taken during his 198 days in space.

Other keynote speakers were demographer Bernard Salt and former Wallabies rugby captain Nick Farr-Jones.

The centre of the action each day was the exhibition area, where most meals and coffee breaks happened and delegates talked business with exhibitors in small display pods.

The highlight of the AIMS entertainment program was a night at Auckland’s Alexandra Racecourse, where selected delegates got the chance to try harness racing while being cheered on by the partisan AIMS crowd in the stands.

Wearing jockey’s colours representing all the convention’s major sponsors, they sat in the sulky alongside professional reinsmen and got a very close and personal view of what harness racing is all about.

Next year’s AIMS Convention will be in Honolulu.

Images by Ray Lawler Studios

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June/July 2011

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peopleNEWS

AILA takes peers to the pier The Australian Insurance Law Association (AILA) threw a harbourside party for its first young professionals event of 2012.

The event at the Blue Hotelâ&#x20AC;&#x2122;s Water Bar in Woolloomooloo drew members of the insurance, broking, legal, risk management and loss adjusting sectors for an evening of networking and fun.

Young Professionals Network subcommittee chair Siobhan Newton from Zurich Insurance Australia gave a short speech highlighting the educational functions of AILA. AILAâ&#x20AC;&#x2122;s next YP event will be at GPO in Sydney in October.

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peopleNEWS

Darwin welcomes MGA MGA people are a bright lot, especially when they all get together wearing colourful Hawaiian shirts. The Adelaide-based national broker held its annual conference in Darwin in May to bring together about 100 brokers, authorised representatives and insurer managers for two days of learning and networking.

Plenty of work got done in the sessions, with insurers making presentations and closed sessions discussing the fine-tuning of MGAâ&#x20AC;&#x2122;s ever-expanding national footprint.

And plenty of fun and games happened, too, ranging from dinners at the famous Mindil Markets and a harbourside restaurant to the finalnight dinner alongside the sea in idyllic calm and warm conditions â&#x20AC;&#x201C; a suitably relaxed way to bring a busy conference to a close.

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peopleNEWS

Insight digs deep, works hard, has a ball The weather was sometimes brisk but the atmosphere around the annual conference of broker group Insight in May was extra cheerful.

The seaside spirit of Adelaide’s delightful Glenelg Beach was a perfect backdrop for the conference, with delegates from around Australia keeping the beachside exhibition marquee buzzing.

There were also plenty of technical and business sessions, although most would give top marks to the conference’s very first speaker – keynote speaker Tracy Bevan, a director of the McGrath Foundation.

Her speech inspired brokers and

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commercial partners in the audience to dig deep to help fund support services for breast cancer sufferers. The result: a combined donation of $17,475.

From opening night drinks in the Stamford Grand Hotel to cocktails at Adelaide Zoo and the final night gala dinner, delegates networked and enjoyed the lighter side of the Insight Conference.

Members also had plenty to talk about following the decision in April to change Insight from a not-for-profit group to a limited liability company called Insight Australia Group Limited, with all the members becoming shareholders.

insuranceNEWS

June/July 2011

Members will retain their own corporate identities and control of their businesses following the new company’s launch on July 1.

The Les McInerney Award of Excellence, which is sponsored by Vero and recognises excellence in professionals with more than five years’ industry experience, was awarded to Newcastle broker David Brockwell from Nadic Insurance Brokers.

Sharni Hood from Ruralco InsuranceRodwells won the CGU-sponsored Norm Dyer Award of Excellence for professionals with up to three years’ experience.

Images by Iain Bond Photography

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peopleNEWS

Young Eagles fly high The Allianz Young Eagle Program goes from strength to strength, with the latest event in the company’s Sydney headquarters putting brokers in the insurers’ seats.

The two-day challenge teamed four brokers aged under 35 from Allianz’s premium Blue Eagle brokerages with one Allianz employee, also a young professional.

The program provides peer networking opportunities and a chance for attendees to meet senior management. State-based teams spent two days running a simulated general insurance company.

They worked on the enterprise’s day-to-day operations, seeing the long-term impacts of their business decisions and making presentations to the “board”.

The team with the highest-value company after a simulated 10 years wins.

This year the “board” featured Chief General Manager Broker & Agency Jonathan Poole; Chief General Manager Technical Richard Feledy; General Manager Commercial, Broker & Agency Denis Morrissey and Chief Actuary Noeline Woof.

The South Australian team took the honours.

It included Ben Corby of Allianz, and brokers Kelly Wills-more, Bradley Gray, Matthew Ward and David Stewart.

Managing Director Terry Towell attended the challenge in a mentoring capacity, listening to the presentations and providing insights over a “fireside chat”.

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These key benefits, combined with highly experienced SRS staff in Australia and a highly skilled stable of claims managers, allow our underwriters to accommodate an extensive list of risks and occupation classes when Public or Products Liability cover is required.”

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maglog »

Sam Pentecost Contributor

CHECK YOUR WEBSITES, PEOPLE. ONE OF YOU OUT THERE has been brought to our attention for claiming your accounts manager is “tainted”. That word should be “talented”, unless she has enemies in the office.

THE LONG WAIT FOR THE FEDERAL GOVERNMENT TO BREAK cover and actually make final decisions on what to do about the really big issues around flood insurance has been educational.

The Natural Disaster Insurance Review was handed to the Federal Government with much fanfare last year and an official response is expected any tick of the clock – probably 10 seconds after the boss pushes the “go” button for this edition of the magazine.

I have to admit being a bit wary of any government activity that uses the word “review”. Sir Humphrey Appleby, the scheming bureaucrat in that long-ago TV series Yes Minister, defined a review as something you have to blame someone else and, of course, the system.

“It does not matter that it is your system, nor does it matter that the embarrassment is of your own making,” he told his bumbling Minister. “A review, by definition, is a great circuit-breaker. Its very existence shows you are decisive and will tolerate no more. There is fault elsewhere and you, the minister, are determined to fix it.”

Sir Humphrey saw an official review as “an instant explanation for the gullible. By the time it is finished everyone has forgotten why it started in the first place.”

A MAN AND WOMAN WERE HAVING A QUIET, ROMANTIC dinner in a fine restaurant. They were gazing lovingly at each other and holding hands.

Their waitress, taking another order at a table a few steps away, suddenly noticed the man slowly slide down his chair and under the table, while the woman seemed not to notice.

Intrigued, the waitress went over and said to the woman: “Excuse me, ma’am, but I think your husband just slid under the table.”

The woman looked calmly up at her, gave a sweet smile and replied: “No he didn’t. He just walked in the door of the restaurant.”

You know who you are.

THERE’S SOMETHING ABOUT GARY, AND AT last we’ve worked out what it is. Gary Gribbin, the effervescent IBNA Chairman and Insurance House director, former academic, full-time bon vivant and persuasive public speaker is to Hawaiian shirts what the Queen is to corgis.

Gary has a collection of Hawaiian shirts that require his friends to wear sunnies while speaking to him. Not, of course, the sort of gaudy thing that runs in the wash but the collectibles that can cost thousands of dollars.

As our picture reveals, these shirts – bright, original and hard to miss – suit the man. Especially when you wear one at the AIMS Convention with a bow tie. Cool.

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LIKE, WOW, HERE’S PROOF THAT AS LONG AS IT’S LEGAL you can insure it. In the United States 16 states and the District of Columbia now allow the growing and marketing of marijuana for medical purposes. The weed is usually used for cancer patients to help deal with the side-effects of chemotherapy.

The fringe culture of dope-growing – well, some of it – has taken a massive step forward into mainstream society, and all they need to be acceptable citizens is to take out insurance to protect their crops.

Policies against loss of marijuana crops by fire, rain, wind, theft or raids are available. Raids? Yes, it turns out that local or state police are a risk, but not as much as the Federal Drug Administration and the FBI, who are right up there with bugs and hail.

Statewide Insurance in California underwrites up to 4000 marijuana crop policies in the state, but says it can’t cover clients against federal raids because marijuana is still considered a controlled substance at the federal level.

If insurers pay claims on crops destroyed by the feds, staff and managers could be charged with aiding and abetting a crime. insuranceNEWS

June/July 2011

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WE’RE WE’ RE MMAKING CHANGES SO YOU DON’T HAVE TO. We've been listening to you.

CGU is changing. This change is built around your needs – a single view of what CGU has to offer, and a holistic approach to your total business with us. We’ll provide you with a principal point of contact who will act as your advocate, and help you get the best from us every time. We’ll continue to encourage direct relationships with our underwriting, claims and product specialists, ensuring you get the best of both worlds. Talk to your Business Development Manager today about working with CGU. Whoever you are, whatever you do, we put the You in CGU.

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