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INSIDE: UNDERWRITING AGENCIES - THE THIRD FORCE
A really good business to be in Why Wesfarmers likes insurance. MD Richard Goyder explains April/May 2010
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Contents 6 Newsmakers » 10 A really good business to be in » Richard Goyder reveals how diverse insurance businesses thrive at Wesfarmers.
14 The Oscar goes to IAG »
lawNEWS
52 Failing the ‘neighbour’ test » 20 years on, who’s to blame for a deadly tree?
54 You’ll have to prove it »
The High Court weighs up whether smoking or asbestos was the cause of death.
The industry’s Big Three had profitable returns, but only one was the star.
15 It never rains but it pours » 16 Regulatory onslaught »
The industry is starting to feel the pressure of a new wave of controls and demands for data.
20 The great offshore insurance war »
A battle has broken out between foreign and domestic insurers over US tax policies.
24 Australia’s underwriting agencies: The third force »
Meet the underwriting agencies, whose expertise makes them extra-competitive and sometimes an attractive purchase.
32 Views from the top »
Steve Nevett reflects on the need for industry unity, staff motivation, client liaison, lessons learned from the global financial crisis and a new technology insurers don’t necessarily like.
36 Commissions: is it time to change? »
A veteran broker thinks it probably is. Here’s why.
38 Special delivery »
How OAMPS chief Keith McIvor is giving power to brokers on the front line.
companyNEWS 56 58 58 58 60 60
5 liabilities, one policy » Dual moves into a full suite » Have cover, will travel » Book review » Pacific Premium Funding opens in NZ » All eyes on the job »
61 62 64 70 70 71 72
The reinsurance party-stopper » Tickle time for the up-and-comers » Steadfast sets records in Perth » Leading broker John Whitbread dies » Award honours memory of Tom Payne » Tasty start for Zurich’s Zenith year » Brokers look and learn at Vero expos »
peopleNEWS
74 maglog »
40 Charting a new course »
Plenty of challenges ahead as John Price settles in as the new General Insurance Ombudsman.
45 Thriving not just surviving »
How some companies prospered while others died in the global financial meltdown.
49 Learning from swine flu »
How universities rose to the H1N1 challenge.
April/May 2010
Richard Goyder, Managing Director, Wesfarmers Image: Kevin Chamberlain Story page 10
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newsmakers at insuranceNEWS.com.au Poor figures: More than
ICA finds its man: As Suncorp takes a machete to its workforce to eliminate any bloat, at least one senior executive has walked away with a promotion. Robert Whelan (left), formerly the Suncorp Executive Manager Policy and Projects in the Personal Lines Insurance division, is now Chief Executive of the Insurance Council of Australia (ICA). He replaces Kerrie Kelly, who has relocated to London to become Director-General of the Association of British Insurers. With the forthcoming Henry tax review, unresolved issues over flood definitions and fire services levies and ICA’s role as an educator and lobbyist under scrutiny, Whelan will have his hands full. While all that was going on, there was quiet change on the board ranks. IAG Chief Executive Mike Wilkins stepped aside as ICA’s Vice President, to be replaced by Wesfarmers Insurance Managing Director Rob Scott.
Suncorp settles: Suncorp has dropped a class action against the ACT Government over the 2003 Canberra bushfires after settling for an undisclosed amount. More than 400 clients represented by Suncorp will receive compensation as a result, with a further 100 claimants set to fight on in a separate suit in the ACT Supreme Court. The January 2003 bushfires caused havoc on the outskirts of Canberra, destroying or severely damaging more than 500 homes and killing four people. Suncorp spokesman Jamin Smith says Suncorp has reached a “confidential” settlement with the ACT Government. Just 127 plaintiffs from a peak of almost 4000 will now continue to form part of a class action
Still the champion: Lloyd’s seeking compensation for damage from the disaster. NRMA Insurance withdrew from its action in December, stating no settlement had been reached with the ACT or NSW governments in respected to coverage for its 2000 claimants. Formal hearings began in the ACT Supreme Court at the beginning of March. While some of the plaintiffs are represented by QBE, more than 100 were uninsured at the time of the bushfires. The plaintiffs claim the ACT Government failed to mitigate the risk of a fire reaching Canberra from the Brindabella Ranges by not reducing fuel loads and by lowering maintenance of fire trails. The hearing is expected to conclude around the end of May.
Reuters
half of the Australians who rent their homes don’t have home and contents insurance, according to a new survey. Non-insurance among renters appears rife, with the latest Newspoll/GIO survey showing 52% of renters have no insurance, while 20% say they did not know they could buy contents insurance. And more than half of the renters surveyed say they can’t afford home and contents cover. Despite owning a raft of increasingly expensive items – more than 43% own jewellery worth more than $1000 – nearly one in five renters are prepared to lose everything rather than pay for cover. “Contents insurance is seen as a luxury rather than an essential item for many renters,” according to GIO Executive Manager of Distribution Shaun Feely. The survey mirrors similar findings released by BankWest in February, which found an increasing number of Australians are snacking on a diet of debt, poor savings and no insurance coverage.
Beaten by the quake: rescue teams search a collapsed apartment building
Figure this
Riding the crest of a resurgent global economy, Lloyd’s lodged a profit of £3.8 billion ($6.2 billion) last year – more than double its 2008 profit result. While the recent dip in natural catastrophes has certainly helped prop up profit margins, Lloyd’s investment returns have also been stellar, increasing by more than £800 million ($1.3 billion) to £1.77 billion ($2.89 billion). Chief Executive Richard Ward says the market should be proud of what it has achieved, acknowledging “the few, if any, significant failures among insurance businesses in the year”.
Chile counts cost: Earthquake-prone Chile looks set to face insured losses of up to $US10 billion ($11 billion) in the wake of the “big one” that struck in late February. The 8.8-magnitude quake killed nearly 100 people and devastated the southern city of Concepcion on February 27 when tremors rocked a 600km coastal stretch of the country. Further aftershocks rattled the country on March 11. Several hundred thousand buildings sustained damage from the quake, despite advanced seismic construction standards that exist in the notoriously quake-prone South American country. Reinsurer Swiss Re has forecast insured losses of between $US4-7 billion ($4.4-7.7 billion) from the quake, while Everest Re has forecast a higher $4-10 billion ($4.4 billion11 billion) range. Total losses were restricted by limited insurance penetration rates in Chile, where it is estimated that just 10% of residential risks and 60% of commercial properties are covered.
11.5
48,726
37,392
Estimated dollar cost of repairing 42,000 leaky homes in New Zealand
The number of cars and light commercial vehicles stolen in Australia last year
The number of stolen cars which were recovered last year
billion
6
of London is showing no signs of slowing in its dotage, posting its greatest profit ever in the 2009 fiscal year.
insuranceNEWS
April/May 2010
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newsmakers at insuranceNEWS.com.au HIH saga far from over:
News Ltd
When HIH collapsed in 2001 with losses topping $5 billion, creditors concluded most of their hard-earned cash would never be seen again. Ten years on, liquidator Tony McGrath is doing his best to ensure the men and women who invested in the insurer will at least see a small return on what was a very big loss. Last month, McGrath and the failed insurer’s financial advisers and reinsurers reached a settlement that will see some money return to the pockets of HIH creditors.
Profit hopes wrecked: The month of March provided a reminder of just how volatile Australia’s weather – and insurance earnings – can be. Shortly after the big locally listed insurers lined up at the end of February to deliver bearish results, the heavens opened, dumping on homes, cars and insurer profits. A severe hailstorm in urban Melbourne on March 6 caused more than $830 million in insured losses, while floods in southwest Queensland delivered a further $120 million in claims by March 8. More wild weather arrived later in the month as a big hailstorm whipped Perth on March 22, resulting in more than $203 million in claims, while
Cyclone Ului lifted roofs from homes and dashed up to 60 boats – including former maxi-racer Anaconda II (pictured) – against rocks in the Whitsundays and Queensland central coast. Claims flooded the systems of dominant personal lines players IAG and Suncorp, while in WA, RAC Insurance found itself processing more than 15,000 claims as April approached. The subsequent events forced IAG to twice revisit its full-year insurance margin guidance, ending at a range of 9.5%-11% from an original forecast of 11.5-13%. Statements from IAG and Suncorp confirmed that reinsurers will make a significant contribution to their costs.
Goldman Sachs Australia, Gen Re and Guy Carpenter acted as financial advisers and reinsurers to FAI Insurance when it was acquired by HIH for $300 million in 1998 – even though the company at the time was worth practically nothing. The undisclosed settlement between these three and McGrath was agreed only after a former partner with accounting firm Arthur Andersen withdrew his objection to the agreement. News of a settlement follows an announcement in April last year that McGrath had been given the green light to accept a $98 million settlement from General Re. So far about $1.2 billion has been paid to creditors, ranging from 40 cents in the dollar for FAI insurance creditors to 18 cents in the dollar for HIH Casualty and General creditors. While the most recent settlement concludes a long chapter in the HIH saga, the story still has many pages to be written – HIH is not due to be fully liquidated until 2014.
7.23
5.5
62
Profit in dollars made by Australian life insurers last year
The estimated dollar amount of all premiums globally for 2010
Swiss Re’s estimate of the dollar cost of all catastrophes last year
billion
trillion
insuranceNEWS
April/May 2010
billion
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newsmakers at insuranceNEWS.com.au Driven to insurance: Kmart has en-
Leaving the building: Privatised builders’ warranty insurance schemes have been consigned to history in Australia’s two most populous states. Both the New South Wales and Victorian governments have confirmed plans to step in to underwrite the mandatory domestic building cover, following the market withdrawal of major providers Vero, CGU and Lumley. Availability of the cover is essential, given that it’s compulsory for all significant residential building works everywhere except Tasmania. Last-resort systems now dominate the landscape, providing capped compensation tied to the builders’ death, disappearance or insolvency. Queensland instead maintains a state-run, first-resort system. Lumley Insurance last year announced it would exit the builders’ warranty market by January 1, and was soon followed by CGU, which closed the book on new business at the end of November. Vero will be the next
major supplier to depart the market when it stops writing the cover at the end of June. Victorian Finance Minister Tim Holding says withdrawal of three major providers “would not provide enough certainty for the building industry and consumers” with just QBE and Calliden left in the market. Instead, the Victorian Managed Insurance Authority will take control of the scheme from March 31. It follows a similar decision from the NSW Government in November of last year, which handed scheme management duties to the Self Insurance Corporation, effective from July. The National Insurance Brokers Association says it expects few changes for intermediaries of the product in NSW, including no significant change to remuneration. It says brokers will still continue to play a role in arranging builders’ warranty in surance.
PUBLISHER/EDITOR: TERRY McMULLAN McMullan Conway Communications Pty Ltd Tel: + 61 3 9499 5538 Fax: +61 3 9499 5535 Email: publisher@insurancenews.com.au ADVERTISING: NAOMI CONWAY McMullan Conway Communications Pty Ltd Tel: +61 3 9499 5538 Fax: +61 3 9499 5535 Email: naomi@mccmedia.com.au ARTWORK DELIVERY TO: McMullan Conway Communications Pty Ltd PO Box 116, Ivanhoe VIC 3079 Australia or 763 Heidelberg Road, Alphington VIC 3078 (COURIERS ONLY) Email: naomi@mccmedia.com.au
Time, gentlemen: Lumley Insurance is tacking away from its underwriting arrangement with Nautilus Marine, giving the company 12 months’ notice of its intention to quit their agency agreement. A press release issued in late February signalled the end of the agreement, under which the insurer underwrites pleasurecraft, charter and commercial insurance for the marine insurance specialist. The company’s major shareholders are South African insurer Hollard and broking entrepreneur Ian Frith.
SUBSCRIPTION ENQUIRIES: www.insurancenews.com.au/subscribe Email: admin@insurancenews.com.au CONTRIBUTIONS: We welcome all material that is relevant to the Australasian and regional risk insurance industry, including all aspects of risk management. Please contact the Editor, +61 3 9499 5538. PRINTING: Printgraphics, 14 Hardner Road, Mt Waverley VIC 3149, Australia www.insurancenews.com.au/magazine
A McMullan Conway production
ISSN 1837-4972
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tered the general insurance space as the commoditisation express gathers steam. Just six months after Virgin Money and Australia Post announced new insurance offerings the Wesfarmers subsidiary has joined stablemate Coles in offering personal lines policies. Coles is trialling a householders’ product underwritten by Wesfarmers Insurance. Kmart announced at the end of last month that it will sell car insurance – underwritten by Lumley Insurance – through its Tyre & Auto Service chains. Kmart Tyre & Auto Service has a branch network of 250 centres across Australia. The evolution of personal insurance from specialised product to simple commodity comes as no surprise to industry-watchers, given the widespread availability of retail brand-based insurance overseas. In the United Kingdom and France, Tesco and Carrefour respectively have been selling credit cards, loans and insurance for years. Despite an increasingly crowded market place, Kmart Tyre & Auto Service Managing Director John Sink says branching out to insurance makes sense. “For many years we’ve been helping customers care for their car with our range of servicing and tyres, and insurance is a logical way we can extend our services and help customers cover more of their auto motive needs.”
insuranceNEWS
April/May 2010
Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders. The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion. Printed on FSC paper stock using vegetable based inks by a printer with ISO14001 Environmental Management System Certification.
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V7925 15/03/10 A
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%XVLQHVV 0DGH HDVLHU At Vero, we’re always looking for ways to make it easier to do business. We’re investing in new technology purpose built for your needs, to save you time and help you deliver exceptional service to your clients. At www.vero.com.au you will find everything you need to know about Vero and gain access to broker applications via a single login to our secure portal, VeroCentral. To find out how our new technology can benefit you, speak to your Business Development Manager today.
Vero Insurance Limited ABN: 48 005 297 807
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A really good business to be in Richard Goyder reveals how diverse insurance businesses thrive at Wesfarmers By Terry McMullan WHEN WESFARMERS BEGAN MAKING some big moves into the risk insurance industry in 2003, analysts and quite a few insurance insiders wondered aloud if the giant Perth company realised what it was getting into. Stacking a middle-tier insurance company like Lumley alongside giant coal mining, energy and chemical businesses seemed kind of radical. Insurance companies, it was said, don’t operate in the same economic reality as mining companies and giant retail operations; the insurance cycle is capricious, and it doesn’t take much bad news to damage bottom lines. Only people brought up in the complex world of insurance understand it. So why was a giant conglomerate dabbling in insurance, following up the Lumley purchase by acquiring two major brokerages? It’s not a question Wesfarmers has bothered to answer directly, presumably figuring its actions have been answer enough. Today it operates the country’s largest locally owned insurance broker, OAMPS, and one of New Zealand’s largest brokers, 10
Crombie Lockwood. It’s rebuilding mid-tier general insurer Lumley in Australia and New Zealand into high performance underwriters focused on the intermediary channel, and its long-held WFI (formerly Wesfarmers Federation Insurance) continues to thrive. Diverse as they are, the companies work under one division, Wesfarmers Insurance. Synergistic operations are being developed with other parts of the group, and change is a constant across the division. But the soft market has been sapping the profits of brokers and insurers alike, and surely a giant company like Wesfarmers, with more than 450,000 shareholders demanding good returns, is one day going to run out of patience. Or is it? A few weeks ago Wesfarmers’ Managing Director Richard Goyder finally addressed the question. “It’s pretty simple,” he told Insurance News. “We think it’s a really good business to be in.” Mr Goyder had just finished speaking to an appreciative crowd at the Steadfast insuranceNEWS
April/May 2010
Convention in Perth, where his candid musings on how the group works and where the insurance division fits into the overall picture provided plenty of food for thought. In an exclusive interview, he says many people don’t realise that WFI was very important to Wesfarmers through the 1990s, “because it enabled us to fund a lot of things we were doing at the time”. “So we’ve always had a really positive view on insurance.” The Wesfarmers group has been selling insurance since 1919, and bought Federation Insurance in 1991. Mr Goyder says WFI is one of Australia’s most successful insurers – “We get something like a 95% customer retention rate.” He believes the success of WFI gave Wesfarmers confidence to acquire Lumley’s Australian and New Zealand operations in August 2003 for $320 million (inclusive of Lumley Life which was sold soon after), with timing he now sees as fortuitous. “The insurance sector went through a pretty good time after 2003. “We were really thrilled to get Lumley at
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Kevin Chamberlain
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the right time and at the right price, and we think there’s plenty of opportunity that hasn’t been realised yet. “Insurance is a business where good people can make a difference. And that’s one of the reasons why we were attracted to the sector. “As we look forward we see that Lumley should be a more significant participant in the Australian and New Zealand insurance markets,” Mr Goyder says. “If you think about the consolidation that’s occurred in the past and will continue to occur, we think Lumley increasingly will become a viable alternative to the ‘big three’.” And he’s backing up his confidence in finding growth under IAG, Suncorp and QBE with investment in people and technology. “In recent years we’ve made really big investment in management technology and the business processes to improve Lumley’s proposition in the market.” The addition in October 2006 of OAMPS at a cost of $700 million and Crombie Lockwood “reflects our confidence in the broking business, where there is obvi-
ously a lot of day-to-day contact with the real customer”. “Our insurance business is actually made up of a group of insurance specialists. We invested in OAMPS and Crombie Lockwood because we believe that there is a very strong future in insurance broking. “On the underwriting side, Lumley provides us with a very strong intermediated insurance brand. “Across Australia and New Zealand and even in the UK we’ve got strong insurance operations. We now have 3200 employees in our insurance division.” The major insurance acquisitions were made under veteran insurance manager Bob Buckley, who retired in 2007 to be replaced by former Olympian Rob Scott. Under his leadership the underwriting and broking businesses have undergone some dramatic changes, with management transformations and a sharp focus on greater efficiency driving the division. Mr Scott is one of nine divisional managing directors answering to Mr Goyder. So how does Mr Scott compete for capital insuranceNEWS
April/May 2010
Investing in management and technology: Wesfarmers Managing Director Richard Goyder with the Lumley Insurance team at the Steadfast Convention. Insurance Division Managing Director Rob Scott sits beside him
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alongside his counterparts in such capital-intensive and high-prospect divisions as Coles, Bunnings, Kmart, Resources, Energy and Chemicals and Fertilisers? The simple answer is that he doesn’t compete. “We’ve never ever had competition for capital in Wesfarmers,” Mr Goyder told Insurance News. “You get capital if you perform and if you throw up opportunities where that capital will make a decent return. “So it doesn’t matter whether it’s a piece of mining equipment, a new retail store or some technology in Lumley – if you can prove it will make a return and be good for our shareholders then we’ll find the money. It’s one of the advantages of being owned by the Wesfarmers group; we actually manage that function so that Rob and his team can have the capital they want. What we make sure they do is deliver on their promise. “One of the things about Wesfarmers that a lot of people don’t get is the simplicity of the company. We don’t run the business as a complicated business. We run it very simply with a very strong financial objective, which is clearly and easily understood. “And we don’t build empires in Wesfarmers; we try to keep egos out of the place.” Unlike other conglomerates, Wesfarmers doesn’t have a large corporate office, and the company has no intention of moving from Perth to Sydney or Melbourne. Mr Goyder says the group only needs “a modest corporate office that enables the group to do what it has to do. We give lots of day-to-day autonomy to the people who run our businesses. “We have high quality leadership teams, and that’s really critical. They have an enormous amount of day-to-day operational control in their business. “But we do hold people accountable for what they control. And we measure things 12
Kevin Chamberlain
“We don’t build empires in Wesfarmers; we try to keep egos out of the place.” like return on equity and return on capital, and we have great reporting systems. “We’re very results-focused in Wesfarmers – because at the end of the day it’s results that matter.” And the biggest result of all is the group’s return to shareholders. While Mr Goyder agrees there’s no group-wide “culture” – he wants the insurance division to be focused on service, the retail arms on customers and the industrial wings on safety – there’s a group-wide understanding that it’s all about providing satisfactory returns to shareholders. And four “long-term consistent strategies” do guide the group and its 200,000 employees. “They are to run our existing businesses as best we can; to grow them through entrepreneurial initiative; to manage the portfolios through value-added transactions; and to make sure that we do everything in a sustainable way so that we’ve got the licence to continue operating as a group.” The breadth and diversity of Wesfarmers presents interesting “entrepreneurial initiative” opportunities for the insurance division. One that’s receiving particular market attention at present is the trial of personal lines insurance products being sold through Coles supermarkets in Tasmania. With some 700 supermarkets, 800 liquor stores, 600 petrol stations and 160 Kmart stores under its control, the opportunity to build a significant personal lines direct sales channel has to be irresistible to Wesfarmers. But no one is predicting an overnight success. Mr Goyder says he’s happy enough with the interest being generated in Tasmania, but he told Insurance News it’s “early days” yet. And Coles has bigger things to concentrate on at present rebuilding and revamping its stores and ramping up the perennial competition with market leader Woolworths. insuranceNEWS
“Taking it from a Tasmania trial to a national thing is much more significant,” he says. “The biggest issue we’ve got with it, frankly, is that Coles has got a multitude of things on at the moment, and this will need to get the appropriate focus from within Coles as well as [from] the insurance guys.” His admission at the Steadfast convention that a motor insurance product will also be trialled through “other” retail outlets surprised some industry observers. But Mr Goyder is upbeat about the strategy. “Australia has probably one of the most concentrated markets in personal insurance in the world, [with] around 70% of the market going to two participants,” he says. “We’re seeing offshore, particularly with companies like [British supermarket chain] Tesco, that bringing a proven retailer and a proven insurer together can be a good model. “We have assembled a really good team, particularly from the old Promina/AAMI group, to look at this alliance opportunity.” While many doubt the Tasmania trial will be particularly successful, that’s unlikely to deter Wesfarmers. Mr Goyder is a believer in boldness as a business precept, and that includes looking past the immediate problems. “One of the things we’ve been very successful in over the years at Wesfarmers is looking through short term and being focused on the long term,” he told the Steadfast convention audience. “We march to the beat of our own drum, and we’ll continue to do that, whether it’s in our insurance businesses, whether it’s in our retail businesses, whether it’s in industrial business, or indeed whether it’s in some new opportunity that may come up in the coming years. “We’ll be very clear about where we’re headed. We’ll know that people are absolutely critical to it, and we’ll back ourselves.”
April/May 2010
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The Oscar goes to IAG The industry’s Big Three had profitable returns, but only one was the star By Ben Oliver RESULTS SEASON, MUCH LIKE THE Academy Awards, tends to deliver on expectations. But occasionally the results differ from pre-award prophecies, delivering some unexpected morsels for the commenteratti. And while the nominees in Australia’s insurance reporting season remain the same year in and year out, their performance is still ultimately judged as worthy of acclaim, minus the golden statuette. After a dour 2008, some much needed glitz and glamour has reappeared in the general insurance industry, according to the Australian Prudential Regulation Authority. Rises in net premium (up 8.2%), profit after tax (up 73%) and the underwriting result (up 245%) were welcome news for the industry, which also benefited from an 18.8% drop in incurred claims. But if earnings were Oscars, only one insurer would have delivered an IAG’s Mike Wilkins: it’s all about discipline acceptance speech in the first half of fiscal 2010: IAG. rival of Chief Executive Patrick Snowball at Investors were certainly wowed by an the Brisbane-based bancassurer last year, and improved first-half net profit of $329 million, while he is making progress cutting costs pushing IAG’s stock six cents higher to across the company’s 19 brands, apathetic breach the $4 mark after the announcement, investors still aren’t ready to throw their colbut by March 29, IAG shares had fallen back lective weight behind the stock. to $3.92 following a spate of expensive Shareholders sold out of Suncorp destorms. spite a 41% rise in first-half profit to $364 IAG’s profit result represents a signifimillion. In early trading, Suncorp stock lost cant bounce from the $4 million in reported 41 cents to $8.80, and more than a week net profit from the same time last year. later had receded even further to $8.63. Benign weather conditions and improved inFalling short of IAG’s insurance margin vestment returns were key contributors to by 0.6 percentage points – or three perthe result, although IAG’s first-half performcentage points if you exclude underlying ance isn’t entirely attributable to acts of factors – Suncorp also raised concerns about nature or vacillating markets. a rise in impaired loans in its banking arm, Chief Executive Mike Wilkins says the where its non-core assets are quarantined business units restructure, staff drops and a from core assets. stronger focus on profitable business are Suncorp’s non-core wing of $15.6 billion helping steer IAG’s stronger returns. in bad debt is in run-off, costing the group Mr Wilkins told Insurance News that $211 million this financial year. “stronger underwriting and claims manageInvestors were also disheartened by an ment disciplines” were crucial progressions. interim dividend of 15 cents per share – five While IAG’s profit has lifted from a low cents lower than the corresponding period base, the underlying fundamentals are last year. sound; an insurance margin of 13.4%, up Taking both investors and analysts by from 6.2%, and a near doubling of insursurprise was the announced divestment of ance profit to $488 million demonstrate the Suncorp’s RACQ and RAA insurance ininsurer has a surer footing than it did 12 terests, which is expected to net up to months ago. $380 million. IAG is well on track, but Suncorp is at a “It wasn’t one we would have expected crossroads. High expectations met the ar14
insuranceNEWS
April/May 2010
or even thought about, given it’s been such a long relationship,” Credit Suisse analyst Arjan van Veen told Insurance News. And while Suncorp sits down with both its motoring group joint venture partners over the next few months to discuss how it’s going to extricate itself, QBE will continue scouting around for new investments after the market breathed a weary sigh in response to its latest profit announcement. For so long the poster child of the industry, QBE is now drawing questions from analysts who ask whether the company will find it harder to sustain its bolt-on strategy, now that its size and spread is attracting attention – and competition – from global insurers. Last month, QBE announced a 6% rise in profit after tax to $1.97 billion and an insurance margin of 17%, a result squarely in the middle of analysts’ predictions. But for a company so accustomed to exceeding expectations, it might as well have posted a loss if the market’s reaction was any judge. Shares tumbled to a six-month low following the release of its financials, falling under $23 for the first time this year. While QBE holds a strong fiscal grounding, the market is now wondering where future growth will come from. QBE sources some 70% of its profit from overseas operations, and could tap Dutch financial services group ING on the shoulder to discuss its plan to sell off its general insurance operations. Regardless of an international acquisition, QBE is expected to improve its results in future years as interest rate rises and the receding Australian dollar converts to money in the bank. To put QBE’s dependence on rates and the dollar into perspective, a 5% decline in the Australian dollar nets QBE $67 million in profit, while a 1% rise in interest rates adds $316 million in profit. Still, Chief Executive Frank O’Halloran can’t rely on levers beyond his company’s considerable reach if he hopes to return to the stage in triumph next reporting season. It appears that for QBE at least, delivering “solid” returns year in year out is no longer adequate to earn the insurance equivalent of
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News Ltd
It never rains but it pours
West Australian Newspapers
Shock and awe: Melbourne wasn’t prepared for a supercell storm that weather experts said would have been more at home in the tropics. The March 6 storm saw CBD streets become raging torrents while high winds and huge hailstones destroyed roofs and damaged cars. The claims cost at the end of last month was $830 million
THE PAST COUPLE OF MONTHS HAVEN’T BEEN GOOD to insurers. A massive hailstorm in central Melbourne, a cyclone in Queensland, extensive flooding across two states and a fierce storm in Perth have put claims staff and accounting bottom lines under pressure. The Melbourne hailstorm on March 6 has cost an estimated $830 million so far. It generated 105,000 claims, while the Perth storm on March 22 led to another 42,500 claims worth $203 million. The southwest Queensland floods in late April raised 7500 claims worth an estimated $120 million. Cyclone Ului, which hit the Whitsundays and Queensland central coast on March 21, was not classified as a major event by insurers, although marine insurers may have disagreed: up to 60 boats were driven ashore. While the insurers were able to fall back on reinsurance once their maximum retention caps were reached, the damage to their bottom lines over the full year after a benign – and profitable – 2009 is nevertheless expected to be significant. One analyst contacted by Insurance News says most major personal lines insurers are already operating a combined ratio of close to 100% before paying out these claims, “leaving profit very much dependent on investments”.
Stuck in the mud: this Perth home was almost completely filled by a mudslide in the March 22 storm. With 120kmh winds, hail and up to 79mm of rain, the storm caused widespread damage across the city
insuranceNEWS
April/May 2010
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Regulatory onslaught APRA’s John Trowbridge: insurers aren’t really in the firing line
The industry is starting to feel the pressure of a new wave of controls and demands for data By Jeff Morse
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COMPLYING WITH INSURANCE regulation and supervision requirements isn’t a cheap exercise. Insurance Council of Australia (ICA) figures that predate the global financial crisis put the annual cost of compliance at more than $100 million, with up to 25% of senior management and board time spent making sure the rules are being followed. The crisis and related concerns about capital levels have raised new issues and new solutions, with regulators’ powers and reporting requirements receiving prime attention. While banking remains the primary focus of international regulatory reform following the events of late 2008, insurance is by no means forgotten. And then there’s the ascendancy of the consumer as the most protected party in any financial transaction that, while not a direct flow-on from the global financial crisis, promises its own set of complianceinsuranceNEWS
related headaches. ICA President Terry Towell underlined this point at the council’s 2010 Regulatory Update seminar in February, noting “inconsistency evident in the ever-increasing amount of new regulation” and a focus shift from prudential control to consumer protection. He pointed to upcoming changes in the Insurance Act – a contentious matter for the industry after the Senate Economics Committee failed to be sold last year on existing utmost good faith provisions. “New regulation is being driven by government, [which is] at the same time commissioning reports from the Productivity Commission and others on the regulatory burden,” Mr Towell said. At the same forum, the Australian Securities and Investments Commission (ASIC) flagged a range of consumer issues on its general insurance radar this year. They include internal dispute resolution (IDR), cross-selling of insurance with other
April/May 2010
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financial services products, telephone sales of insurance, consumer credit insurance – the products, the industry and the way it is sold – consumer comprehension of product disclosure statements and underinsurance. Miles Larbey, ASIC’s Acting Senior Executive Leader, Deposit Takers and Insurers, says the regulator wants to better understand how insurers structure and manage their complaints functions so it can respond to recurring complaints from consumer representatives and hopefully provide a benchmark of industry practice. “We are writing to a sample of general insurers to obtain information about claims and complaints statistics and information about their claims-handling and IDR.” The new National Consumer Credit Protection regime which comes into effect on July 1 ensnares premium funders, who face red tape on personal and domestic funding for products such as home insurance policies, as well as brokers who help clients apply for or secure premium funding on such products. Brokers who do more than pass on factual information will be required to join a staged registration and licensing process with ASIC. The Federal Government is also mulling over a bill aimed at giving the Australian Prudential Regulation Authority (APRA) more clout, in line with developments in the United States and Britain. Under the proposals APRA will get more power to investigate risks at institution and system level, while compelling compliance with prudential requirements. It will also be able to collect data and take action when institutions come under stress. APRA Executive Member John Trowbridge offers some comfort to the insurance industry by pointing out that the agenda change is aimed mainly at banks and other deposit-taking institutions. Nonetheless, he used the ICA seminar to outline six insurance-related projects at various stages of preparation or implementation. These include group supervision of general insurers, introduced in March last year – a process Mr Trowbridge describes as “surprisingly tortuous” given the vast range of the industry’s corporate structures. APRA has also recently consulted on proposed changes to the prudential reporting framework to align it with the AASB-1023 accounting standard. Also on the agenda is a review of capital standards for general and life insurers with an “adjusted” regime scheduled for implementation in 2012, as well as a prudential 18
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policy on remuneration. The regulator’s consultations with industry over the past year will lead to a greater amount of data published on public and product liability and professional indemnity insurance. And it wants to get a copy of insurers’ claims data on major weather events. The regulators’ growing hunger for information is hard not to notice. Wesfarmers Insurance Chief Executive Rob Scott, who is also ICA Vice President, says that apart from the complexity caused by a hotchpotch of state-based regulations, the multiple reporting requirements of federal regulators are a big challenge. “We seem to be constantly reporting
“We seem to be constantly reporting more and more information – often the same information to different regulators” more and more information – often the same information to different regulators – and obviously it distracts us from our day-today business,” he told Insurance News. Some of the areas adding to the cost of doing business include reporting overlaps between ASIC and APRA, complex stamp duty laws which vary from state to state, and state-based differences in workers’ compensation laws. New reporting requirements for brokers, floated by APRA late last year, have also proved more than a little distracting, even though some concessions have been made. The regulator wanted brokers, underwriting agents and authorised insurers to report every six months on transaction-level data on contracts with unauthorised foreign insurers (UFIs – formerly referred to by the regulators as DOFIs, or direct offshore foreign insurers) as well as report data on contracts with authorised insurers and Lloyd’s underwriters, with the initial returns required by late February. insuranceNEWS
April/May 2010
Few argued with the validity of monitoring business flowing offshore or the need to gather data on the application of new UFI exemptions. But the breadth of requirements and their prompt introduction have ruffled feathers. Brokers have won a significant reduction from what was originally proposed, and have also managed to have the timeframe for compliance extended. National Insurance Brokers Association (NIBA) Chief Executive Noel Pettersen says many original concerns have been dealt with. “NIBA’s main objection to the original proposal was not the number of statistical returns required each year but the extent of the data requirements – particularly for those that didn’t place insurance with UFIs,” he told Insurance News. Beyond the regulatory issues facing the insurance industry this year is the unpalatable prospect of more to come. While Australia stands proudly by the robust regulatory environment that served the nation well during the global financial crisis, the filtration of foreign-influenced approaches seems inevitable. Federal Treasury officer Vicki Wilkinson says Australia can’t afford to go it alone on regulation. “On the one hand, from a policymaker’s point of view we certainly are promoting the strength of our system and the benefits of it in the international forums,” says Ms Wilkinson, who is Treasury’s Principal Adviser, Corporations & Financial Services Division, Markets Group. “But on the other hand we’ve got to be careful that we suddenly don’t get too far out of line and create a perception that Australia is not going along with [global regulatory change] and therefore we are riskier.” Lloyd’s believes insurers need to guard against being burdened with inappropriate and potentially damaging regulation primarily aimed at the banking sector. As part of its strategy for the next two years, the market will monitor global developments such as the introduction of Solvency II capital requirements in Europe and a pre-funded “Financial Crisis Responsibility Fee” announced by US President Barack Obama which catches insurers. Similar ideas are being floated by the International Monetary Fund, the Financial Stability Board and other bodies. While the words of an American President are hard to ignore, the last word of insurance industry regulation may well belong to the late American entertainer Al Jolson, who said “You ain’t seen nothing yet.”
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Reuters
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Foreign insurers shouldn’t be able to avoid taxes: US President Barack Obama delivers the budget speech in Washington
The Great Offshore Insurance War A battle has broken out between foreign and domestic insurers over US tax policies By Ben Oliver WHEN PRESIDENT BARACK OBAMA USED his budget speech in February to denounce offshore tax havens, United States property and casualty insurers pumped their fists with glee. Domestic insurers have been lobbying intensely for the taxation ball – in the form of a Democrat-sponsored bill that would penalise foreign insurers for using excessive amounts of affiliate reinsurance – to be picked up by the President. Democrat Representative Richard Neal introduced the innocuous sounding HR6969 bill in mid-2009, but lacking support and political momentum, the bill’s passage to the President’s desk stalled. HR6969 forces foreign-based insurers to pay corporate tax on a certain amount of premiums ceded to an affiliate rein20
surer, based on a benchmark decided by the US Government. The bill polarised the industry into two camps. Local insurers formed the Coalition for a Domestic Insurance Industry (CDII) while foreign underwriters created the opposing Coalition for Competitive Insurance Rates (CCIR). The parallels in name belie stark differences in rhetoric. And where HR6969 was once buried in procedure, Mr Obama’s support for the general gist of its argument has given the once moribund bill and its proponents a shot in the arm. “In this time of economic crisis, we cannot afford to give foreign-controlled insurers continued tax breaks,” Chubb Chief Operating Officer John Degnan said in February. “They should not be allowed to avoid taxes at a time when others are being asked to contribute to our nation’s recovery.” Mr Degnan, a member of the CDII, says allowing overseas insurance companies to reinsure risks through an affiliate – usually based in zero or low-tax countries such as Bermuda, the Cayman Islands or Ireland – without taxing the transaction creates an inequitable advantage. insuranceNEWS
April/May 2010
The underlying problem lies not with taxing reinsurance premiums, but with profits earned offshore. Domestic insurers don’t enjoy the tax breaks bestowed on their Swiss and Bermudan-domiciled competitors, even if foreign insurance profits earned in the US still attract local income tax and the ceding commission that returns to the bottom line of the foreign insurer attracts a 35% US corporate tax. Lacking the power to close tax havens once and for all, domestic insurers imply most if not all affiliate reinsurance is run through low-tax foreign states and therefore must be subject to a levy. It’s a complex argument simplified by local insurers for Washington lawmakers by pumping several key phrases that play on financial xenophobia: “level playing field” and “tax haven” are bandied about repeatedly, while “loophole” was used no less than five times in a recent CDII press release. Domestic insurers, led by WR Berkley Chief Executive (and American Insurance Association Chairman) William R Berkley, have reportedly spent $US400,000 ($448,000) lobbying Congress for support.
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Several major insurance industry companies have relocated from tax haven countries in the past year, citing new US tax policies. This year broker Willis has relocated its place of incorporation from Bermuda to tax-friendly Ireland, while XL Capital has announced its intention to move from the Cayman Islands to Ireland.
Kym Thomson
Major insurer Ace decided in 2008 to move its place of incorporation from the Cayman Islands to Zurich, with Chief Executive Evan Greenberg saying the Cayman link “exposes us from a reputational, financial and tax perspective [and] creates unnecessary uncertainty”.
In voicing support for a tax on reinsurance premiums, Mr Obama has recognised their persistence. The Treasury documents released in February propose a “loophole closure” that would “disallow the deduction for excess non-taxed reinsurance premiums paid to affiliates”. It’s estimated the measure will net the US Government $US519 million ($581 million) over the next decade – relatively small beer in a $US12 trillion ($13.4 trillion) vat of government debt. But potential savings from the bill are drowned by more than the US red ink, according to opponents of the bill. Foreign insurers argue the measure would pass on more than $US10 billion ($11.17 billion) in additional insurance costs to consumers, and premiums hikes of up to 16% in some lines. Not only do foreign insurers question the legitimacy of prescribed savings, they argue billions of dollars in risk held offshore insulates the US from dramatic losses when natural disasters strike. In mounting a case for the status quo, the CCIR commissioned consulting com22
pany the Brattle Group to investigate the ramifications of the Neal bill. The group’s findings were, perhaps not surprisingly, critical. Not only would the bill fail in its laudable aim to “level the playing field”, it would increase the burden on foreign insurers by taxing a percentage of reinsurance premiums at the corporate rate of 35% – much higher than the standard 11.1% charged on US premiums. Nearly every foreign insurer operating in the US would be subject to the tax, as almost half cede at least 40% of their total reinsurance spend to an affiliate. The impact of the bill would be keenly felt in catastrophe-prone areas such as Florida, New Orleans and California, where capacity in cat lines would fall and prices would rise. Association of Bermuda Insurers and Reinsurers President Bradley Kading labelled it a “discriminatory tax” and urged Congress to quash the Neal bill, similar to proposals rejected in 2001, 2007 and 2008. “Only a handful of very large, very profitable US insurance companies would benefit from this bill,” Mr Kading says. “In contrast, the economic data makes it insuranceNEWS
April/May 2010
Persistence rewarded: insurers’ leader Bill Berkley
clear that American consumers and businesses would pay a steep price if Representative Neal’s proposal becomes law.” The to and fro between domestic and foreign insurers continued in a blistering retort of the Brattle Group findings by Mr Berkley. “Foreign insurers have mounted an aggressive campaign to preserve this loophole and their unfair competitive advantage,” he says. “Opponents have created a smokescreen of misinformation and scare tactics that grossly overstate the impact of the legislation on the US insurance market.” Whether the Neal bill is revived or President Obama presents something new is academic until further details from the Treasury proposals are released. But it seems certain without swift and effective intervention, foreign insurers are going to cop the brunt of tax recovery legislation, at a time when balance sheets are just starting to recover. “Adoption of such a tax would be imprudent under the best of conditions,” Mr Kadley says. “Under current conditions… it seems especially unwise.”
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AUSTRALIA’S UNDERWRITING AGENCIES:
The Th
Free agents with muscle A survey reveals the considerable contribution underwriting agents make to the industry By Jamin Robertson
UNDERWRITING AGENCIES ARE A potent force in the Australian insurance market, with a recent survey revealing just how strong the sector has become. The Underwriting Agencies Council (UAC) survey found its membership of more than 70 members write an estimated $2.5 billion of business each year. And more than a third of UAC members write in excess of $20 million in gross written premium. Not bad for a market sector that is mostly made up of small businesses. Almost half (46%) employ 10 or fewer staff, while 28% employ five staff or less. Most UAC member companies are independently owned, with just 9% under the majority control of insurers and 17% controlled by brokers. UAC members together employ around 1800 staff. The council’s Chairman, Dual Australia Managing Director Damien Coates, makes no secret of the fact that the survey results have confirmed what members have long suspected: that “underwriting agencies make substantial contribution to the local insurance industry”. “For the first time we’ve been able to get a handle on how large the underwriting agencies sector of the market is,” he told Insurance News. “And at $2.5 billion and 1800 employees, it’s significant.” He says underwriting agencies “can no longer be viewed as a small market segment, nor as potentially riskier places to work than major insurers. The fact is, this is a very stable and substantial market sector.” Underwriting agencies are usually established by industry professionals with substantial knowledge of a niche. They
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provide brokers with specialised covers that their much larger insurance company competitors often can’t match – but it’s their expertise that makes the biggest difference. Not that the competition with the big players is always intense: many agencies are actually underwritten by the bigger local players, who accept it’s better to support more knowledgeable and nimble professionals than compete. Predictably the survey found great diversity in binders held by UAC members. A low percentage had no binders, while 33% had just one binder. At the other extreme, 20% held eight or more binders. The survey also found 52% of UAC members are based in one state, with 35% in two states and 4% operating in three states of Australia. Most (70%) had offices in New South Wales, with 39% operating in Queensland and 20% in Victoria. Overall, UAC says the survey found members view the organisation favourably and its services as useful and worthwhile. However, Mr Coates says the survey also revealed a general lack of awareness of the value of training and education programs, with just 47% of members viewing the programs as relevant or very relevant to their needs. But that may have more to do with communication that anything else. Mr Coates says the result was expected, as many members only recognise the relevance of UAC training once they are aware it exists. He says UAC is working towards making specific courses available to agency staff in an effort to address those issues.
insuranceNEWS
April/May 2010
In another area of potential concern, UAC members expressed low awareness of the organisation’s work to represent members’ views to governments and regulators, despite 74% rating such work as relevant to the needs of their business. Mr Coates says the organisation will use the survey data to provide an expanded range of services. And it also intends to respond to member concerns. “Whether it’s car insurance or laptops for members, we now have the base information we’ve been needing to help us capitalise on our buying power as a group,” he says. Another area that UAC will work on in the future is the issue of recruiting – an industry-wide problem from which underwriting agencies see both challenges and opportunities flowing. Mr Coates says that apart from writing a significant amount of insurance business, underwriting agencies also offer great value to potential recruits by handing them the opportunity to build specialist skills and “avoid the bureaucracy that can be part of working with a major insurer”. He says the underwriting agency segment offers people with the right skills the chance to “back themselves by establishing their own agency or offer their specialist product skills to an existing agency”. The survey will therefore act as a base to build a blueprint for UAC’s future. “We’ve been around for a long time now,” Mr Coates says. “Underwriting agencies have a bigger and more diverse role to play in the insurance market, and the board is now planning on ways to move ahead.”
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Third Force Meet the underwriting agencies, whose expertise makes them extra-competitive and sometimes an attractive purchase
UAC Chairman Damien Coates: an opportunity for underwriters prepared to back themselves
insuranceNEWS
April/May 2010
THEY ARE THE THIRD FORCE OF GENERAL insurance product distribution, the intermediary’s intermediaries. Australia’s growing band of underwriting agencies have been feeling the squeeze on margins for several years, but they’re optimistic they’ve at last turned the corner. These agencies play an important role in the commercial lines end of the business as a conduit between underwriters and brokers, relying on their own expertise and strong relationships to succeed. It’s a tough business, where their competitors are other agencies and the larger insurers. There’s as many as 100 underwriting agencies in the Australian market, although about 80 are particularly active. More than 70 corporate members of the Underwriting Agencies Council (UAC) write an estimated $2.5 billion in collective annual premium. Many of these firms are small, with 46% of UAC member firms employing 10 or less staff. Typically, agencies focus on one or a few niche product areas, drawing on expert staff to match industry clients with complex or hard to place risks. Pricing is crucial in the absence of investment income or a wide range of lines with varying risks. Axis Underwriting Services Managing Director Gary Dawson believes that after some challenging years, a hardening market is opening up new opportunities. “When rates for harder to place business are hardening, there is more business declined by the insurers at renewal,” he told Insurance News. “Their appetite for risk has changed and there are more enquiries into the underwriting agency market.” Australis Group Underwriting General Manager Operations Gary Marshall holds a similarly bullish outlook. “It’s looking fairly good,” he told Insurance News. “The property market is promising as far as rates are concerned, and while liability rates remain low and very competitive they are showing signs of turning.” Of course, the changing fortunes of a few insurance lines hardly paint a complete picture, with the underwriting agency sector comprising a slew of corporate specialists. Given the wide disparity in risk carried by underwriting agencies, it is natural to find some debate over current market conditions. “It’s still very soft, the worst I’ve seen in over 20 years in the professional indemnity market,” says Nova Underwriting Managing Director Malcolm Fletcher, who identifies only “some evidence” of a rise in rates. Among parts of the rural portfolio, Managing Director of Insure That Peter Hayward says the market remains stagnant after the global financial crisis served only to exacerbate the effect of years of ongoing drought. 25
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UNDERWRITING AGENCIES: THE THIRD FORCE
Australis Group’s Gary Marshall: eyeing the market with interest
Nova’s Malcolm Fletcher: the market is still very soft
Mecon’s Glenn Ross: it’s about being accessible
Altiora’s Eric Richardson: focus on the niches
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So while business prospects vary among the agency principals, there is at least some consensus that rising risk has prompted some major insurers to shy away from specialty areas. Coupled with their typically niche or “hard to place” focus, innovation is key to the underwriting agency strategy. Nimble operations, top-drawer service and expert knowledge are the backbone of a sector that often writes the business that major insurers won’t. UAC Chairman and Dual Australia Managing Director Damien Coates explains the appeal of a business model that typically hinges on just a few lines of cover. “The underwriting agency segment represents a credible opportunity for people with underwriting skills who may want to back themselves by establishing their own agency or offering their specialist product skills to an existing agency,” he told Insurance News. Mr Fletcher believes that expertise provides a key point of difference.
petitors who can draw on rich advertising budgets and well-known brands to pull in the punters. The degree to which agencies are forced to compete with mainstream insurers varies depending on the line of business. But in the past, ongoing heavy discounting by major insurers has drawn the ire of UAC, indicating that competition is a key issue. Agency principals contacted by Insurance News were rather more circumspect, saying it is not only the majors who indulge in deep discounting. “I think every company or individual agency has been guilty at some point of engaging in irrational pricing,” Austagencies General Manager Craig Patterson says. Millennium Underwriting Agencies Director Heath Amber says playing against the major insurers is simply a fact of life. “It’s not unfair competition; underwriting agencies generally operate in specialised, tailored
“We identify a need for coverage where that is not traditionally being met… We understand the vagaries of the client industries better than the broad-based underwriters” “Underwriting agencies tend to have higher levels of underwriting skills, a can-do attitude, and higher standards of service and performance generally,” he says. Mecon Insurance Managing Director Glenn Ross says his underwriting agency aims to maintain those ideals by keeping its managers close to the coalface. “When someone becomes a top-level manager in a large company, they’re largely inaccessible,” he says. “They’re not hands-on and out there on a day-to-day basis answering brokers’ questions. That’s what we set out to do.” Altiora Insurance Solutions General Manager Eric Richardson runs a firm specialising in cover for leisure, sports and community care industries. He says the firm, purchased by Austcover in 2007, has a clear raison d’etre. “We identify a need for coverage where that is not traditionally being met,” he says. “We have 20 underwriters who focus on four or five niches, and we understand the vagaries of the client industries better than the broad-based underwriters.” The fact that all underwriting agencies make much of their service standards is no coincidence. It’s a selling point they rely on to distinguish themselves from mainstream cominsuranceNEWS
April/May 2010
product lines. However, the majors do have the ability and the resources to be quite aggressive in the market.” The key need for underwriting agencies is to utilise their expertise to get close to their target market, build client relationships and secure that all-important renewal year after year. “It’s never easy to promote your business in a crowded market space, but we get support from people who have done business with us for many years, and who appreciate the product knowledge and service we bring to the table,” says Mr Fletcher. “Many brokers ring us to have a yarn about something they need to place,” says Lawsons Underwriting Australasia Director Kevin Corkery. “If we cannot provide the best result, we will point the broker to other products in the market.” If the market is indeed hardening as insurers and researchers insist it now is, it will provide the agencies with a welcome shot in the arm. “Hardening markets have a habit of bringing brokers to us,” Mr Dawson says. “When the market is soft it can be difficult to make headway against the major underwriters.” Given the complementary fit an agency can provide to brokers and insurers, it’s not sur-
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UNDERWRITING AGENCIES: THE THIRD FORCE
Austagencies’ Craig Patterson: no free kicks from the owner
Millennium’s Heath Amber: competition is a fact of life
Insure That’s Peter Hayward: underwriters buying into brokers
prising that consolidation is a constant factor in this evolving industry. Insurers and brokers closely monitor the market, driven by the attraction of extra revenue streams or the chance to expand the product portfolio. The directors of Adelaide-based MGA Group consider Millennium Underwriting Agencies a neat complement to their farm portfolio, while QBE stands out among the insurers as a prominent buyer of agencies. Underwriting agencies within the QBE Australia stable include strata and community title provider CHU and mobile plant and equipment specialist UAA, to name just a few. QBE Executive General Manager Corporate Partners & Direct Tony MacRae explains the insurer’s interest. “This model is designed to be complementary to our existing intermediary distribution. The agencies can provide additional products and services not available through QBE’s established branch network. “Underwriting agencies which have a strong franchise, a track record of profitability and can add capability to insurers will be seen as viable acquisition targets.” Though the acquisition of an underwriting agency appeals as a good complement to the core business of insurance or broking, not everyone agrees it’s best. Sterling Insurance Chief Executive George Condell believes broker control of underwriting agencies leads to a potential conflict of interest. “This presents a channel conflict and the party at risk is the retail broker,” he said. “We have noticed that retail brokers are becoming increasingly inquisitive and wary about dealing with agencies who have a channel conflict. “I think that an agency must decide on which side of the fence it’s going to play: distribute solely through intermediaries, or deal direct.” Insure That’s Peter Hayward agrees. “More underwriters are buying into brokers and exerting influence, meaning brokers’ independence is compromised through an ownership
shareholding in brokerages,” he said. Mr Patterson, from Austbrokers-owned Austagencies, doesn’t see it that way. “I don’t think we get any free kicks as a result of being owned by a broker,” he told Insurance News. “Big companies buy agencies because they provide a niche product or service very well. They want to maintain the business that provided the rationale for the purchase.” One fact is clear: with a number of underwriting agency innovators nearing retirement, the acquisition opportunities are unlikely to run dry. “There are a lot of individual owners and managers of agencies who are getting close to retirement without any real succession plan,” says Mr Condell. “Those agencies are definitely up for grabs.” Australis Group’s Gary Marshall admits he is eyeing the market with interest. “It’s got to be a good fit,” he told Insurance News. “Agencies all have their own culture, and a smaller player might have different appetites even if it is similar. Often you find that hardly anything crosses over.” While the landscape at the level of the firm is constantly changing, at an industry level one constant for underwriting agencies is the collective voice of the Underwriting Agencies Council. Damien Coates believes the agency sector can look to the future with confidence. “Agencies can no longer be viewed as a small market segment, nor as potentially riskier places to work than major insurers,” he said. QBE’s Mr MacRae shares that positive outlook, claiming that early adaptors will make much of the running. “The capacity to deliver electronically will be key; product and other services to intermediaries and customers on one hand and information to insurers on the other,” he said. SRS Underwriting Agency Chief Executive Paul Lynam offers a rather more Darwinian view. “Well run agencies will continue to prosper while the poorly run agencies fall by the wayside.”
Australia is the fourth-largest market in the world for Lloyd’s, and underwriting agencies are a key part of its local business. General Representative in Australia Keith Stern (right) says underwriting agencies provide around $1.2 billion in annual premium to Lloyd’s. The market’s backing in turn is regarded by the agencies as a key factor in the continued viability of the sector. While coverholders aren’t expected to be part of UAC, Mr Stern says he encourages them to join. “We’re very much behind UAC,” he says. “We recognise it has an important role to play, and it deserves to be supported.” There are about 90 Lloyd’s coverholders in the Australian market, only about half of whom are “pure” underwriting agents. Some, for example, are primarily brokers. “But every coverholder has to demonstrate the skills of underwriting agents,” Mr Stern says. “It’s not easy.”
Sterling’s George Condell: broker control of agencies could lead to conflict
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Special provisions in the Insurance Act allow Lloyd’s underwriters to write local business. Under these rules, Lloyd’s agrees to be regulated locally for any Australian business it transacts.
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UNDERWRITING AGENCIES: THE THIRD FORCE
Working with Lloyd’s It’s challenging but rewarding for smart and dedicated coverholders
Ray Lawler
PAUL LYNAM KNOWS HIS WAY AROUND THE underwriting floor of Lloyd’s in London. The Brisbane-based Chief Executive of SRS Underwriting shows no signs of the tough early years setting up his business and earning the trust of underwriters at the legendary insurance market. That trust only comes in time, he says, and it’s still absolutely essential to anyone dealing in the market. “Time seems to numb the memory of the obstacles we met in the early days,” he told Insurance News. “But let me assure you there are plenty of sleepless nights involved in starting this kind of business from scratch.” Today SRS is the largest of Australia’s 90
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UNDERWRITING AGENCIES: THE THIRD FORCE
Lloyd’s coverholders, but its founder makes the point that hard-earned success isn’t something you can sit back and relax with. With his headquarters in Brisbane and substantial branch offices in Sydney and Melbourne, Mr Lynam is still a professional with his eyes firmly focused on service and the opportunities it brings. He still remembers placing the first contract in the Lloyd’s market 16 years ago. “It was a property facility which took seven months to get placed, and it’s still led by the same syndicate today.” The longevity of that relationship has made dealing in the market a lot easier, but Mr Lynam says it also keeps up the pressure to perform. “Sixteen years isn’t just a relationship, it’s a marriage,” he says. “We feel like we are family members and yes, that does put extra pressure on you, because you don’t want to let people down. “The good thing about Lloyd’s underwriters is that they also value these long-term relationships. That allows them to impart their skills and knowledge to your business without fear of their
“Lloyd’s is recognised globally as a market leader and innovator. All the major broking houses in Australia rely heavily on Lloyd’s to provide sophisticated yet innovative markets” investment being wasted on a short-term player. “A good agency will work with their securityproviders to achieve performance targets they can both aim for.” Mr Lynam has been in the insurance industry for most of his working life. He started out in the health insurance industry before joining an insurance brokerage in North Queensland. He has been dealing in the Lloyd’s market and underwriting for the past 20 years. After establishing SRS in the market, there were still plenty of challenges for him to deal with. “There was 9/11, the HIH collapse and then the collapse of Independent Insurance in the UK. “The Financial Services Reform Act was a particular challenge for the agency sector in Australia. It took hard work to overcome these obstacles, but through it all our business matured to become a large and credible organisation. “I think one of the highlights of our growth has been recognition of our achievements in the Australian market. We now get leading underwriting staff from around Australia seeking us out and wanting to join our team.” And it’s necessary to have the best possible staff, Mr Lynam says, because Lloyd’s looks for a number of different qualities from a prospective coverholder. 30
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“Perhaps the three major points of differentiation are compliance, underwriting expertise and business acumen. It’s a heavily regulated market, and Lloyd’s demands its coverholders have the systems and capability to meet the rigorous Australian and British industry and government regulations. “And in order to protect shareholders’ funds, coverholders also have to demonstrate an absolute commitment to sound underwriting principles and a strict adherence to their business plan. The plan is developed with the sole focus of delivering profit both in the short and long term. “So being a coverholder isn’t easy, and not everyone who tries is going to succeed at it.” Astute coverholders also try to stay at the “sharp edge” of innovation, he says. “Lloyd’s is recognised globally as a market leader and innovator. All the major broking houses in Australia rely heavily on Lloyd’s to provide sophisticated yet innovative markets. Mr Lynam says discerning brokers and insurance-buyers recognise that Lloyd’s is the most respected insurance market available to them, and that’s where proven performance is important. “Our 16-year association with Lloyd’s provides us with a twofold benefit. It gives brokers confidence in our brand and its longevity, plus it gives confidence to our supporters at Lloyd’s that we are a reliable representative in the Australian market who is here for the long haul. “But you have to be able to back that up with highly experienced staff in Australia, cutting-edge market leaders in Lloyd’s and a highly skilled stable of TPAs [third party administrators] to assist with claims management.” He says Australian insurers – who he refers to as “the company market” – have “gone to great lengths over the years to build uncertain sentiment” about Lloyd’s claims service. “It’s been found to be totally unfounded,” he says. “Lloyd’s has made massive advances over recent years to streamline their claims-handling. “And that has rubbed off on coverholders. As a coverholder demonstrates their capabilities to underwriters, their own claim-settling authority should grow. This further streamlines the process.” SRS has built its business around property, liability, commercial motor, construction, accident & health, contingency, professional indemnity and high-value home lines. Mr Lynam is wary of discussing possible expansions of the company’s portfolio. “Investing in start-up classes of business is very expensive and time-consuming. I’m just relieved that all our classes of business are performing to expectations.” But he does see plenty of upside for SRS in the local market over the next year or so. “Rates are increasing – yes, they really are this time! – and with our customers seeking to do more business with us across all classes of business, largely because they like dealing with our culture, it’s all looking good.”
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Views from the top Steve Nevett reflects on the need for industry unity, staff motivation, client liaison, lessons learned from the global financial crisis and a new technology insurers don’t necessarily like By Ben Oliver
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THE VIEW FROM THE OFFICE OF AON Chief Executive Steve Nevett, towering 51 levels above Melbourne’s CBD, is breathtaking. It’s the kind of view that holds your gaze, and therefore potentially isn’t the most conducive environment for work. But after nearly four years in this office, it’s a view Mr Nevett says he hardly notices. That’s understandable. As the head of Australia’s largest broker, his workload is hefty and his in-tray always full. Since taking up the top job in 2007 Mr Nevett has worked to consolidate Aon’s leading position – it holds around 20% of the broking market – while seeking new opportunities to expand. He chooses to live in Melbourne, even though Aon centres its operations in Sydney – a common enough trend that makes the Melbourne-Sydney air route the third-busiest in the world. “I’m one of those people who travel up and down on Qantas a lot.” He says that like most chief executives, he’s in the job for only a limited period. “You bring your own ideas to the position and you try to work with the management team to bring them to life. But most chief executives have a limited lifetime in the job. “What I aim to create is an environment where we’ve got good people. There needs to be a lot done around succession planning, so that we’re generating talent that’s good enough to step up and take your job. “We’ve been very big on talent development here. That’s something I’m quite passionate about. A business like this is only sustainable around the quality of its people.” Growing talent that’s in line with the changing Australian business landscape is a massive challenge, and Mr Nevett makes it clear it’s a work a progress.
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Unfortunately, the stereotype of the middle-aged Caucasian insurance broker still holds some truth, and until the industry addresses its talent needs with one voice, he says it’s a stereotype that will probably remain. “I think because we are segregated into our little groups, the industry as a whole comes off as being unsexy,” he says. “Until we actually get together as an industry, it’s going to be a very hard sell to the best universities, because we don’t have the critical mass. “I would love to see the Insurance Council of Australia, the National Insurance Brokers Association and the Australian and New Zealand Institute of Insurance and Finance collaborate more. Unfortunately they all seem to have their own agendas, which sometimes inhibits that collaboration. “But there is a prize if we can speak as one industry rather than its component parts.” Mr Nevett speaks from personal experience on the opportunities presented by insurance broking. “If I reflect on the 39 years I’ve had in insurance, I’ve lived in four different countries, I’ve worked with some of the largest companies in the world and Australia,” he says. “I’ve been down coalmines, I’ve looked at aircraft construction, offshore oil… you get to see things you would never see in most other jobs.” Mr Nevett’s passion for people is also evident in his interpersonal skills. After a 90-minute conversation with Insurance News, canvassing everything from the global financial crisis to travelling and the merits of Channel 9’s cricket commentary team, his strengths as a communicator are obvious.
And they’re skills he puts to good use at the client coalface. “Primarily I’m still very focused on clients. I would have had five client meetings this week already, predominantly with major clients, particularly in Melbourne where I have grown up professionally. “To me, that’s the fun part of the business. That and trying to win new clients, which I also get involved in.” While Mr Nevett is still heavily focused on everything to do with client relations, he doesn’t regard himself as a micro-manager. Asked to describe his management modus operandi, he replies, “collegiate”. “We tend to have a fairly open management style here – it’s very values-based. When I can, I certainly like to have the opportunity to go on the floor and talk to people,” he says. It’s an opportunity he seizes during semi-regular sessions with Aon staff; in the week he spoke to Insurance News, Mr Nevett travelled to Perth primarily for a “sandwich and a chat” with a dozen employees who had recently joined Aon. He says these sessions with staff have no set agenda and the floor is open for anyone to lodge complaints, suggest improvements or ask tough questions. It’s an informal atmosphere he also cultivates in the upper echelons of Aon. “I’m not a terribly hierarchal person,” he says. “In the management group we regard ourselves as a team of equals, with me having the ultimate responsibility.” It’s an approach that was put to the test during the global financial crisis, from which Aon, much like the rest of Australia, emerged relatively unscathed. Although Mr Nevett can now look back on the gargantuan events of the credit
Couldabeen makes it in business Steve Nevett turned to insurance when his aspirations to play cricket for England were dashed. Born in Northamptonshire in England’s Midlands, he was once a talented left-hand batsman whose dreams of representing England were stymied by three men – and one in particular. “I fell out with cricket at about the age of 18 or 19,” he says. “I was playing under-23s and those were the days when the English Cricket Board brought a lot of international players in. “At the time I was being looked at, three promising young players came to play for Northamptonshire. Peter Willey [now a test cricket umpire] was one, the second was Geoff Cook, and the guy that used to bat at number three was Alan Lamb, a South African. All three went on to play for England, and Mr Nevett laughingly says today that “Alan Lamb kept me out of cricket”. Frustrated at the lack of progress in his cricketing career, he turned to professional interests. He started working for Commercial Union at the urgings of a teacher at his grammar school who felt working
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would do him more good than taking a year off before university. He was offered a graduate position despite not even attending university, and stayed for seven years. Then he was offered a job at Factory Mutual in London. It was here Mr Nevett cut his teeth on his first major client accounts, including Ford, Caterpillar and Kraft. Mr Nevett migrated to Australia at the age of 28 – he was dating an Australian girl at the time – and with Thatcher’s Britain rife with industrial turmoil, “it didn’t take much to convince me Australia might not be a bad place to live”. “The girlfriend didn’t last long but the country certainly appealed.” Starting with brokers Marsh, Mr Nevett moved to Sedgwick before a merger between the two brought him back into the Marsh fold. In 2002 Aon Australia Chief Executive Peter Harmer – later to run Aon’s UK arm – approached him with an offer to run Aon in Victoria. A promotion to the corporate business division followed in 2004, and three years later he replaced Mr Harmer.
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“If [insurers] can’t differentiate themselves, then they are going to become a commodity” crunch with relief, he remembers a time when Aon was quaking. The “big moment”, as he recalls it, was the collapse of AIG. The giant American insurer was Aon’s largest global insurance partner, and the threat of contagion at that point was very real. “Some news started to break on the Sunday and I was sitting out at Tullamarine [airport] on the Monday morning when my chief financial officer rang me and said, ‘What are we going to do about this?’.” Mr Nevett, on his way from Melbourne to a global meeting in Chicago, immediately ordered his team to prepare for any eventuality. “By the time I got to Chicago on Monday [US time], we had set up a unit called ‘the situation room’ in Chicago.” While the corporation had always kept the room available and working, ‘it took on a new dimension around AIG’. “We went from manning it 15 hours a day to 24 hours a day within three hours. Because we had the global executive together, we sat down to strategise about what we would do if A happened, or if B happened.” Aon came out the other end of the credit in relatively good shape, compared with others in the financial services industry. But it has adopted a leaner and meaner approach to finances. Mr Nevett says while Aon didn’t necessarily have a lot of fat to trim anyway, procedures around requisitions have certainly tightened. “Like most companies we realised we could be more effective in cost control. I think we realised we could live without certain things.” What has also come out of the global fi34
nancial crisis for all businesses is a new appreciation of insurance. “Insurance isn’t as discretionary as people think,” Mr Nevett says. “If you look at the past 12 months, companies want to save money, but they still need to buy insurance. As a purchase, insurance is still something all companies need. They even need it in insolvency. “The good thing about this industry is that regardless of the circumstances, volumes might drop a little bit but there is a fundamental need for the product and the service.” Service is a big theme for Mr Nevett, and he sees technology as a key enabler. He says two of the three biggest innovations at Aon in the past decade have been based on technology. Aon is the first in Australia to develop and implement aggregator platforms – a term that makes Mr Nevett wince as he says it (he prefers “contestable platforms”). These compare and contrast a variety of insurers’ quotes in seconds. The Middle Market Broking Solution and the Enterprise Market Broking Solution are both Australia “firsts” for Aon, and the application of similar platforms in the wider market is being contested in the market at present. Mr Nevett says the Enterprise Market Broking Solution is a global leader in price comparison. “That platform is the way we will transact part of our business into the future. It’s an internet-based platform and we can literally feed business in and get five or six quotes back in five seconds. It does all the documentation on the way through.” insuranceNEWS
Nr Nevett sees technology as a way for brokers to get back to what they do best: advising clients. “We intend to make the transactional processes far more efficient so that brokers who are trapped in offices doing transactions can actually get out and see the clients and sell or service.” The platforms are an efficient method of quote evaluation that clients love and competitors strive to emulate. However, Mr Nevett agrees insurers aren’t so sure. “One of the insurers tried to suggest we were inventing an insurance eBay. Our view is, let’s make that bit contestable – it’s good for our clients. “And within that contestable environment, insurers have the opportunity to differentiate themselves.” It’s an opportunity many insurers have not rushed to take advantage of. He says claims that Aon’s platform is another example of the commodisation of insurance are rubbish, peddled by insurers unsure of how to market themselves effectively. “The cheapest price doesn’t necessarily win the day. I think it’s largely up to the insurers how much of a commodity they become. “If they can’t differentiate themselves, then they are going to become a commodity. “Even their own marketing people are concerned their employers don’t fully understand what differentiation is about.” It’s a subject something Aon clearly knows plenty about. And provided Mr Nevett continues delivering ideas and vigour at the top, Aon is poised to put even more runs on the board.
April/May 2010
LIU_Ins
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Commissions: is it time to change? A veteran broker thinks it probably is. Here’s why By Terry Mills THE COURAGEOUS DECISION BY THE Financial Planning Association (FPA) to move away from commission-based remuneration sets a precedent that may well be followed by other financial services intermediaries, including insurance brokers, as successive governments keep the pressure on. The final report of the parliamentary joint committee inquiry into the collapses of Storm Financial and Opes Prime, while not expressly recommending that commission payments to financial advisers be outlawed, does suggest “that the Government consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers”. Clearly this does not automatically spell the end of commissions for financial advisers, until such time as the Government adopts the recommendation, commences and concludes the consultation process and enacts appropriate legislation. However, the likelihood is that commission payments are on their way out. The recommendation is directed at Australian financial services licensees and not specifically at insurance intermediaries and brokers, but as all AFS licensees are now governed by Chapter 7 of
“The arguments in favour of fee-based income are powerful, not only for wholesale clients but also SME and personal lines business” the Corporations Act 2001 this could be the thin edge of the Government’s wedge. It was quite evident that the previous government was trying to push AFS licensees away from commission when they introduced section 923A into the Act. This effectively restricts all licensees – including, of course, insurance brokers – from describing their services as “independent, impartial or unbiased” if they receive commissions that are not rebated in full. This section of the Act was introduced as part of the Financial Services Reform Act 2001 (FSRA) changes, and certainly seems to be demonstrating the Government’s wish for insurance brokers (among others) to become fee-based professionals. Arguably this has been a long-term ambition of insurance brokers, anyhow. It also implies that as pretty well all licensed insurance brokers receive commissions in one way or 36
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another, there are no independent, impartial or unbiased brokers in the Australian market; a premise imposed by legislative dictate but arguably not supportable in practice or fact. This ongoing debate on whether insurance brokers should accept commission – or “brokerage” if you prefer the more genteel term – has had currency for at least 50 years and probably a lot longer. In the early 1980s the Australian Law Reform Commission (ALRC) recognised in its report to the Federal Parliament that insurance intermediaries sometimes act in the dual capacity as agent of the insured and of the insurer, but that specifically an insurance broker was an agent of an intending insured unless acting under a delegated authority from an underwriter. (The informal industry colloquialism of “binder” was adopted by the legislature and has been perpetuated as the accepted terminology in the Corporations Act). This report subsequently set the framework for what became the Insurance (Agents & Brokers) Act 1984, which effectively regulated the activities of insurance brokers for the next 17 years until it was replaced by the FSRA, incorporating many of the essential components of the old Act and edging them into the already bulging Corporations Act as Chapter 7. It was prescient for the ALRC to recognise and recommend a legislative acknowledgement of the dual and sometimes complex roles performed by insurance brokers as, some 20 years later, this dichotomy of roles caused considerable embarrassment and financial pain to major brokers in the United States, where it was not readily acknowledged in common law. In early 2004 the then New York AttorneyGeneral Eliot Spitzer found insurance brokers were in a number of cases placing business with preferred insurers who paid them higher commissions and other contingent benefits, possibly in breach of the strict common law fiduciary duty of a broker to act in the best interests of his or her client. They were certainly lacking in transparency and also probably resulted in a conflict of interest. This practice resulted in severe penalties being exacted on several major brokers and reform of industry practices in many states. The odd thing was that the US brokers were, in effect, doing what brokers had been doing forever in the UK and Australia – that is, acting in a dual capacity and in this instance steering insurance business to certain preferred insurers as agents of those insurers. In the parlance of the Australian legislation they were acting under a delegated authority or binder. The recognition of the dual capacity of Australian insurance brokers to act as agent of the insured and
April/May 2010
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the insurer alleviated the problem that had arisen in New York. Here it was recognised that a broker could act under a delegated authority (binder or similar facility) and thus become an agent of the insurer with an implied duty to direct business to his or her principal – the insurer. A problem that was highlighted in a subsequent investigation by the Australian Securities and Investments Commission (ASIC) was that such a “broker facility” was not usually disclosed to the clients, which of course it should have been. Beyond that, ASIC found no particular problems within the Australian industry compared to those encountered in the US. So the question needs to be asked: what is the imperative for brokers to consider a move to a fee-for-service model beyond the ability to call themselves “independent, impartial and unbiased”? Well, ask any broker who is trying to budget income for the next financial year, particularly in a market showing tendencies of softness. Inevitably, organic growth in income has to be largely discounted in these circumstances, and in many cases market conditions will dictate that dollar commissions received will reduce in proportion to the premium reductions achieved – even though time and effort expended servicing and marketing these accounts will increase. Growth in these circumstances can only come from new sales. Hence, budgeting becomes a nightmare of balancing increased input against diminishing returns. Most corporate insurance business in Australia is already transacted on a fee-forservice basis, giving brokers and their clients some continuity in a cyclical market. The fee-for-service model has the added benefit of allowing the broker dealing with corporate buyers to openly present his or her services as independent, impartial and unbiased, and allows the broker to be paid for a whole range of complementary services. So the arguments in favour of fee-based income are powerful, not only for wholesale clients but also SME and personal lines business. Successive governments have insisted that, as a minimum standard, transparency and disclosure must be to the fore in any transactions involving financial products. So is it time for insurance brokers to be proactive and move into a commission-free future as a true profession, confident in saying that we are independent, impartial and unbiased? Terry Mills has been a broker for more than 50 years. He has a degree in law, and is an Associate of the Chartered Insurance Institute; an ANZIIF Senior Associate; a Chartered Insurance Practitioner; and a NIBA Fellow 38
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Special delivery How OAMPS chief Keith McIvor is giving power to brokers on the front line By Jamin Robertson
IF THERE HAS BEEN ONE CONSTANT at OAMPS Insurance Brokers in recent years, it’s change. Leadership changes, staff retrenchments and expansion into new service areas have all served to shake up the company in the period since its acquisition by Wesfarmers Insurance in 2006. Chief Executive Keith McIvor knows the broking business inside out, even if much of it has been from a New Zealand perspective. After getting his insurance grounding at Sun Alliance in Palmerston North he joined New Zealand’s largest independent broker, Crombie Lockwood. He went on to spend almost 20 years at the leading brokerage, starting out as a broker before progressing through various roles to become general manager. He was involved in a raft of acquisitions before Wesfarmers came visiting in 2006 and bought the company. Two years ago he moved across the Tasman as OAMPS Head of Operations, and in July last year was promoted to chief executive. His thorough knowledge of all areas of insurance broking underpins Mr McIvor’s focus at a company that is actively pursuing growth opportunities. The OAMPS restructure is providing greater efficiencies, despite Wesfarmers’ broking operations recording a 10.7% drop in half-year earnings to $25 million at December 31. Mr McIvor says he has a clear idea of where even more improvement is needed. “Our philosophy now is to empower our branches,” he told Insurance News. “It’s a philosophy of Wesfarmers and a philosophy we hold dear in OAMPS because if we can get people at the coalface making decisions they’ll make more right ones than anyone will achieve centrally.” To support this a “flattened” hierarchical structure now exists to support the brokerage’s 33 branches. “OAMPS Central” in East Melbourne is intended to now act as a back office rather than a head office. The company has moved to supplement the strategy by appointing business leaders from a variety of backgrounds in order to re-
flect the kind of diversity evident within its client portfolios. “Branches need to be able to spend more time focusing on clients, while getting the support, advice, strategy and vision collectively as a company,” Mr McIvor says. Those improvements include spreading OAMPS’ product offering nationally, with new Australian premium funding operations and life insurance partnerships part of plans to follow through on that goal. Monument Finance – established by Crombie Lockwood in 2000 – has begun operating in a reasonably positive Australian environment for premium funding, while OAMPS has initially brought nine business partners aboard to provide a life insurance distribution capacity. Mr McIvor has strong views on what the company needs to deliver to clients. “I’ve been privileged to be in a position where I’ve seen what we call our ‘client aspiration’ in action,” he says. “In the process of understanding a client’s business you earn their trust, and all of a sudden they view you in a different way when that’s achieved. “You’re there to support and advise them. Once you’ve got that status with a client – assuming you’re sincere and you have integrity about you – then you have a personal responsibility that when it all turns to custard, you’re the person that has to be there to help.” His own experience has instilled a strong belief in the value brokers provide to the community. “We are able to go and say to a client that it’s okay, we’ve got this sorted and in fact – although it doesn’t feel like it right now – in 12 months time you’re going to be back on your feet because we’re going to be able to help you rebuild your business” he says. “That’s quite powerful, but it only happens if you’ve done all the hard work at the start.” That’s where he wants to take OAMPS, and he agrees much remains to be done to get there. “Yes, we’ve made some progress, but watch this space. You’re going to see a lot more.” insuranceNEWS
April/May 2010
The New Zealand connection at Wesfarmers’ insurance broking companies is hard not to miss. Major NZ brokerage Crombie Lockwood, which Wesfarmers bought in 2006, has proved to be a significant talent pool for the conglomerate. Keith McIvor was brought across from Crombie Lockwood in 2008 as Head of Operations at OAMPS, and last year became chief executive. In February Steve Lockwood, the Chief Executive of Crombie Lockwood for the past 20 years, assumed a “broader strategic role” as Executive Chairman of Wesfarmers Insurance Broking. The new chief executive at Crombie Lockwood is former Chief Operating Officer Carl O’Shea. Under the new arrangement Mr Lockwood will oversee Wesfarmers’ broking operations across NZ, Australia and the UK – a move Wesfarmers Insurance Managing Director Rob Scott says will help the company to “seek growth opportunities and better leverage capabilities and scale”.
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Charting a new course
Plenty of challenges ahead as John Price settles in as the new General Insurance Ombudsman By Ben Oliver NEW GENERAL INSURANCE OMBUDSMAN JOHN PRICE can be pardoned for preferring the smell of salty ocean air over the musty scent of a Melbourne courtroom. The former litigation lawyer’s enduring passion for all things nautical, matched only by his love of that most divisive of AFL clubs – Collingwood – is one he admits often gets the better of him. Indeed, family commitments and his new role at the sharp end of general insurance disputes are perhaps the only things keeping Mr Price harbourside. “Politeness often goes out the window when you sail,” he says with a chuckle. “I love nothing more than getting out Wednesday nights to break up the week.” Appointed General Insurance Ombudsman in November – nearly seven months after the abrupt departure of former ombudsman Sam Parrino – Mr Price’s elevation comes at a critical juncture for the Financial Ombudsman Service (FOS). It has been 16 months since the former Insurance Ombudsman Service (IOS) was merged with its financial and banking counterparts to create the new FOS. Faced with rising disputes and uncertainty surrounding forthcoming new terms of reference, Mr Price is tasked with the delicate act of satisfying industry and consumer groups while meeting his commitments as an impartial referee. “At the moment, my focus is on ensuring we have the systems right in our new terms of reference,” he told Insurance News. “Hopefully in the next 12 to 18 months it will be bedded down, then I’m sure there will be other issues that arise.” Mr Price remains an enthusiastic supporter of the amalgamated ombudsman service, whose benefits he feels have yet to be fully realised or appreciated. “There is a really vibrant feel about the place,” he says. “Inevitably, as with all change, there are initial pockets of resistance. “The new FOS will be fantastic for everybody. Our ability to access resources in communication and technology has improved, we have much more expertise we can access and there is a real sharing of views.” He says the move into a larger and unified external disputes resolution organisation is very positive for the general insurance industry. “They get the best of both worlds; we still have the specialist ombudsman service and the benefits of a larger organisation.” Once treated with wary respect for his nous in industrial 40
New ombudsman John Price: a vibrant feel about the place
insuranceNEWS
April/May 2010
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personal injury and accident compensation cases, Mr Price’s move from poacher to gamekeeper wasn’t a premeditated defection. His elevation from general insurance referee at FOS – where he also served as an adjudicator and a claims review panel chair – comes nearly six years after former FOS Chairman Peter Daly approached him. “When I left Morris Blackburn in 2004 I was in need of a change in direction,’’ he says. “I’d hit 50 and wanted a change in life. To be honest I wasn’t thinking about joining the Insurance Ombudsman Service, but I was attracted by the role. “It is a tremendous role to work in, not only as a means of accessing justice but as a means of ensuring fairness in the system.” Recent figures show more people are seeking resolutions to disputes than ever before; disputes handled by FOS rose 33% in 2008/09, including a 34% jump in general insurance personal lines disputes. An increasing caseload from the financial services sector – handled by veteran Investments, Life Insurance and Superannuation Ombudsman Alison Maynard – has been attributed to the global financial crisis, but Mr Price doesn’t believe the same holds true for general insurance. Rather, a growing awareness of the service is behind the rise. No evidence suggesting an increase in the number of fraudulent claims has emerged either, Mr Price says. Regardless of the ombudsman’s escalating workload, he says most claims – about 60% – are resolved within 90 days. “Even fraud disputes are generally resolved within 120 to 150 days,” he says. Keeping a watchful eye on case timeframes remains one of Mr Price’s main priorities, but his short-term focus is on building relationships with consumer groups and the insurance industry. “We are inviting as much feedback as possible to ensure people trust when a decision is made – that recommendation will have been made on the basis of a thorough consideration of all the matters by a skilled person. “I’ve been out personally to meet all the insurers to let them know how we are approaching our decisions. We are not always going to agree, and that is healthy.” Mr Price says insurers are heeding calls to present more thorough cases when defending disputed decisions, and are also realising the importance education plays in insurance coverage disputes. This is of particular pertinence to cases brought before FOS. “Most people would say they haven’t regularly read their insurance policy,” he says. “The industry has a role in ensuring information is provided in the most consumer-friendly manner.” He says some insurers still tend to view customer complaints as attempted fraud rather than legitimate concerns, but this mindset is changing. “It’s very important in my reports as fraud referee for the industry to listen to what the consumer is saying.” Once the new FOS terms of reference are formalised – a process scheduled for completion this month – Mr Price is confident he can steer his new responsibility through clear skies and squalls. “It’s very important my role isn’t to be an advocate for the insurance industry or consumer groups, but as an independent voice that can dispel any falsity that is out there.” 42
insuranceNEWS
April/May 2010
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Thriving, not just surviving How some companies prospered while others died in the global financial meltdown By Kai Dwyer, Head of Global Corporate at Zurich Financial Services Australia THE WORLD IS STILL REELING FROM the global financial crisis (GFC), but there are lessons from it that have already been learned. There’s no doubt that a regulatory response is appropriate for the shadow banking sector and its innovative financial products, which clearly created systemic risk of failure. But while more stringent supervision may have an impact on how management behaves, it will not, in isolation, protect against risk management failure in our leading enterprises. Profit is the entire purpose of most business enterprises. After all, Nothing Ventured, Nothing Gained! But it’s not only about just taking risk. A better question to ask would be which risks, and how much risk? And more specifically, how many risks over which range of options can we afford to take, given the capital at our disposal? It is valuable for us to understand what the managers of these failed institutions could have done to better understand their risks and manage their exposures. Detailed
analysis has identified some contributory factors that serve as a lesson to all risk managers. These include: • Inadequate risk management practices; • Poorly structured risk reporting; • Seriously flawed risk modelling; and, (perhaps most significantly) • Lack of a risk management culture. The debris of the GFC has seen three categories emerge – Goners, Survivors and Thrivers. With the benefit of hindsight it might be argued that regulators and governments should have applied the brakes at a much earlier point in time. But philosophically this struck at the heart of the free market economy. This dilemma was played out publicly with the debate around the fate of AIG, which was ultimately rescued. However, not all players benefited from this argument and they are evidently now “Goners”. Many financial institutions throughout the developed world were beneficiaries of government support and temporary relief, sometimes in the form of nationalisation. These companies might be categorised as “Survivors”, although in many cases they are a shadow of their former selves and many are likely to endure years of mistrust from their customers and other stakeholders. While no organisation has been immune to
the crisis, across all industries we can identify some which have emerged in clearly stronger competitive positions than they previously held. These are the “Thrivers”. These companies have managed the crisis well because they employ a more holistic approach to risk management. They don’t merely rely on the boundaries set by their regulators; they have strong risk management cultures and manage risk holistically rather than in functional silos. The “Thrivers” have a holistic understanding of the aggregation of risk and the interdependencies of systems and economic models. In that sense, within the wider financial services landscape I suggest we can call the general insurance industry a “thriver” in this transformed economic landscape. This is because the industry systemically manages the risk of financial destruction in a more robust fashion. Ironically, while the high-flying bankers crashed and burned, the poor cousins of the finance sector – the rather unspectacular general insurers, with their predictable and traditional style – seem to have changed little. Despite taking significant impairments to the asset side of their balance sheets, these dull and staid general insurers have maintained their fitness and continue to play a reliable form of the game. For buyers of insurance, access to reliable risk transfer solutions remains secure and still offers the lowest cost of contingent capital. So what has made them so much more resilient than the investment banks? The general insurance industry has the best expertise in understanding, evaluating and quantifying risk. Indeed, some of the guiding principles of insurance portfolio management serve as lessons to the more flamboyant exponents of the financial services game. The fundamental operating arithmetic for the insurance industry dictates insuranceNEWS
April/May 2010
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that while the sum total of future liabilities cannot be determined with 100% accuracy, insurers will make provisions on their balance sheet for such future liabilities in the form of asset reserves. The general insurance industry and its regulators work hard to make the valuation of future liabilities as much of a science as possible. Today, professional actuaries are formally responsible for determining the adequacy of required reserves. They make provision for such things as IBNR – claims which are incurred but not yet reported – and worse-case scenarios through provisions for adverse development, otherwise known as “PFADs”. The industry goes one step further by having its reserving adequacy subjected to regular peer review by an external actuary who must countersign on the statements and affirm reserve adequacy. So insurers already had a regulatory framework capable of managing this type of risk effectively. Perhaps regulators should consider expanding the model’s scope to encompass the activities of non-insurance financial players by requiring peer-reviewed evaluation of the forward liability of newer financial instruments. Then there’s the issue of moral hazard. If humans have the opportunity to transfer their total risk to another without cost, they will do so. And the incentive to transfer risk grows in direct proportion to growth in the severity of that risk. This costless risk transfer actually provides incentive to behave immorally. Prior to the GFC, mortgage originators and packagers were able to generate a large fee income and bonuses by making loans and were able to transfer to others 100% of the risk that such loans would not be repaid. This further fed the appetite for yet more loans of ever diminishing risk quality. The bonuses paid for growth in fee income encouraged increasingly risky behaviour throughout the system to the extent that loans were no longer being properly underwritten. Within the insurance industry the proper identification of moral hazard risk is at the heart of training for junior underwriters, and our underwriting processes include controls to eliminate this exposure.
Risk retention It’s easy to understand why people are torn between the desire to maximise reward and the instinct to simultaneously minimise risk. Our industry has learned over time that even those paying a fair premium to secure risk transfer should also be required to retain some additional financial obligation by means of co-insurance. Experience has taught us that when some portion of the potential loss is shared by the insured, less risky behaviour ensues. Insurers commonly make provisions for anticipated future losses. These provisions will include an expected portion of total losses attributable to “catastrophe.” For practical purposes, these most often tend to 46
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be a direct result of dramatic weather conditions or geological disasters. Key to analysing risks of this severity is effective “exposure” and “accumulation” management. Unlike most product sellers, an insurer can have too much market share if it’s disproportionate to the overall insurance portfolio, the size of the territory or category of risk. In other words, don’t put all your eggs in one basket. Accumulation is the product of all your exposures multiplied by the maximum possible loss per exposure. These practices are common to all general insurers, which explains why by and large they emerged from the GFC whole and relatively healthy.
Zurich’s resilience is in part due to difficult lessons that were learned early this decade when collapsing asset prices coincided with an extraordinary insurance claims environment. Following this crisis we questioned whether we were doing everything in our power to earn and retain our customers’ trust. This risk management discipline has successfully embedded an approach to ERM that has allowed the group to use its existing management model to navigate and adapt through the crisis, rather than having to change direction as a reaction to an unanticipated shock. Its success illustrates that good habits and behaviours allowed it to cope and continue to provide confidence and reas-
“The incentive to transfer risk grows in direct proportion to growth in the severity of that risk. This costless risk transfer actually provides incentive to behave immorally.” However, despite the general insurance sector’s risk management expertise, many insurers nevertheless incurred severe impacts to their balance sheets.
What makes a “Thriver” These organisations stand out as having a strategic competitive advantage arising out of their risk management culture. They understand the importance of fundamental enterprise risk management (ERM) principles better than most, and their decision-making is permeated by forming balanced views of risk versus reward. They don’t wait for the regulators to tell them what their boundaries are. Zurich Financial Services has emerged from the GFC as one of the true “Thrivers”. The company is now in a stronger and more respected position than we have enjoyed in many years. Zurich has done so without the need for any form of intervention or special treatment from outside regulators or government support, but through the active management of its business. This is best highlighted in the fact that Zurich has now attained one of its major strategic goals of being a Top Five global insurer by market capitalisation many years ahead of its original target date. insuranceNEWS
April/May 2010
surance to stakeholders when the external environment was failing. At a time when risks have become more complex and inter-related, risk management can no longer be tucked away in a far corner of our firms. Risk does not respect silos – it reaches all industries and geographies and, therefore, demands broad anticipation and mitigation efforts. Ensuring that all decision-making takes a balanced view of risk, on both the asset and liability side of the balance sheet, is critical because it allows management to be well skilled in adapting to “playing what’s in front of you”, no matter how challenging the environment is. A greatly increased pattern of so-called “fat-tail” events has emerged. We can now understand that low-frequency, high severity events do happen from time to time. Strategic resilience means being positioned to not only withstand such events, but even to gain competitive advantage from our preparedness when such events strike. By identifying and proactively addressing risks and opportunities, business enterprises will protect value for their stakeholders, including owners, employees, customers, regulators, and society.
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H1N1
get ready for the second coming Those winter sniffles may be more than the common cold
AS MANY MOVIE BUFFS CAN ATTEST, sequels rarely surpass their predecessors in intensity and strength. However, that doesn’t mean the return this winter of H1N1, otherwise known as swine flu, won’t turn into the next Godfather Part 2. Despite dropping from the headlines, swine flu remains very much a fixture on the World Health Organisation’s (WHO) global pandemic radar. The virus still attracts the international body’s highest level phase 6 alert, and by late last month had been responsible for 16,813 deaths worldwide. Swine flu has been detected in 213 countries, and while detection and transmission rates are low and falling in most western countries, it’s very much alive. WHO cautions that reports of the decline of the virus in Europe and North America are premature. Peak transmission of swine flu may have not yet passed, and in any case it remains active in Africa and parts of southeast Asia, particularly Thailand. “Over the past month approximately 2530% of sentinel respiratory samples from patients and 10-35% of sentinel respiratory samples from hospitalised patients… tested positive for influenza (in Thailand),” a March WHO update states. The agency says transmission rates in Thailand are not ahead of those detected mid-last year, but West Africa shows no evidence of a “peak in activity”. Back in Australia, the federal and state governments are gearing up for flu season with warnings guarding against complacency. In March, the Federal Government announced the threat of a swine flu recurrence as a real possibility. More than 37,636 cases, and 191 associated deaths, were recorded in 2009, with most deaths among people in their 50s. In New Zealand, swine flu last year led to 1014 people being taken to hospital and has been confirmed as the cause of 20 deaths. 48
A number of other deaths are still being investigated. “Australians must be prepared for possible outbreaks of pandemic (H1N1) 2009 influenza – or swine flu – as we move into the southern hemisphere flu season,” the Department of Health and Ageing says in a release. The official flu season starts in May, and the Federal Government is urging people to receive free vaccinations. Last year the Government spent $120 million on 21 million doses of Panvax, which targets the H1N1 strain. It has so far distributed about 7 million doses and a further 240,000 pre-filled syringes for infants. In New Zealand, vaccinations are free to the end of June for most pregnant women, people with an ongoing health condition, people aged over 65 and children aged six months to five years. And a study by the Australian and New Zealand Intensive Care Society has found that obesity, pregnancy, asthma and other chronic lung conditions, as well as diabetes and “indigenous status” are associated with increased risk of admission to intensive care units. The study also found that 32% of the patients admitted had no underlying risk factor to explain the severity of their influenza infection. It says pandemic patients have been young – the median age of all cases was the 20s. People in their 30s who caught the vurus were most commonly hospitalised, while those in their 40s were at greater risk of being admitted to intensive care. Those who died were most commonly in their 50s. The vaccine being used around Australia – but which has been accepted by only 20% of the population so far – protects both those with known risk factors for severe disease and those who are being prudent. Authorities say they expect 30% of noninoculated people with no known risk factors may require the services of an intensive care unit if they are infected with pandemic influenza this winter. With the right planning and preparation, swine flu may yet whimper into a sequel barely rivalling Speed 2. insuranceNEWS
April/May 2010
Better prepared next time: some Australian university staff and students ended up in quarantine
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Learning from swine flu How universities rose to the H1N1 challenge By Harry Rosenthal WRITING ABOUT EMERGING RISK ISSUES is a risky business in itself. By their very nature emerging risks are in a constant state of change, unfolding over time with circumstances radically shifting. The best risk professionals know how to temper their organisations’ response to rapidly emerging risks proportionally, balancing resources to ensure there are no overreactions which waste corporate resources, or under-reactions which place assets at risk. Perceptions of danger from emerging risks change over the life of the event. Take the example of swine flu. As we approach the next southern hemisphere flu season, the perceived threat of swine flu now appears relatively minor, because so far it has failed to mutate to a form which meets its deadly potential. Nevertheless, during last year’s flu season, 37,636 people in Australia contracted swine flu and 191 died. At the beginning of the 2009 pandemic swine flu made daily headlines and most
people were concerned about this deadly new global strain of flu. As an emerging risk, swine flu had the potential to be the education sector’s worst nightmare – a disease of unknown virulence and severity, arriving at the height of the southern hemisphere’s cold and flu season. In the higher education sector, swine flu contributed to what was developing into a “perfect storm” of emerging challenges for universities. It arrived when the education sector’s radar was crowded with two other emerging issues: finance and security. When fears of a pandemic started, Australian universities were concentrating on the impact of the global financial crisis, with the sudden loss of more than $800 million in investment income. While much of this loss was “on paper,” affecting mainly investment and endowment accounts, it still adversely affected overall university finance and created significant operational challenges to institutions and their ability to conduct teaching and research. At the same time Australian universities’ reputations were being damaged due to an increasing frequency of crimes against foreign students, who were viewed as easy targets by opportunistic criminals. insuranceNEWS
April/May 2010
Violence against foreign students meant Australia was becoming a less attractive place for Third World parents wanting to give their children the gift of a Western education, threatening an estimated $15 billion in annual income. And then there was swine flu. While the initial incidence of cases was low, the number of reported cases in Australia shot up rapidly, indicating authorities were finding it impossible to quarantine or adequately contain the disease. This failure to contain the infection was viewed as a significant threat by the university community, and an opportunity for the traditional collegial and mutual instincts of the sector to assist in the management of this emerging risk. A typical Australian university is like a small city, with tens of thousands of people on campus, occupying large lecture halls, eating in food courts, studying in libraries and computer labs. They are institutes designed to facilitate the free flow of information and ideas among numerous people – a perfect transmission ground for a new and opportunistic virus. Australian risk professionals quickly began tracking the course of the pandemic, 49
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including the recent development of a possible vaccine by the University of Queensland and the sudden quarantine of a piggery in New South Wales, due to the first human-to-pig transmission of swine flu in Australia. After several months we noted that in the southern hemisphere the virus was proving to be more contagious than seasonal flu, but was fairly mild in people without underlying medical conditions. In spite of this, the risks were still unknown and there was need to quickly share information and approaches across the sector. The focal point for this effort became their risk adviser Unimutual. More than half of the universities in Australia participate in this 20-year-old higher education mutual for risk advice and insurance. The philosophy of the mutual is to help members better manage their risks, including such emerging risks as the rise of a potentially deadly disease, through cooperation and sharing of information and expertise. During the height of the normal cold and flu season last winter, there were several unexpected impacts on the Australian university community. Like all significant risk events it has presented universities with both positive opportunities and significant downside risks. The threatened pandemic provided Australian risk professionals working with universities with some rare opportunities. Some examples:
Risk management leadership Every few years an event occurs which allows risk professionals to take a leadership role in their organisations, when the topic of risk fills the media. Remember Y2K, for example? The swine flu outbreak gave risk professionals an opportunity to engage senior managers and administrators as we focused on pandemic planning and response. Unimutual encouraged each institution to appoint a single pandemic co-ordinator to facilitate the sharing of information across their community. To support these co-ordinators, Unimutual created a central clearinghouse of information on the infection and sector responses. This enabled risk staff, who until recently viewed their role as focused on either insurance, occupational health, auditing, or some other narrow area of risk, to embrace the multi-dimensional challenge of assisting their institutions respond to the swine flu event. Looking back we see that those who took up the challenge may have assisted their own careers by taking up high profile coordination roles engaging the most senior university administrators and professionals.
Business continuity planning The outbreak of SARS in 2003/04 and avian flu since 2003 directly impacted many universities in the region, resulting in the drive to develop pandemic response and continuity plans. The swine flu outbreak provided an opportunity for risk professionals to 50
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dust off and update these plans.
Community health Most Australian universities quickly recognised that standard flu prevention behaviours would be critical to minimising the spread of the disease and as a result increased their efforts in communicating health information to their campus community stakeholders. In addition to the normal wall posters on hygiene, universities looked at alternative ways of communicating the health message such as dedicated web pages, staff newsletters, electronic campus signage, campus networks, etc.
Specialised clinics Several universities adjusted the ways they deliver health services on campus, using the pandemic fear to seek subsidy funding from state medical services to promote the vaccination of staff and students. Some campuses opened specific campus “flu clinics”, diverting those with symptoms away from those presenting with other illnesses. There are cases where some universities were able to encourage a large percentage of their staff and students residing on campus housing to participate in free flu vaccinations administered on campus.
Tightening of travel controls Australian students and staff frequently travel overseas and managing the inherent risks is a significant challenge for Australian risk professionals. The outbreak helped ensure risk staff are engaged more closely in the travel process, either through developing improved travel procedures or as part of the travel approval process. To assist members, Unimutual worked with interested members to develop a generic off-campus travel checklist, to promote consistent guidelines and procedures for approving and monitoring overseas travel.
Overseas assistance Several Australian universities found themselves having to deal with staff and/or students being subjected to screening and quarantine procedures in foreign countries. This was most pronounced in eastern and southeast Asia, where experience of SARS, avian flu and Hong Kong flu outbreaks in the past had led to comprehensive monitoring and strict quarantine regimens for international travellers. Some Australian universities had staff and students placed in quarantine, generally in isolated hotels for up to a week, presenting significant challenges in both helping them and in managing the concerns of family back in Australia.
Lessons to remember Australia reported a high rate of infection during the early days of the H1N1 outbreak. Overall, quarantine efforts had limited effect in keeping the infection contained. One area deserving closer examination was the role played by children in daycare insuranceNEWS
April/May 2010
and primary schools. The reported spread of the virus slowed down considerably over the winter school holidays. Infant and primary schools are locations where it is difficult to enforce social distancing and personal hygiene, creating miniature “flu incubators” who may have facilitated the rapid escape of swine flu into the general community. If the final conclusion is that pre-school and primary school students are weak points in the containment efforts, then a more rapid closure of these facilities may become part of standard planning. Many Australian universities provide these facilities on their campus. If primary schools had to be closed and parents had to remain home in self-imposed quarantine, the wider impacts should be examined. Occupational health and safety laws in Australia hold employers to a very high duty of care to staff, students and campus visitors regarding workplace hazards. Unimutual has reviewed the implications of possible litigation regarding student welfare, such as permitting pregnant medical school students to work in hospitals, or dealing with students with a history of respiratory problems – an estimated 25% of Australians have asthma. While it may be very hard to prove to a judge, it may be possible that staff will be able to file claims for personal injury if they contract swine flu at work. Influenza pandemics tend to come in multiple waves over time, with each wave characterised by differing levels of infection and impact. It is possible last year’s flu season wave was the mildest of the cycle and that successive waves of H1N1 could be more dangerous. Each university and campus medical centre has developed methodologies regarding treatment with drugs and the use of personal protection. The effectiveness of these treatments will have to be reviewed before the next wave arrives. Universities will also have to decide whether simply reinforcing good hygiene practices is adequate to safeguard university communities, or whether additional planning is needed for activities that involve large congregations of people. I am optimistic that the university sector will continue to be successful in responding to the challenges of pandemics as there is a tradition of working together, sharing information and insight, in spite of the fact they often compete for research dollars and students. Experience was gained from this exercise and Unimutual shared its experience with northern hemisphere universities during their first exposure to the swine flu in late 2009 and early 2010. Experience was gained last winter and strong communication channels were developed. We know that the last outbreak didn’t become the widespread killer that many predicted, but we are also aware that that a more virulent and deadly outbreak may be simply a matter of time. Harry Rosenthal is General Manager Risk Management at Unimutual, which provides risk insurance advice and products for universities across Australia
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“The Professional Broker’s Choice”
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lawNEWS
Failing the‘neighbour’test 20 years on, who’s to blame for a deadly tree? By the insurance team at law firm DibbsBarker ONE OF THE MORE UNUSUAL ROAD ACCIDENT CASES OF recent times has been decided by the High Court of Australia. The case has implications for public authorities around the country, particularly those dealing with infrastructure other than roads. On November 18 2001, Mr Napoleone Turano sustained fatal injuries when a eucalyptus tree fell onto his car. His wife and their two children were also injured. Mrs Turano sued the Liverpool City Council, as the owner of the land on which the tree was standing, and Sydney Water Corporation as having negligently contributed to the tree falling, claiming damages for physical and psychological injury and for loss of dependency. At the initial hearing on liability in the Sydney District Court, the primary judge found the council was liable in negligence, but that Sydney Water was not liable because it did not owe a duty of care to Mrs Turano. The council appealed to the New South Wales Court of Appeal and Mrs Turano cross-appealed against the dismissal of her claim against Sydney Water. The Court of Appeal upheld the council’s appeal, and the majority also upheld Mrs Turano’s cross-appeal, finding that Sydney Water was liable to her. The judges found the tree had become diseased through waterlogging; that the water came from intermittent ponding; that the ponding was due to obstruction by the water main of a pre-existing culvert outlet pit; that the outlet pit drained into the water main’s trench dug into impermeable clay and thence to the tree’s roots along permeable sand laid as a bed for the water pipe. The majority questioned whether it was “foreseeable that, by laying the water main in sand which acted as a conduit for water, in circumstances where the water main was installed in a position that both breached the existing drainage system and obstructed the drainage of water from the culvert, that there could be an effect on the surrounding area such as might cause harm”. Sydney Water then appealed to the High Court. A unanimous five-member bench in the High Court late last year accepted that a public authority could be subject to a general duty of care arising out of conducting works under a statutory power. Sydney Water said it could not have contemplated when the water main was laid in 1981 that its conduct would affect people driving near the main 20 years later. As a result, the incident was not reasonably foreseeable. 52
insuranceNEWS
The High Court noted that the concept of reasonable foreseeability of the “class of injury” was relevant at three related stages of analysing liability in negligence: duty of care, breach of duty and remoteness of damage. For a duty of care to exist, the precise sequence of events leading to the incident did not have to be foreseen. But it was necessary to show that in 1981 it was foreseeable that laying a water main in a bed of sand in that location involved a risk of injury to road users; and no evidence had been presented that showed it was foreseeable. The way the NSW Court of Appeal had approached the matter was effectively to impose a strict duty requiring that Sydney Water preserve the existing drainage in the vicinity of its installation in order to prevent a foreseeable risk of shortening the life of surrounding vegetation – not a duty requiring the organisation to take reasonable care to avoid injury to road users in carrying out its works. It was a formulation derived by “reasoning backwards” from the events that occurred, and made a finding of breach of duty inevitable. This was impermissible. The High Court found the laying of the water main in 1981 did not create an immediate risk of harm to road users. The length of time between Sydney Water’s conduct and the accident was relevant to deciding whether the relationship between Sydney Water and Mr and Mrs Turano gave rise to a duty of care. Although Sydney Water had the power to inspect the main after it had been laid, there was no occasion for it to do so, as there had been no report about the operation of the water main in that time. Mrs Turano argued that Sydney Water was liable for having created a “hidden danger”. But the High Court found the real cause of the incident – namely the presence of disease in the tree’s root system – was not readily observable; and that its mere presence did not provide justification for holding Sydney Water liable after an interval of 20 years. As a result, the High Court found Sydney Water did not owe a duty of care to Mrs Turano because the consequences of its actions in 1981 were not reasonably foreseeable; and because Mrs Turano was not a “neighbour” within the well-known principle in Donoghue v Stevenson. [The case of Donoghue v Stevenson in the British House of Lords in 1932 established “neighbour” as individuals who would be so closely and directly affected by an act that it should be considered when the act or omission is being planned. – Editor] April/May 2010
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lawNEWS
Was it cigarettes or dust? If Mr Cotton smoked 15 cigarettes a day for 26 years, he would have consumed 142,440 cigarettes. If he smoked 20 cigarettes a day, he would have used up 189,920 cigarettes. The court declined to blame asbestos exposure
You’ll have to prove it The High Court weighs up whether smoking or asbestos was the cause of death By Deborah Templeman, a partner in the Perth office of Minter Ellison THE HIGH COURT HAS REAFFIRMED the need for plaintiffs to prove that negligence more probably than not caused injury, even in cases where science and medicine struggle to attribute the cause. Last month the court handed down a unanimous decision in the matter of Amaca & Others v Ellis; The State of South Australia v Ellis; and Millennium Inorganic Chemicals Ltd v Ellis – a case on appeal from the Court of Appeal of Western Australia. Minter Ellison’s Perth office acted for Amaca in its successful appeal to the High Court. Mr Cotton died in 2002 of lung cancer. 54
He had smoked between 15 and 20 cigarettes a day for more than 26 years. He had also been exposed to asbestos fibres in the course of his employment with the State of South Australia, while working with asbestos cement pipes manufactured by Amaca (James Hardie) and Millennium Inorganic Chemicals. The issue for the High Court was causation and whether the plaintiff had established at trial that it was more probable than not that exposure to respirable asbestos fibres was a cause of Mr Cotton's cancer. More particularly, the court needed to decide whether it had been shown to be more probable than not that the negligence of each or any defendant was a cause of Mr Cotton contracting lung cancer. The High Court held that causation was not established against any defendant. The evidence did not establish facts which positively suggested it to be more probable than not that the negligence of any defendant was a cause of Mr Cotton’s cancer. The court held that to say exposure to asinsuranceNEWS
April/May 2010
bestos may have been a cause of the cancer was not a sufficient basis for attributing legal responsibility. The High Court also said the knowledge that asbestos inhalation can cause cancer did not mean that it was the cause in the case at hand. The court made it clear that its role is to decide a claim and make a decision on causation according to the legal test (the balance of probabilities), even when medicine and science cannot attribute a cause. In order for the court to do this, it can look to scientific as well as medical evidence. The main points to take from this case are: • The test for legal causation in Australia has not changed; • In order for the court to make a decision on causation it can look to medical and other scientific evidence for guidance; and • In order for negligence to be considered causative in law, it must be more probable than not that it caused the plaintiff’s condition. The mere fact that it could be a cause is not sufficient.
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companyNEWS
5 liabilities, one policy UAA to the rescue with a new professional package SADDLED WITH COMPETING STATE AND federal safety laws, the construction industry’s obligations are a difficult challenge for even the biggest companies. Exacerbating the legal minefield is a complex collection of liabilities that often must be covered by different policies. However, the release of the new ProCon professional liability package aims to untangle this insurance conundrum for site managers. Combining five liability covers in one 56
package, ProCon provides a one-stop shop insurance policy for those working in the mobile plant and machinery industry. The new cover, released by Underwriting Agencies of Australia (UAA), wraps broadform, professional civil, directors’ and officers’, statutory and employment practices liability into one package. “It’s a very flexible product,” UAA National Manager Phil Turner says. “The broker and the client can choose which covers they take rather than be forced to take all of them. “We’ve developed this in response to continued request from clients to have cover for professional indemnity and statutory cover. “ProCon also helps close any gaps the insuranceNEWS
April/May 2010
client may have between liability cover and professional indemnity cover.” UAA designed ProCon to provide a greater shield against liability suits and tailored it for small to medium-sized operators. “ProCon addresses key business pressures arising from corporate governance demands, uninsured exposures, financial losses that could go beyond total business assess, contractual and statutory requirements, business diversification and risk management,” Mr Turner says. The policy provides limits of up to $50 million in broadform liability and up to $5 million in professional civil, D&O, statutory and employment practices liability.
Lawsons FP Oct09:Layout 1 22/10/09 PMAMPage 1 57 INMAG April2010:page layouts 30/3/104:16 9:34 Page
Lawsons Underwriting Australasia Limited is continuing to provide the following: Labour Hire / Recruitment Combined Liability Package (Vero)
HELP cover for companies that use Labour Hire (Vero)
Our combined package caters for both blue and white collar and includes the following:
Our Host Employer Liability Policy (HELP) covers the liability that the host has if a labour hire and/or contractor gets injured whilst working for them. The benefits of this are:
• • • • • •
Public and Products Liability Professional Indemnity Directors and Officers Liability EPL Fidelity ($250,000) Representation Costs at Inquiries ($250,000) • Statutory Liability ($250,000) • One policy, one insurer, no gaps
• $5,000 standard deductible • No need for indemnities • PL Insurance protected from claims • Cover can be initiated by Host or labour hire provider • Better risk and claims management
Public and Products Liability (Lloyd’s) We specialise in the following: • Nightclubs (includes using own security) • Cleaners (includes shopping centres) • Rail (includes rail contractors) • Engineering • Hotel Groups • Chemicals • Waste Management • Importers/wholesalers
For further details contact one of the following or visit our website on www.lawsonsuwa.com.au: Kevin Corkery 02 8850 0729 kevin.corkery@lawsonsuwa.com.au
Carolyn Meharry 08 9420 8010 carolyn.meharry@lawsonsuwa.com.au
Megan Gobbey 0409 914 899 megan.gobbey@lawsonsuwa.com.au
Lawsons Underwriting Australasia Ltd AFS Licence No. 329017
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companyNEWS
Dual moves into a full suite New travel and expat covers complete accident & health set SPECIALTY LINES UNDERWRITING agency Dual Australia has added corporate travel and expatriate covers to create a full suite of products within its new accident and health insurance division. The new policies add to Dual’s existing range of covers following its launch into the accident and health market in December. The corporate travel and expatriate covers featuring medical and emergency evacuation expenses are offered alongside group and individual personal accident insurance, journey and voluntary workers’ cover. Dual National Accident and Health Manager Clinton Evans says the policies offer additional benefits as standard, in step with the specialist underwriting agency’s strategy. “We don’t intend on coming in as number six in the market and we have designed a suite of products with additional benefits to make sure we are highly competitive,” he said. Dual Australia Managing Director Damien Coates says Dual developed the accident and health products in response to research that found high demand, even if it was low penetration. He attributes this to the unnecessarily complex way in which this type of product was supplied. Mr Evans is joined in Dual’s accident and health team by National Senior Underwriter Dominic Brannigan and Senior Underwriter Marita Elliott. He says more staff are undergoing training as part of a plan to eventually deploy nine accident and health specialists across Australia.
Have cover, will travel Sportscover fills a gap in the market for groups travelling together UNDERWRITING AGENCY SPORTSCOVER views its new group travel insurance product as a natural progression. Launched last month, the product is specifically designed for people travelling for sports and leisure activities. The group’s Australia Chief Executive Chris Nash says Sportscover moved to meet a demand from brokers for a group travel product. The product is designed to meet the particular needs of groups such as sports associations, who typically have very different needs to those of individual or family tourists. “Often people find their standard travel policy is not adequate,” he says. Because many standard travel policies don’t provide compensation for sporting injuries, they clearly fall short of clubs’ and associations’ requirements. The new policy includes benefits such as medical expense cover while training and playing, as well as replacement player cover.
Sportscover’s Australia Marketing Manager Martin Kelly describes the policy as a logical step. “We designed a sports travel policy based on our extensive knowledge of sport and to offer sporting injury benefits together with many standard travel policy benefits, including loss of baggage and loss of deposits. “This will primarily be for clubs or associations who want to have a quality specialist travel policy to cover them when they travel to tournaments and games.” Sportscover took care to ensure the group travel cover dovetails with existing personal accident wordings. Since setting up a Lloyd’s syndicate in 2006, the company has been quickly growing its geographic scope and range of policies. With operations in 15 countries, Sportscover is now a leading insurer of sport and leisure in places such as Ireland, Canada and Norway. Its British and Australian operations remain key markets. Mr Kelly says Sportscover’s association with Lloyd’s reinforces the specialist sports and leisure insurer’s proposition. “The strength of Lloyd’s is its impressive chain of security, which means that the huge resources of Lloyd’s back every one of our policies.”
Risk your business, Risk your life, By Tony Bourke 120 pages, RRP $29.95 THIS SHORT AND SHARP GUIDE OFFERS AN EASY-TO-READ INSIGHT INTO INSURANCE AND ITS role in protecting commercial firms from financial oblivion. Pitched at a readership of business owners and managers, it would appear there is a clear need among the target market. Insurance Council of Australia research in 2008 found 26% of small and medium enterprises have no general insurance cover, while that figure rises to 40% among sole traders, despite the epic cases of fires and flooding that have littered Australian history. Author Tony Bourke is well placed to dispense some much-needed words of advice. He’s a director of broking firm AIIB, and has more than 20 years of industry experience. He begins the book with an important premise: always arrange insurance for the things the firm cannot afford to pay to replace – including business income. From there, 11 sensible chapters take readers through the basics, including different policies, definitions and industry jargon, the claims process, broker selection, and insurance tips and pitfalls. Mr Bourke underpins all of this with an ever-present message: always utilise the services of an independent insurance broker. Given the alarming prevalence of underinsurance in Australia, this book succeeds in educating business managers about the importance of insurance cover and what to look for – including how to select a broker – without sending them to sleep. – JR
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SUMMIT 28
2807 su
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still
It’s what we cover and they don’t that sets us apart. At Summit, we promised at the outset we would provide excellent coverage, sensible premiums and first class service. We delivered. And will continue to do so, moving forward with flexibility and innovation as others strive to catch up. As a broker you know that flexibility is crucial when it comes to insurance for prestige homes. Their owners didn’t get where they are by wasting money, so how can they be expected to pay for cover they don’t need?
With Summit, they won’t. This will go a long way towards keeping your happy relationship with your clients. When you place your client’s cover with Summit you can be confident that our guidelines will not change. You’ll also enjoy peace of mind from one of the broadest covers available and the security of cover 100% through Lloyd’s. Summit Prestige Home Insurance is a specialist division of SRS Underwriting Agency Pty Ltd. ABN 89 113 929 516. AFSL 290518.
Enquiries welcome from brokers who want security, service, flexibility and a fast response. Contact Sue Hutchinson or Karen Kearins Free Call — 1800 815 678 Or visit our website for more information www.summitinsurance.com.au
SUMMIT 2807 2807 summit a4 advert-1b.indd advert 1b indd 1
16/2/10 4:31:14 PM
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Pacific Premium Funding opens in NZ Strong growth prompts the GE-owned specialist to cross the Tasman
PACIFIC PREMIUM FUNDING HAS launched operations in New Zealand, describing the move as a critical part of the company’s growth plans. Managing Director Stuart White says the dynamics of the NZ market are a good fit for Pacific’s service and technology proposition. “In entering the NZ market we aim to become the funder of choice and we look forward to building strong, long-term relationships with local intermediaries, as we did when we launched in Australia in 2001,” he said. Pacific has appointed Quenten Watkins to manage the NZ business. The company’s
former South Australia State Manager has more than 20 years’ experience in premium funding, and has relocated to Auckland to take on his new role. Now part of financial services company GE Capital Australia and NZ, Pacific Premium Funding was established in 2001 by Mr White and Grant Burley, who is now Chairman of the company. Pacific has since experienced strong growth to become recognised as one Australia’s largest providers of premium funding, which the company attributes to “personalised service and technological innovation”.
More than 60,000 businesses currently access Pacific’s short-term funding products, while the company operates in partnership with more than 1100 intermediaries. Mr White says expansion across the Tasman “reaffirms Pacific’s commitment to being a specialist in the insurance premium funding industry”. “It also reinforces our parent company GE Capital’s commitment to the NZ market.” The company has confirmed existing GE insurance premium funding operations in NZ will be combined with the new Pacific business.
All eyes on the job Accolades greet a new jobs service from insuranceNEWS.com.au A NEW JOBS WEBSITE DEVELOPED BY insuranceNEWS.com.au HAS proved to be an outstanding success, with recruiters and jobseekers praising its ease of use, economy and effectiveness. The jobs site has been developed by the web team at insuranceNEWS.com.au – the online partner of this publication. Within a week of its launch last month it had attracted more than 20,000 unique visitors, while professional recruiters and insurancerelated companies of all sizes took advantage of a free introductory offer. “The first few weeks has been a busy but very satisfying experience,” says Marketing and Communications Executive Karin Brawn, who masterminded the development of insuranceNEWS.com.au/jobs over the past year. “All the feedback has been positive. People like the fact that we charge only $50 or less an ad, and that it’s so easy to access and use.” Ms Brawn says initial feedback from industry companies and professional recruiters suggested a jobs website targeted solely at the risk insurance industry “was long overdue”. “What was needed was a facility reaching a large enough target audience,” she says. “And the only one that reaches across risk insurance 60
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and has a large enough catchment was insuranceNEWS.com.au, which has more than 14,000 subscribers and many more ‘casual’ visitors.” The new site has been developed to give advertisers oversight of their ads, and its simplicity has made it an outstanding success from the start. “It found its place in the jobs market immediately,” Ms Brawn says. “People tell us they really like it – and the fact that placing an ad is so economical. “Along with recruitment agencies, companies of all sizes are using it, from big insurers and brokers to small suburban brokerages. We’re also attracting companies wanting to find people with quite narrow specialties.” The take-up by industry people looking for a career change or something with greater challenge has also been very pleasing, she says. “The site’s great value is that it’s specific to one industry, so people know they’ll find jobs here that are specific to their interests. “We’re providing a service to the industry that didn’t exist before, and we’re taking some of the pain out of the recruiting and job hunting process. Everyone’s benefitting.” April/May 2010
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The reinsurance party-stopper If you suspect reinsurance might be dull, Heinrich Eder will be happy to talk you around By Jeff Morse HEINRICH EDER HAS A PASSION FOR insurance and reinsurance, but that doesn’t count for much when people at parties ask what he does for a living. At least not initially. The unglazing of eyes happens when the Managing Director of Munich Holdings of Australasia explains the unpredictable, pervasive and international nature of his business. His enthusiasm about the world of reinsurance is infectious, and it’s an enthusiasm he first experienced when he applied for a job at Munich Re in 1980. “I had studied economics and I was looking for a job, and I found job ads from some major reinsurers in Germany,” he told Insurance News. “I applied without knowing really what reinsurance is.” The fresh-faced graduate from Munich’s Ludwig-Maximilians University was attracted at first by the international prospects highlighted in Munich Re’s advertising. Then came the interview process, one Mr Eder describes as “diligent” – and something clicked. “I think what felt right for me was the Munich Re’s Heinrich Eder: concern at some population enthusiasm of the people who intercentres’ exposure viewed me, and there were many,” he said. “It impressed me how enthusiastically “Look at those built-up areas. If a big they talked about their own jobs and their storm hits, for example, you question company.” whether certain policies need to be changed Thirty years and quite a few countries – to move away from highly exposed areas later it’s the boy from a rural community that are maybe not insurable anyway.” close to the Austrian border who talks with Mr Eder says the built-up area around passion about reinsurance and Munich Re’s Brisbane and the Gold Coast stands out as place in it. being particularly risky, with an exposure to As material for party conversation goes, category five cyclones and potential insured the lack of a satisfactory model for bushfire losses worth billions of dollars. risk might prove a bit dry for some. “One day it’s going to happen. Hopefully But if anyone could attract attention not this year, but in 20 years or five years or away from the party pies with a swift critique 100 years. We don’t know when, but it will of Australia’s response to the challenges of happen.” climate change, it’s Heinrich Eder. There’s no such thing as an average day “I think overall Australia is responding at the office for Mr Eder. “It’s a mixture of well, but of course it could be responding customer contact, discussing issues in the infaster,” he says. insuranceNEWS
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dustry, human resource issues and developments in the world.” The Australian operation is in constant touch with its head office in Germany, but also draws on expertise from various other parts of the group around the world via topic networks, centres of competence, underwriters’ gatherings and leadership summits. Listed by Insurance News in December as one of Australia’s 20 most influential risk insurance leaders, Mr Eder is well regarded across the industry for his knowledge and willingness to participate in industry affairs. He sits on the boards of the Insurance Council of Australia and the Australian and New Zealand Institute of Insurance and Finance. And he’s enthusiastic about the new generation of professionals seeking careers in reinsurance. Unlike himself 30 years ago, they are expected to know what reinsurance is, what the company is all about and issues the industry faces. But on the strength of his own experience he can’t come to grips with people’s reluctance to fully embrace an international career. “I find it regrettable that while many people say they are interested in such an experience, when it comes time for them to go somewhere they say that ‘at this stage it doesn’t fit into my lifestyle’ or whatever.” The expatriate life brought Mr Eder to Sydney in 2003 after eight years in Japan. Non-work time is spent “trying to relax, spend time with my family, go to the beach, play tennis or both”. Beyond insurance and reinsurance, he has a passion for soccer, although he has hung up his boots after 20 years’ playing competitively. He says he’ll be closely following the progress of Germany and Australia in the World Cup when it kicks off in Cape Town in June. There’s no risk of that not happening. 61
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peopleNEWS Tickle time for the up-and-comers Vero spruiks the industry’s biggest prize for the best Young Professional broker The art of making cocktails is less of a mystery to Young Professional brokers in Victoria, thanks to Vero. The longtime sponsor of the Warren Tickle Memorial Award entertained the brokers in Melbourne recently with a cocktailmaking class. But there was a semi-serious side to all that head-spinning learning: Vero was alerting the industry’s up-and-comers to the fact that it’s time to start preparing submissions for the annual Warren Tickle prize, which seeks the industry’s best young brokers. Working with the National Insurance Brokers Association, Vero makes sure all the careerenhancing experiences of the award selection process are worth the effort, offering the winner a trip for two to London to sample all that the centre of the risk insurance industry’s known universe has to offer. Chin chin!
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As Sterling continues to grow, so does our pen to write business
• Public and Products Liability • Contractors Plant and Machinery
• Professional Indemnity • Directors’ and Officers’ Liability
Contact us today on 02 9950 4000 or visit our website www.sterlinginsurance.com.au to find out more. “Sterling Insurance is a specialist underwriting agency dealing exclusively with insurance brokers in liability, professional indemnity, contractors plant & machinery and directors’ & officers’ liability.” AFSL: 237880
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peopleNEWS
Steadfast sets records in Perth AUSTRALIA’S LARGEST BROKER CLUSTER group took over Perth last month, with more than 1600 industry professionals converging on the Western Australian capital for the annual Steadfast Convention. The voluminous Perth Exhibition and Convention Centre wasn’t too stretched to deal with the influx, although the largest exhibition area ever built for an insurance industry event did seem to stretch into the far distance. Steadfast is claiming the largest conference attendance in the Australian general insurance industry for the Perth conference. The four-day program included a day of closed meetings for members, a wide range of technical and motivational speakers, plenty of time to visit exhibition stands, dinner entertainment that included Australian pop star Vanessa Amorosi, and excellent networking opportunities. Speakers at the convention included Wesfarmers
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Managing Director Richard Goyder and former Federal Treasurer Peter Costello. Convention Chairman Greg Stewart says the Perth event – the second held in Perth in four years – attracted about 90 exhibitors. He says the annual event is being increasingly seen as an ideal opportunity for people from all arms of the industry to network and learn. The opening morning of the convention was rocked when Chief Executive John Phillips announced his decision to retire at the end of the year after going on pre-retirement leave from July 1 – an announcement that led to a standing ovation from the audience. Steadfast also took advantage of the gathering to announce its young “top achievers” awards. Six young professionals were recognised for achieving high marks in the Australian and New Zealand Institute of Insurance and Finance’s Diploma of Financial Services (Insurance Broking) course.
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Benjamin Bowen of Whitbread Insurance Brokers was presented with the institute’s Young Insurance Professional Scholarship and an “outstanding achievement” award for his mark in the diploma module “provision of customer advice”. Vanessa Andrews of ANCA Insurance Brokers in Hobart won the top award for “law and regulation for brokers”, Nick Maisey of Australian Reliance in Perth for “risk assessment and management”, and Ted Eftimiadis of Midas Insurance Brokers in Melbourne for “broker operations management”. The award to Joanna Kelly of Brisbane-based Gardner Insurance Brokers recognised her “insurance products” knowledge, while Bree Williams of Finn Foster & Associates in North Sydney won the award for “broker claimshandling”.
Next year’s Steadfast Convention will be held in Melbourne from April 2-5. Images courtesy of Kevin Chamberlain
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QBE Q BE Australia Australia Proud P roud tto ob be e yyour our N NIBA IBA G General eneral Insurer Insurer of of the the Year Year 2 2002-2009* 002-2009* Australian Banking Best Company 2008 A ustralian B anking & Finance Finance B est General General Insurance Insurance C ompany 2 008 T o llearn ear n m ore a bout Q BE’s latest latest iinitiatives nitiatives c ontact yyour our llocal ocal To more about QBE’s contact QBE Q BE representative, representative, or or vvisit isit www.intermediary.qbe.com.au www.intermediary.qbe.com.au QBE IInsurance QBE nsurance (Australia) (Australia) L Limited imited A ABN BN 78 78 003 003 191 191 035 035 A AFS FS L Licence icence No No 2 239545 39545 **Awarded Awarded tto oaQ QBE BE G Group roup C Company ompany
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Leading broker John Whitbread dies VETERAN MELBOURNE BROKER John Whitbread died in February after a short illness. The founder of Whitbread Insurance Brokers is survived by his three children, Angela, Claire and John Paul, and five grandchildren. A statement from his children says Mr Whitbread, who was 69, was loved and respected as both a businessman and as a family man. They say he will be remembered as “a strong character with an equally strong sense of fairness, a great protector of his family and those who worked for him, a beloved husband and father, a treasured grandfather and a valued counsellor and mentor among his business associates”. Mr Whitbread founded the company in 1978 with his wife Margaret, who died in
1998. Today Whitbread Insurance Brokers employs 65 people. Mr Whitbread told Insurance News late last year that he and his children had been considering various management models when he decided to retire. “In the end I made the decision for myself that I had built this company to be a family company, and I wanted a member of the family to run it.” Angela Whitbread is now Managing Director of the company, her brother John Paul is General Manager Commercial and Claire is Human Resources Manager. Mr Whitbread was an avid sailor, but it was another interest – farming – which dominated his attention outside working hours over the past 20 years. Mr Whitbread developed properties at Carslruhe, Sutton Grange and most recently at Willow Grove in East Gippsland.
Award honours memory of Tom Payne Companies contribute to build a special surf lifesaving award SYDNEY’S NORTH CRONULLA SURF Lifesaving Club has established the Tom Payne Memorial Grant to honour the memory of a popular local insurance broker. Mr Payne, who died of cancer in December 2008, was a director of Miranda broking firm Austbrokers SPT and a keen member of the local surf lifesaving community. He found success both in sport and in business. Regarded as a great surfboat sweep, his achievements included a state championship, representation of New South Wales and an Australian Open teams medal. He would later remain an active club member and served a three-season term as club president. His business partner, Brian Salisbury, remembers Mr Payne as “a bit of a larrikin and a fun bloke who was well known in the insurance business”. As a lasting tribute to his colleague and friend, Mr Salisbury decided to establish a memorial fund, and says his door-knocking of the major insurers exceeded his expectations. Austbrokers SPT provided $10,000 in seed funding which was quickly followed up by a substantial contribution from the Austbrokers national office. Generous donations from insurers Allianz, CGU, QBE, 70
Cathy Payne joins North Cronulla Surf Lifesaving Club President Martin Fulton and Brian Salisbury with the Tom Payne Memorial Grant.
Vero and Zurich would follow and the fund steadily climbed to $62,500. “Everyone stuck their hand up, which was very pleasing and a great statement,” Mr Salisbury said. “It was probably double what I’d hoped for.” The fund will now provide an annual grant to deserving members of the North insuranceNEWS
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Cronulla club, allowing them to pursue their goals in sport, study, or other fields. In a tribute to Mr Payne, the inaugural award to Luke Moses provided the talented young sportsman with a new kayak that he almost immediately put to good use competing in the Australian junior kayak team.
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Tasty start for Zurich’s Zenith year Chef Luke Mangan is regarded as one of the world’s best, and brokers around Australia are able to agree, thanks to Zurich. The insurer kicked off this year’s Zenith program with special dinners in each state capital cooked for Zurich’s broker guests by the flamboyant chef. Hosted by Chief Executive David Smith, the dinners were an opportunity for Zurich managers to explain this year’s Zenith program, and for Luke Mangan to cook some of his inspiring signature dishes. Zurich’s Zenith program provides brokers with educational and industryspecific training. Activities range from a fitness bootcamp to a CEO’s forum, with plenty of technical sessions available to build brokers’ skills thanks to the input of experts. These pictures were taken at Melbourne’s iconic Circa The Prince restaurant in St Kilda.
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Brokers look and learn at Vero expos Vero knows how to get the crowds out of their offices. All it has to do is organise some valuable learning and networking opportunities and everyone’s happy. Just ask the 700 or so brokers and other intermediaries who attended the company’s expos in Sydney and Melbourne in February. The expos allow Vero to provide CPD-accredited seminars – covering such vital subjects as claims management, business succession and the global economy – and to display and discuss some of its enhanced suite of products and services. Executive General Manager Intermediated Distribution Andrew Mair says feedback from brokers following this year’s expos has been outstanding. “It’s clear by the growing number of attendees that they see this as a worthwhile, informative and enjoyable event.”
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Sam Pentecost Contributor
Dear son, I’m writing this to you from the top of the hill behind the homestead. Apart from the nice view from up here, it’s pretty much the only place on the station that’s dry enough to sit down. It hasn’t rained here for six years, as you well know, but it did rain rather a lot upstream last month, and a few days ago the floodwaters reached here. The creek burst its banks and it’s been flooding ever since. They don’t call this place Duck Flats for nothing. The result is that the house and sheds are, as they say, inundated, and the only other place that’s dry is the homestead roof. And the roof is too rusty to sit on anyway, because your father is still refusing to fix it in the forlorn hope that a hailstorm will come one day and the insurance company will replace it for nix. He’s taken to keeping a couple of old golf balls in a sock by the front door, waiting for that rumble of thunder in the distance so he can climb up and help nature along with a spot of hammering on the iron. With his luck he’d fall through, anyway, and the health insurance wouldn’t cover that, would it? Your Uncle Dave might only live a few hundred miles further north, but he’s been a lot luckier than us. It never seems to stop raining in southeast Queensland and the government up there is handing out money like they’ve won the lottery and shouting the bar. Dave says he’s really enjoying the weather, although his sheepdogs don’t much like the flippers he makes them wear. But it’s the only way to round up the sheep, who’ve discovered how to float over the fences. They keep getting run over by the SES dinghies zooming along the main road. His insurance company has come through with a fat offer to pay off his flood claim and he’s flying to Bali for a month to celebrate just as soon as it stops raining. He says he has to stay around in case there’s more handouts from somewhere. Dave has made more from the rain in one hit than he has from the wool sales over the last few years. It’s hardly fair on us, but. We seem to be getting nothing more than Dave’s cast-off water. I called our local broker when it started coming under the door and the phone line was still working, and he just told me to read the policy. I thought that’s what he was for, but he says our insurance company investigates flood claims on a case-by-case basis, and the loss adjuster will be out to visit when things dry out a little, and what did I expect when I bought insurance based entirely on price? To top things off nicely, your sister came home the other day from the Queensland coast. It was a big surprise to see her rowing up the driveway, I can tell you. She says a cyclone came through her place in Mackay – through the French windows at the back and out the front windows, I gather, taking most of the walls with it. She found her lounge suite a block away, but the loss adjuster told her it’ll be fine with a good hose-down, which doesn’t sound right. Her boyfriend’s nowhere to be found, which I suppose is a blessing of sorts, but she thinks he might just have taken the opportunity to shoot through. So now I’ve got a cyclone victim paddling around the house from room to room moaning about being lonely and gosh isn’t everything wet. She says the insurance will pay off the mortgage on what’s left of her little place in Mackay, and now she’s thinking of moving west. I thought she meant out Broken Hill way, but she says no, she means Perth. I hear on the battery radio there’s been a big storm in Perth, and people lost roofs and things. Thank god for insurance, I say. How insurance companies ever make any money I’ll never know. The only time I’ve ever been to Perth it was so hot and still even the blowies couldn’t fly, and I felt quite homesick. Which brings me to your lovely letter that was dropped from the helicopter yesterday along with the survival rations. Melbourne is such a long way from here, and I found it hard to picture you in my mind walking through floodwaters up to your waist to catch a tram home. I read your letter to your father, making special emphasis about your request for a bridging loan while your little shop in the city gets back on its feet. Your father says haven’t you ever heard of business interruption insurance and do you think he came down in the last shower. Which is kind of ironic, now I think of it. He says your description of the hail was very interesting, and what a shame your car was under shelter but you could still quite easily solve your financial problem with an old sock and two golf balls. All I can think of is what’s causing all these floods and storms. Is this that global warming they keep talking about? Because if it is I think the National Party has the right idea in just outright banning it. We obviously don’t need it, and we never had all these storms under Howard. Much love, Mum
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