DEC/JAN 2009/10 - Insurance News (the magazine)

The most influential people in risk insurance Today’s brokers: survey results

December 2009/January 2010

Earthquake: the Newcastle experience

Saving the coast: industry’s role

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Contents 8 Newsmakers » 14 Looking over the precipice » A parliamentary committee calls for urgent action on coastal climate risk and sees a key role for the insurance industry.

16 20 years later, Newcastle remembers »

The 1989 earthquake stirs memories of chaos and devastation.

20 It’s all in the timing »

Victoria’s latest review of fire services funding has again been scheduled around a state election.

22 A pain in the ACC »

The New Zealand Government has to fix its sick compensation system.

24 Voiding the warranty »

Builders’ warranty insurance faces major upheavals as insurers pull out and NSW axes the privatised scheme.

27 Top 20 most influencial people in the Australian risk insurance industry »

They’re the individuals who can’t be ignored, because they’re powerful or persuasive – or both.

42 Tussling for talent »

Big insurers are set to fight it out for the high performers as the industry emerges from a recruitment dip.

44 Is PI worth the risk? »

Some industries are finding it difficult to get professional indemnity insurance, and it’s not likely to get cheaper.

specialREPORT

37 Today’s insurance broker » The Macquarie Relationship Banking Insurance Broking Benchmarking Survey.

lawNEWS

52 Legal eagles spread their wings » 54 Britain wins the battle of Lexington » 56 One.Tel: a matter of business judgement »

companyNEWS

58 Hard times drive safety focus » 58 Back in the centre » 59 Still growing fast »

peopleNEWS 60 62 64 66 68 70 72

Generating togetherness » Vero kicks off 2010 young talent search » Well equipped » CGU always a winner at the cup » Express ride for 30 years » Big night out as law and insurance mingle » Kiwis hail their best and brightest »

74 maglog »

46 Fees v commissions »

Financial planners are banning commissions. Should insurance brokers follow suit?

48 So much for worthwhile advice »

NZ financial advisers take a hit as ‘secret shopping’ study exposes some big problems.

50 No poor excuses »

Taxes aren’t the only issues for low-income earners seeking insurance.

The most influential people in risk insurance Story page 27

December 2009/January 2010

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newsmakers at insuranceNEWS.com.au Pirate industry grows: Piracy is on the rise across the world, with fishermen living in poverty emulating their counterparts in Somalia by taking up arms.

For marine underwriters, the spread of piracy has been just another problem in a difficult year, with the global economic crisis slowing international trade and leading to ships being laid up in numbers not seen since the 1970s. American Institute of Marine Underwriters Chairman Dennis Marvin says this has led to a smaller premium pool, hindering efforts to raise rates.

Piracy is now becoming more common off the coasts of Brazil, Nigeria, Thailand and Vietnam.

Somali pirates are ranging farther afield, mounting 75 attacks in the past year in the wider Indian Ocean region – a 625% increase on 2008.

Insurance Council of Australia Chief Executive Kerrie Kelly is moving to London to become Director-General of the Association of British Insurers (ABI).

It’s one of the most highprofile jobs in the massive UK financial services industry, and according to the UK Insurance Times, Ms Kelly is “stepping into big shoes”.

Her predecessor at the ABI, Stephen Haddrill, “has lobbied government hard and performed as the industry’s public face, and his legacy will be marked by his expert renegotiation of the flooding statement of principles as well as work on pleural plaques”, according to the trade publication.

“What’s more, Haddrill’s very public warning on the excessive capital demands of Solvency II is still ringing around Westminster.”

Ms Kelly joined ICA in 2006 from the Financial Planning Association. ABI Chairman Archie Kane says she “will bring a unique perspective to the public policy debate in the UK and European Union, and her lobbying expertise will ensure the insurance voice is heard in Westminster and Brussels”.

Figure this

Reuters

Kelly goes to UK:

Big spill, then a very big bill The West Atlas jack-up oil exploration rig in the Timor Sea north of Australia is a mess after a 10week struggle to plug a leaking well finally succeeded. Now the company operating the rig, Thailand-based PTT Exploration and Production Australasia, is making an insurance claim for at least $170 million.

Working from another drilling rig, experts intercepted the well 2.6km below the sea floor and injected heavy mud into the broken pipe to extinguish the oil and gas-fed blaze onboard West Atlas.

But not before somewhere between 14,000 barrels (the company’s estimate) and 210,000 barrels (various

The bid that never was: With well over 100 acquisitions under its belt, QBE is the acknowledged master of the no-fuss takeover. But who could have guessed that one little speculative piece in a financial newspaper in November would set off a sharemarket feeding frenzy?

The Australian Financial Review

3.9 billion

Cost in dollars of the NZ Accident Compensation Corporation’s liability blowout in 2008/09

8

estimates) of oil and gas leaked into the sea.

The environmental catastrophe came just weeks after the Federal Government joined an international fund providing insurance to pay for coastal spills by oil tankers.

Federal Infrastructure Minister Anthony Albanese says membership of the International Oil Pollution Compensation Fund more than triples the amount of money available for clean-ups and compensation from $380 million to $1.4 billion.

About 200 oil tankers and chemical carriers pass through environmentally sensitive parts of the

Australian coast every year.

suggested last month it might be a good idea for QBE to look again at making a move on IAG, and the stockbrokers went, well, crazy.

After a couple of days of rocketing share process, QBE Chief Financial Officer Neil Drabsch stepped in, stating in a TV interview:

60

Percentage of the local market held by the top three general insurers

insuranceNEWS

“I think you’ll find that the returns to QBE on [merging with IAG], at any premium, would only give very modest earnings per share.”

Mr Drabsch says QBE will keep an eye on local opportunities, but right now the best prospects are off shore.

93

63 billion

Percentage of road accidents caused by driver error, according Value in dollars of buildings to fleet insurer Lumley endangered if sea levels rise 1.1 metres

December 2009/January 2010

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newsmakers at insuranceNEWS.com.au

AIG vanishes: On December 1, AIG – once one of the strongest, most valued brands in insurance – vanishes from the Australian scene after 50 years in the local market.

The general insurance arm of the former American Insurance Group, founded in 1919 in Shanghai by the legendary Cornelius Vander Starr, is now Chartis.

Axa wants Asian offspring That’s about the only thing to change, however.

Having cast off a brand that was made toxic by the nearcollapse of the New York-based parent company last year, company executives are now operating under a new corporate structure.

Chartis Inc has around 40 million clients in 160 coun tries and jurisdictions.

Vero scoops NZ pool Roger Bell (below at centre) is one of the veterans of the highly competitive New Zealand insurance market, and last month brokers recognised his achievements by giving him a cherished double.

His company took out the Insurer of the Year at the Insurance Brokers Association of New Zealand (IBANZ) awards in Auckland, and Mr Bell was voted the industry’s best professional.

IBANZ Chief Executive Gary Young says this year’s awards ceremony attracted more than 340 industry people, with the awards drawing a “particularly high standard of entries”.

The winners: Insurer of the Year: Vero; Broker of the Year: John Blackmore, CFS Risk Services; Insurance Professional: Roger Bell, Vero; Young Professional Broker: Deane Moyle, Aon; Young Professional Insurer: Andrew Pook, Zurich; Insurance Investigator: Ron McQuilter, Paragon; Loss Adjuster: Stephen Kay, Cunningham Lindsey; Broking Office: Rothbury Ashburton; Innovation: Crash Brokers; Support

Services: Smith & Smith. More pictures page 72.

Giant French insurer Axa SA is trying to buy its Australian-based subsidiary, Axa Asia-Pacific Holdings (Axa APH), with the intention of stripping it of its lucrative Asian assets.

At the time of going to press the local company’s independent directors were refusing to do a deal – although most analysts say it’s just a matter of how much.

The $11 billion “unsolicited and conditional” takeover proposal is being led by rival financial services company AMP, which would keep Axa APH’s Australian and New Zealand assets and pass on the Asian assets to Axa SA. Based in Melbourne, Axa APH is 56% owned by Axa SA and has offices in Hong Kong and operations in Singapore, China, India, Korea, Malaysia, the Philippines and Indonesia.

It’s a tricky deal for Axa SA, which previously tried to buy out the local operation in 2004 for $6.9 billion. It acquired a 51% stake in AXA APH's forerunner, National Mutual Life, in 1995, and agreed with the Federal Government to use the local business for its future Asian expansion.

Axa APH Chairman Rick Allert says the latest bid “has been received against the backdrop of recent weakness in global financial markets and before the growth of our Asian operations is fully

reflected in our profitability”.

Price is right at FOS: New General Insurance Ombudsman John Price says he aims to bring a consultative and open style to the role at the Financial Ombudsman Service (FOS).

“My aim is to consult and be available so people feel they are being listened to, and so we react appropriately to continue to develop services,” he says.

“Then they can trust our approach, our independence and our integrity.”

Mr Price faces an immediate series of challenges around the rollout of new terms of reference and guidelines.

Ensuring that timeframes for resolving disputes in general insurance don’t blow out will be a major consideration.

FOS Chairman Michael Lavarch says Mr Price is bringing a wealth of alternative dispute resolution experience and general insurance industry expertise to the role.

Until he joined FOS in 2004 Mr Price was a solicitor and partner at Maurice Blackburn & Co and practised in personal injury work for nearly 30 years. He was also a member of several state government committees and

advisory groups.

62,000

509

202

Number of vehicles stolen in Australia last financial year

Amount in dollars that insurers will pay in Victorian fire services levies this financial year

Amount in dollars the Victorian Government will pay for fire services this financial year

million

insuranceNEWS

December 2009/January 2010

million

9

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newsmakers at insuranceNEWS.com.au

News Ltd

Letter to the Editor

Ready for the worst Southeastern Australia was tinderdry at the end of last month, with most states already braced for a dangerous and deadly summer.

Adelaide, Melbourne and Sydney sweltered in the hottest November on record, with Sydney and Adelaide experiencing days with temperatures over 40 degrees.

While politicians in Canberra argued about the existence of global warming, about 130 fires burned throughout NSW, mainly in the central west. Two towns were evacuated and about 12,000 hectares was burned out, but only one house was destroyed.

Tasmania’s east coast experienced the state’s first major bushfire of the season, with three homes destroyed.

Melbourne sweltered one week

and drowned the next, experiencing its wettest November day in five years as nearly 60mm of rain fell in 30 hours.

Fire authorities throughout the southeast say rain hasn’t reduced the likelihood of large-scale bushfires.

Meanwhile, the Victorian royal commission investigating the horrific February 7 bushfires has released a discussion paper examining possible reforms to the controversial fire services levy, which is funded by the insurance industry and raises premiums past affordability for many people.

Most of the 65 insurance-related submissions tabled at the royal commission have called for reform of the levy, which is also charged on pre miums in NSW and Tasmania.

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

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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

Material in insuranceNEWS (the magazine) is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without the consent of the copyright holders.

The content of articles appearing in this magazine do not necessarily reflect the views of the Publisher. All statements made are based on information that is believed to be reliable and accurate, but no liability is accepted for any fault or omission. We also accept no responsibility or liability for any matter published in this magazine that reflects personal opinion.

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A McMullan Conway production

ISSN 1837-4972

10

I am writing regarding the article “Next time the bush burns” in the October/November issue of Insurance News.

The Bushfires Royal Commission ignored the Victorian Government’s malfeasance in the number one mitigator of bushfireinduced damage, which is controlled burning.

In fact, Victoria did not need this royal commission. It had two royal commissions, by Justice Stretton, into the Victorian bushfire disasters of 1939 and 1944.

The disasters then, as now, were caused by what Justice Stretton called “ridiculously inadequate” prescribed burning of forests. He wrote: “Fire prevention must be the paramount consideration of the forester.”

Thereafter, for 40 years, fuel-reduction burning was practised as a scientific forestry management measure. The result was that Australia’s bushfire mitigation and prevention performance became the envy of the world, and the standard by which other countries measured the effectiveness of their own policies.

This changed with the intervention of environmentalist influences in the Cain/Kirner Labor Governments, and then the cost-cutting of Jeff Kennett’s Liberal Government.

Biodiversity and other such environmentalist lingo were cited to reduce or stop fuel reduction burns in the Cain/Kirner years. Next the Kennett Government slashed the budget and staff of the responsible department, hobbling its ability to undertake prescribed burns.

In 1992, the Victorian Auditor-General found that the state’s Department of Conservation and Environment (now the Department of Sustainability and Environment) had cut expenditure on fire prevention by 23% over five years. In 2003, the Auditor-General found that the amount of prescribed burning had never met the department’s targets.

While prescribed burning does not stop bushfires, it dramatically reduces the bushfire intensity. Bushfires unmitigated in their intensity by controlled burning are typified by the wildfires that erupted on the extreme fire danger days of late February 2009.

None of this was reported on by the 2009 Royal Commission.

Considered from a purely financial perspective, the current policy trajectory prevents effective bushfire mitigation strategies, effectively opening the door to massive bushfire damage and correspondingly large insurance claims. This in turn feeds back into higher insurance premiums paid by consumers and businesses.

Even today, despite the losses of life and property in the Black Saturday bushfire of February 2009 in the Victorian Shire of Nillumbik, that same shire maintains tight restrictions on controlled burning for bushfire fuel reduction. Controlled burning practices which worked for decades have been, and continue to be, forestalled.

This is malfeasance, because the causal link between this policy and bushfire damage is clear.

insuranceNEWS

D

December 2009/January 2010

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Looking over the precipice A parliamentary committee calls for urgent action on coastal climate risk and sees a key role for the insurance industry

By Jamin Robertson

A view that’s getting closer: John Vaughan’s home near Byron Bay in New South Wales now overhangs Belongil Beach as erosion cuts away the cliffs. Like many residents in the area, he’s been at war with his local council, which wants to adopt a policy of “planned retreat” and has banned him from using rocks or a seawall to halt the erosion

14

n reality there is little of our coast left. It has all got groynes or sandbags, or they are pumping sand. It is a disaster. It is washed away, and that is the reality.

Not the words of a conservation activist, but those of Federal MP Jennie George, who chairs a parliamentary committee calling for urgent action on coastal climate-related risk. The committee’s new report, “Managing our coastal zone in a changing climate: The time to act is now”, binds an 18-month review into 47 recommendations.

And it carries a key message: national leadership is required in managing Australia’s coastal zone in the context of climate change.

Ms George’s committee, the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts, says in the report that it recognises the insurance industry’s key role in the issue.

It calls for a Productivity Commission inquiry into relevant legal and insurance issues and calls for new governance arrangements and improved management of the environmental impacts of climate change.

It is a valid consideration given the forecast increase in the frequency and severity of weather events due to climate change. Even more so when you consider 80% of Australians live in the coastal zone.

In a submission to the committee, insurer IAG estimates the value of Australian property exposed to rising sea levels alone is between $50150 billion.

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insuranceNEWS

The committee’s report acknowledges the potential adverse effects on insurance affordability and availability, and notes the sparse coverage insurance currently provides for some coastal risks.

“Given the estimated scale of economic exposure here, the committee emphasises that insurance coverage of storm surge, landslip and sea level rise events is therefore a significant emerging issue that needs to be examined further,” the report says.

Ms George declined an invitation to expand on the report when approached by Insurance News, saying she was “not in a position” to go beyond the recommendations now tabled ahead of a response from the Federal Government.

But submissions from the Insurance Council of Australia and IAG demonstrate the industry’s awareness of the challenges it faces.

Financial Services Minister Chris Bowen summed it all up in an address in Federal Parliament in late October, which he used to underline the Government’s push for a carbon pollution reduction scheme.

“The insurance industry understands that climate change is real and it understands that the community, business and government need to act,” he said. “It is clear that insurance premiums and the availability of insurance will be affected if there is no action on climate change.”

Allianz Australia General Manager Corporate Affairs Nicholas Scofield says severe weather events have the potential to cause “massive property damage” in Australia.

December 2009/January 2010

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Recommendation 19 The parliamentary committee report has recommended a Productivity Commission inquiry to examine a range of insurance matters.

They include: • Insurance coverage of coastal properties • Estimates of the value of exposed property • Insurance affordability, availability and uptake • Gaps in insurance coverage • Clear definitions of claim entitlement • Potential government bans on property development • Potential bans on at-risk property occupation • Gaps in available risk information

News Ltd

• Potential insurer market withdrawal

“If and when a large, damaging storm surge event does occur, the issue might gain the attention of governments.”

That risk appears to be mounting. A Swiss Re report titled “Economics of Climate Adaptation” has estimated climate risks could cost come countries up to 19% of GDP by 2030.

At the heart of the local issue lies Australia’s “insurance gap”, given insurance covers coastal property rather than land. As IAG points out in its submission, “the value of coastal buildings may be protected to some extent by insurance [but] the land value of properties is not insured at all”.

It proposes the logical solution of a coastal land value insurance scheme to counter coastal erosion. The insurer has restated an earlier proposition for an insurance fund to provide compensation for inundated land. The scheme would collect a regular levy from at-risk property owners who would cash in when their property becomes uninhabitable.

IAG proposes the scheme be government-operated or run in conjunction with insurers rather than operate as a stand-alone privatised scheme.

Because the risk of rising sea levels is a global phenomenon, IAG points out there is no scope for geographic diversification of risk on which private insurers and reinsurers ordinarily rely.

David Bresch, Swiss Re’s Head of Sustainability & Emerging Risk Management, told Insurance News cost-effective public works and intelligent land planning can further mitigate some of the risks facing coastal Australia.

Swiss Re has found measures such as beach nourishment, strict building codes and water barriers can have a major impact for relatively little outlay. Improving public awareness is one of the obvious initiatives, and one the parliamentary committee noted in its report.

“It’s not always obvious you might be at risk,” Dr Bresch told Insurance News. “We need to educate people to ask the right questions and make sense of the answers.”

But it is also clear that governments and insurers will require plenty of robust discussion of their own before they can see eye to eye. Insurers have in the past been critical of local government planning policies and are unlikely to rush unilaterally forward to cover risks that are spiralling beyond control.

“It is not clear that the insurance industry has a role to play in respect of damage arising from sea level rise,” Mr Scofield says. “Property damage from coastal erosion due to action of the sea is not something that is covered under existing home building policies.”

He says huge risks in some areas means “remaining gaps in the availability of flood cover are only ever likely to be closed through some form of public-private partnership”.

“It is certainly something that governments are likely to have to come to grips with over time if significant sea level rise occurs.”

On the basis of the scenes confronting parts of coastal Australia, the community will be loath to

wait much longer.

insuranceNEWS

December 2009/January 2010

Learning to weather the storm: Brokers in Sydney take notes at a special training seminar on climate change being presented

by Karl Mallon, a director of major climate change consultancy Climate Risk. The seminar is one of a series being run around the country for insurance brokers by Zurich Financial Services Australia. A recent survey by Zurich and the National Insurance Brokers Association found 25% of brokers have already started discussing climate change risks with their clients, but many others said their knowledge of the phenomenon and its impacts was limited. Only 20% of brokers said they feel confident talking to their customers about climate change risks.

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20 years later, Newcastle remembers The 1989 earthquake stirs memories of chaos and devastation

By David Darragh t was mid-morning on December 28, 1989. The bustling city of Newcastle was going about its normal business when an earthquake measuring 5.6 on the Richter scale struck. Thirteen people died as buildings across the city collapsed. Another 160 were injured and about 50,000 buildings in Newcastle were damaged or destroyed.

Twenty years on, local insurance broker Reg Mawhinney remembers the aftermath of the quake as a chaotic and difficult time.

About 300,000 people were affected – around 1000 were left homeless – and the damage bill was about $4 billion. The insured cost was estimated at around $1 billion.

The effects of the quake were felt over an area of about 200,000 square kilometres, with isolated reports of ground movement up to 800km from Newcastle. Damage to buildings and facilities spread across 9000 square kilometres.

Mr Mawhinney says no one was prepared in any way for the earthquake – it took both the community and the local insurance industry by surprise.

“It was certainly a very chaotic time and a lot of people were dumbfounded to think that an earthquake could happen in the Newcastle area,” he told Insurance News.

Another local broker to bear the brunt of the post-earthquake chaos was Trevor Markey, who remembers the period as “just total disarray”.

“Hopefully, they would be better prepared for it if it ever happened again,” he says. “But the insurers were very generous and accepted most

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things that were claimed.”

Both Mr Mawhinney and Mr Markey were badly affected by decisions to close off entire areas of the city.

The central business district was closed for 14 to 21 days, and that’s where most of the insurance brokers’ offices were,” Mr Mawhinney says.

But it could have been much worse.

“Newcastle was very, very fortunate,” Mr Mawhinney says. “It was school holidays and there was a bus strike which kept people out of the city. Also, that evening the Workers Club [which collapsed, killing nine people] was booked out for a concert and if the earthquake had happened that night there would have been 700 to 800 people at the concert.”

In the aftermath of the disaster some brokers hired alternative premises outside the city and many loss adjusters and insurance companies came in from out of town for a few days.

“It was a very awkward situation,” he says. “It was difficult to communicate and people were generally very panicky and over-reacting. Some people’s personalities changed after the earthquake.”

He says people were nervous about possible aftershocks – one occurred the next day – and the ground was still swollen and settling down.

Mr Mawhinney says around 60,000 insurance claims resulted from the quake, some from as far away as Sydney’s northern beaches. He worked long hours for nearly 2½ years on earthquake-related claims – on top of his regular workload.

One story from the disaster he does recall fondly is advising a local client only six days before the earthquake that his business was not covered for loss of profits. The businessman took out insurance allowing 26 weeks at $15,000 a week in loss of profits.

With the state and federal governments looking on closely, many of the insurance claims were settled quickly, he says. But one of the mistakes people

insuranceNEWS

December 2009/January 2010

News Ltd

INMAG Dec09:page layouts

Top: The remains of Newcastle’s Broadway Hotel after the quake Above: Broker Reg Mawhinney remembers 2½ years of hard work dealing with claims

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made was repairing damage such as superficial cracks too quickly, because the cracks continued to expand for up to three months after.

“We can say that we were doing the right thing by the people but perhaps the claims should have been delayed a little bit.”

Mr Mawhinney says the insurance industry is now much more capable of dealing with a natural disaster in a major population centre. The June 2007 storms which hit the Newcastle region showed the industry can now bring in outside help quickly.

Mr Markey, Executive Chairman of Markey Insurance Brokers, told Insurance News that he initially didn’t realise what had happened.

“We could hear windows falling out of the QBE building and smashing on the roadway. We thought there had been an explosion.”

He and his staff couldn’t get into their offices for some time after the quake, and they had to divert calls to their personal phones to start dealing with claims. His company dealt with 6000 earthquake-related claims in total.

Mr Markey remembers it as a difficult time because brokers and adjusters came to Newcastle from across Australia as well as Britain and South Africa.

“Not too many people carry [loss of] profits insurance. It did put some people out of business but luckily there were not too many.”

He says Newcastle’s central business district never recovered and many buildings are now derelict.

Earthquake and tsunami hazard specialist Professor Paul Somerville told Insurance News the Newcastle earthquake still ranks as one of Australia’s most costly disasters.

“It even compares with Cyclone Tracy, it’s up in the league of the biggest events in terms of loss. The loss in the 1989 earthquake was large due to the fact that until quite recently there had been no seismic provisions in the building code... buildings had not been built to withstand an earthquake.

The Newcastle earthquake had a moderate magnitude (5.6) and the fault that produced it was probably only a few kilometres long. The biggest faults in Australia may be 100 kilometres long and could produce magnitude 7.5 earthquakes.”

He says Australia has experienced bigger earthquakes than Newcastle, such as the one that occurred at the Western Australian town of Meckering (6.8) in 1968 and three that occurred near Tennant Creek in the Northern Territory (6.5) in 1988.

Professor Somerville, the Deputy Director of Macquarie University’s Risk Frontiers, says that despite the introduction of seismic provisions in the building code in 1979, buildings are still being built to withstand relatively low ground movement levels and the potential for damage and loss from an earthquake is still quite high.

“Buildings in Australia are historically vulnerable because many are unreinforced masonry or brick and can quite easily collapse,” he says. “There are still large numbers of these buildings in Australia.”

He says the code looks at the annual probability of an earthquake of 1 in 500, or an earthquake return period of 500 years.

Using recorded earthquake locations is a “fair guide” to where they might occur in the future, but locating active fault lines is also important because the historical record of earthquakes is very short.

Earthquakes could potentially occur on active faults in many locations where earthquakes have not occurred in recorded history.

“There is a remarkably large number of active 18

News Ltd

INMAG Dec09:page layouts

faults in Australia, and work on finding them is just beginning,” he says.

Only a handful of geologists are looking for active faults, and more geologists and more funding is needed for such investigations in urban areas.

“Now is the time to focus on urban areas because if we find active faults in those areas we know there could be fairly large earthquakes in those areas in the future.”

Professor Somerville says Risk Frontiers leads the way in Australia in catastrophe loss modelling.

Since the time of the Newcastle earthquake, development of these loss models has greatly improved insurance companies’ ability to estimate loss from natural disasters such as earthquakes and tropical

cyclones.

Footnote By adjusting historical natural disaster insured losses in Australia for changes in the number and value of dwellings over time and for variations in building standards in tropical cyclone locations, Risk Frontiers estimates what insured losses might be if each event had occurred under current conditions.

The estimated insured loss for a Newcastle earthquake would be around $4 billion – larger than any other recorded loss, including Cyclone Tracy, which devastated Darwin in 1974, and the 1999 Sydney hailstorm. insuranceNEWS

December 2009/January 2010

Pub in peril: this damaged hotel in Newcastle’s central business district had to be demolished

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It’s all in the timing Victoria’s latest review of fire services funding has again been scheduled around a state election

By Jamin Robertson he insurance industry has welcomed a Victorian Government review of fire services funding, but its curious timing has raised fears of another whitewash. In late October Treasurer John Lenders announced a review to determine whether the “current funding mechanism is the most appropriate funding model for Victoria’s firefighting organisations”.

The review comes in the wake of the Black Saturday bushfires, which killed 173 people and destroyed 2029 homes. An estimated 30% of those properties had no insurance cover.

In the aftermath of the disaster the fire services levy (FSL) for commercial customers in rural Victoria soared to 84% of the base premium, generating anger among insurance brokers and farmers.

Homeowners in country Victoria don’t fully escape the burden, paying 31% of their base insurance premium. In urban Melbourne, commercial policyholders pay a 50% premium while homeowners pay 20%.

In step with similar systems in New South Wales and Tasmania, those payments make up the majority of the annual fire services funding budget in Victoria (see panel opposite).

The insurance industry’s long-standing opposition to that funding system rests on a simple premise: why should people who buy insurance fund the fire services on behalf of those who don’t, when each enjoy equal benefit?

The Victorian Government

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acknowledges these concerns in a green paper canvassing seven potential options, including a pledge to look at consolidated revenue or property rates as an alternative funding base.

Mr Lenders told State Parliament in November he is “keen for a genuine community discussion beyond party politics and [does] not want to see it hijacked by vested political or industry interests”.

Stakeholders must wait until June of next year before making submissions to the review. From August, the State Government will consider feedback and findings, including the results of the Federal Government’s Henry tax review and the final report of the Victorian Bushfires Royal Commission.

A subsequent white paper will be released within six months of the royal commission final report – putting it on track for delivery in February 2011.

Overshadowing all of this is the fact Victoria will go to the polls on November 27 next year, right in the middle of the white paper drafting process.

The 15-month timeline does not sit well with Victorian Farmers Federation (VFF) President Andrew Broad.

“Country people are entitled to know where this government stands on funding the fire service,” he said. “If the answer is maintaining the status quo or just another review that pushes this issue beyond the 2010 election, it’s simply not good enough.”

He says a “huge volume” of similar reviews have already con-

insuranceNEWS

cluded the FSL should be scrapped.

“The last thing that Victoria needs is more paper-pushing on this failed fire tax,” he said. “The FSL, together with other taxes, more than doubles the cost of insurance for rural businesses.”

LMI Group founder and Chief Executive Allan Manning is an outspoken critic of the fire services levy, and has written a number of influential papers on the topic.

“A tax included in the rates spreads the cost of the emergency services most equitably

December 2009/January 2010

and in the least costly form across all the community,” he wrote recently. “That is the simple, cost-effective and fair solution.”

Dr Manning is not impressed

by Mr Lenders’ green paper, accusing the State Government of “over-complicating” the issue.

“It’s simple,” he told Insurance News. “We need to share the load among the whole community.”

He fears the timing of the review will dissuade public debate, with the issue likely to be overshadowed by the state election and the Government able to say it’s not a subject it can

INMAG Dec09:page layouts

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discuss during the campaign.

Dr Manning’s recommendations are in line with wider industry demands for reform in NSW, Victoria and Tasmania to reflect more equitable schemes like the property-based collection systems of Queensland, South Australia, Western Australia and the Australian Capital Territory.

Former Insurance Council of Australia (ICA) Manager Southern Region Peter Jamvold says there are obstacles to other states joining the fold.

“Due to the multiplier effect the Government is able to say it is increasing funding when the majority of funding in fact comes from insurance policyholders.

“The current fire services funding scheme is off-balance sheet,” he said. “The Government has consistently set major budget increases for the Country Fire Authority and Metropolitan Fire and Emergency Services Board each year over the past 10 years or so, because it is the insurance industry, not government, that has to provide the bulk of the funds.

“Unfortunately, it is the rural policyholder, in particular, who ultimately carries the cost.”

Mr Jamvold says “the government would materially assist the quality of the current review if it were to release for public scrutiny and debate the detailed critique of the 2002/03 review provided by ICA to the then Treasurer, Mr Brumby”.

For his part, Mr Lenders has pledged to “build” on the previous review by the Department of Treasury and Finance in 2003 – a review which is hardly a fond

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memory for the insurance industry.

Announced on November 1 2002, just 30 days out from the state election that saw Labor returned to office, the review was seen as an encouraging signal for a softer position on the FSL. The 2003 review examined the three Australian funding models – the NSW and Victorian systems using an insurance-based levy, property-based collection and financing through consolidated revenue. It found the FSL ensured those with a high level of fire risk paid an appropriate amount for the fire services that protect their properties from the risk of bushfire.

Determined lobbying against the levy, particularly in the regions, came to little. Insurance critics argued the 2003 report lacked quantitative analysis and claimed the outcome was predetermined.

Mr Jamvold is unequivocal in his views on the Government’s sincerity.

“The mistake I made was thinking they would undertake a proper review and would arrive at the conclusion there had to be revision,” he told Insurance News.

“Instead the 2003 review and report were strongly biased in favour of maintaining the existing funding system.

“Considering it involved the work of skilled economists, the report was so bad I can only assume they were directed to find no change was required.”

The insurance industry will hope that history doesn’t repeat

itself this time around.

insuranceNEWS

Former Insurance Council executive Peter Jamvold: funding is off-balance sheet

Critic Allan Manning: more paper-pushing

Victorian annual budgeted funding of fire services 2009/2010 Metropolitan Fire and Emergency Services Board

Country Fire Authority

Total: $402,598,177

Total: $308,351,080 2.83% 11.14% 21.86%

11.14% 10.87%

66.85%

75.3%

The options: 1.

2.

3.

4.

5.

6.

7.

Retain the existing approach Levy non-insured and underinsured property owners Property insurance as a condition of mortgage Compulsory fire services insurance Compulsory property insurance Replace fire services levy with property-based levy Mandatory cost recovery from the non-insured

December 2009/January 2010

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The New Zealand Government has to fix its sick compensation system dmirers of New Zealand’s stateowned personal injury insurer the Accident Compensation Corporation (ACC) might say it’s a model no-fault system, but it has a high price tag attached.

The monopoly system of comprehensive, no-fault personal injury cover for New Zealand residents and visitors has reported a $NZ4.8 billion ($3.8 billion) loss for 2008/09 on top of a $NZ2.4 billion ($1.9 billion) loss the previous year.

The National Party Government has responded with legislation aimed at cutting entitlements and increasing levies following a 57% increase in claims costs during the last four years.

The Injury Prevention, Rehabilitation and Compensation Amendment Bill passed its first reading in the NZ Parliament in Wellington on October 27.

“The ACC has become financially unsustainable, and reform is required to secure its future for New Zealanders,” ACC Minister Nick Smith told Parliament. “Over the past four years the ACC’s unfunded liabilities have grown from $NZ4 billion ($3.14 billion) to $NZ13 billion ($10.22 billion). This is a significant and serious problem that cannot be ignored.”

Ironically the rising costs coincide with falling claims, with Statistics NZ figures showing the number of work-related injury claims to ACC fell 4.2% last year to 224,900 from 235,000 in 2007.

Efforts by the NZ Government to bring costs under control have received a shot in the arm with the backing of coalition partners the ACT Party and the Maori Party.

Legislation is now under consideration by the Transport and Industrial Relations select committee with a report due on February 12.

While the Government has committed to retaining the concept of a round-the-clock, no-fault insurer, Dr Smith says the ACC cannot continue to absorb greater claim costs, deteriorating rehabilitation rates and unfunded scheme extensions.

“The underlying problem is that the ACC has drifted from being a state insurer to

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a welfare provider,” he said.

As part of Government aims to reduce ACC liabilities by $NZ2 billion ($1.57 billion), the reforms are designed to cut costs, improve scheme flexibility, provide for closer work between government agencies and the ACC and improve financial reporting and accountability.

Legislation will also extend the date for fully funding residual claims liabilities to 2019 to soften the required rise in levy rates paid by NZ employers, workers and motorists.

Insurance Council of NZ chief Chris Ryan: more entitlements but no premium increase

While ACC spokesmen did not respond to Insurance News in time for publication, Insurance Council of New Zealand Chief Executive Chris Ryan identifies “an increase in entitlements provided by the ACC but no compensating increase in premiums” as the major cause of the problem.

The 10 legislative amendments provide for some logical cutbacks. They include the abolition of a standard requiring recipients only to return to work if a job provides a similar level of earnings to pre-injury income.

The Government has moved to reinstate a previous compensation figure of 80% of earnings for the first four weeks, and remove a loophole whereby casual or seasonal workers insuranceNEWS

December 2009/January 2010

could be better off on compensation rather than their normal cyclical pattern of work.

One of the most contentious amendments removes entitlements related to suicide and self-inflicted injuries.

But Dr Smith says suicide “is a tragedy, not an accident”.

In response to a 12-15% increase in annual claims related to hearing loss, the bill introduces a hearing loss threshold of 6%.

And criminals sentenced to a prison term of two years or more will lose their entitlement for compensation.

To improve the incentives for safety, the bill makes provisions such as no-claim bonuses, variable levy rates and claim thresholds in the workplace and for motorists.

The bill will also require a financial condition report produced by the ACC to be tabled in Parliament.

“There is not a person on the Government’s benches… who wants to return NZ to the pre-ACC days of people being able to sue and all the uncertainty, pain and the administration costs that go with it,” Dr Smith says. “What we do say though, is that to secure the ACC’s future it has to be affordable and financially sustainable.”

In the meantime, the brakes are on for any proposal to open the workers’ compensation account to competition, a talking point in the run-up to the NZ election last year and a development over which Australian insurers will be keeping a watching brief.

Merrill Lynch last year said privatising the no-fault personal injury scheme could double the size of NZ’s premium pool of $NZ5.5 billion ($4.3 billion) and add $NZ200 million ($157.3 million) to industry earnings. Would-be participants might have to wait until after the next election in 2011, but Mr Ryan says it’s a move the local insurance industry would strongly support.

“Taxpayers and employers don’t currently have the ability to take their business elsewhere if they’re not happy with the ACC,” he said. “When competition was last introduced [in 1999] we saw the competitive forces offered by the private sector model.

“Insurers are very good at ensuring that employers who reduce risk get some benefits, be they lower excesses or premium discounts.”

For the moment, though, the focus is on

the ACC’s own rehabilitation.

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Voiding the warranty Buildersâ&#x20AC;&#x2122; warranty insurance faces major upheavals as insurers pull out and NSW axes the privatised scheme

Kirstin King

By Jamin Robertson

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December 2009/January 2010

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ew South Wales Premier Nathan Rees likes to solve problems that might threaten his government’s popularity. Last month he reacted to decisions by CGU and Lumley Insurance to quit the builders’ warranty market with a pre-emptive strike of his own.

“I will not allow a situation where NSW builders cannot get cover, potentially jeopardising a $20 billion industry which employs 250,000 people,” he said, announcing the end of the privatised builders’ warranty insurance scheme in the state.

It followed a decision by Lumley in July to withdraw from the market from January 1. Two weeks later CGU followed suit, sending shockwaves through the national market and sparking fears that more insurers were preparing to withdraw.

About 25% of NSW builders ended up looking for cover with Vero, QBE and Calliden – but it appears not all were successful.

According to the state government, 108 NSW builders subsequently had their cover declined or existing cover cancelled. Outcry within the building industry followed as stranded builders struggled to find alternative suppliers.

They had good reason to be concerned – they can’t legally build without the cover.

And while no one is disputing that the insurers would have had solid reasons for refusing to provide cover, the affected builders are taking the issue to the politicians.

“I will try and meet with my local MP in the next week or two,” one builder told Insurance News. “Our annual turnover allowance has been significantly reduced by the new insurer and we look as though we have won projects which we now cannot carry out.”

Builders’ warranty insurance is a legal requirement for all significant building works in all states except Queensland and Tasmania.

Known as a last-resort policy, privately provided cover is contingent on the death, disappearance or insolvency of the builder.

Those conditions have failed to endear the policy to some Australian consumers, with a Financial Ombudsman Service report revealing 45% of all builders’ warranty claims were rejected in the year to June 2008, compared to just 2% across all other lines of general insurance.

In light of the withdrawal of Lumley and CGU, NSW Government officials consulted with relevant state authorities before swinging the axe on the privatised scheme.

“The Home Warranty Insurance Scheme Board has advised that current market conditions are likely to lead to more insurers exiting the market in the near future,” Mr Rees said.

The NSW Government will instead underwrite the scheme from July next year. The state’s treasury will manage the new scheme through the Self Insurance Corporation, and tender services such as premium collection and claims handling to private insurers.

Any cover already issued by insurers will remain in force for the duration of the policy.

Vero Executive Manager Commercial Insurance

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Corporate Affairs Sue Repanellis says it’s “appropriate” for the state government to be involved in the provision of a statutory scheme.

Builders Collective of Australia (BCA) President Phil Dwyer says his organisation “welcomes and embraces the opportunity to work with the Government” to achieve “appropriate consumer protection measures”.

The NSW decision raises doubt over the continued viability of the scheme in other states, where the same issues exist.

Privatised cover faces further pressure in Victoria due to Supreme Court legal action launched against liquidated insurer HIH Insurance. In late October some of Australia’s largest home builders joined to bankroll the case with a writ in the name of Mr Dwyer and his wife Elizabeth, alleging HIH acted unconscionably by forcing him to provide an indemnity to the insurer in 2000.

The writ alleges the action reduced the insurer’s contingent risk to nil and further claimed it forced the former building company director to act as his own reinsurer.

He told Insurance News his company was a thriving business until issues arose with builders’ warranty insurance. The business closed in 2005.

He hopes the Supreme Court of Victoria case will “open the floodgates” over indemnity issues for the benefit of Australian builders and consumers, but acknowledges his long campaign has incurred a high cost.

“It’s probably cost me my life savings,” he says.

Other builders have outlined their own motivation. One says he was “run out of business in 2000 in Sydney when, following over 200 successful noclaim bathroom and kitchen renovations, I was asked by my insurer to place a further $100,000 of security with them and halve my turnover”.

“The security was not available and reducing turnover did not make the businesses viable, so my perfectly good business closed.”

A Victorian Essential Services Commission report issued in September indicates 44% of builders are required to pledge security or indemnities in order to obtain warranty cover in Victoria.

Industry experts defend the practice, saying a cluster of untrustworthy builders who forced up claims costs left insurers with little choice but to fall back on a last-resort scheme.

Only Queensland maintained a first-resort scheme as others moved to privatise home warranty systems from the mid-1990s. Now building industry representatives say the pendulum has swung too far back.

Mr Dwyer is awaiting more details of the proposed NSW scheme, saying the “devil will be in the detail”. Builders would like to see NSW and other states adopt the Queensland system, where the state-run scheme says it pays 98.8% of valid claims and appears to generate few complaints from builder members.

“Queensland operates a model system,” Mr

Dwyer said. “That’s the one that we want.”

insuranceNEWS

December 2009/January 2010

Opposite: builder Phil Dwyer hopes to open the floodgates over indemnity issues

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m o v e r s

a n d

s h a k e r s

The most influential people in the Australian risk insurance industry They’re the individuals who can’t be ignored, because they’re powerful or persuasive – or both hese are the go-to people of risk insurance.

They influence attitudes and shape opinions inside and outside the industry.

They’re the professionals who make things happen – or not happen. They’re powerful either by the authority of their position or by their profile as a significant figure in the business.

While most of the inaugural Insurance News Top 20 Movers and Shakers are well known inside risk insurance, we agree there are some surprises in our selection – and some notable omissions.

This industry changes quickly, and so do the issues and opportunities that affect its overall strategic direction. We’re aware that in a few months some of the people listed here will have moved on and that other individuals will have moved up or down the scale.

Setting our selection criteria was simple enough. The members of the Insurance News editorial team speak to leaders in the industry every day and they spend many hours researching and discussing issues. They know which leaders are admired by their peers, which are seen by the wider industry as movers and shakers and which are regarded as roadblocks to change. (None of the latter are on this list.)

T

insuranceNEWS

Our team was given the task of answering three simple questions: • Who are the people in the industry whose actions or attitudes can’t be ignored?

• Who has the actual or potential ability to directly affect the insurance industry?

• Whose views are respected and carefully noted by the wider industry?

Most of our Top 20 have wide-ranging industry knowledge; those who don’t are included because they have the ability to influence powerful companies or even the whole industry to change course. Many of them interact with each other to make things happen. Others stand well clear while they judge what the industry can and can’t do.

We accept that some of the individuals listed may not even be widely liked, for whatever reasons – but features of individuals’ personality didn’t really matter in our measure.

Some people influence events through discussion or persuasion and some by bloody-minded self-belief. Some are natural leaders and some are just too smart not to listen to. None of those on our list have gained positions of influence by being ineffective.

There was some discussion among our judging team about expanding the list to 25 or even 30. It would have made the task less difficult if we’d included leaders who perhaps deserved to be listed here and would have been had there been more than 20 positions to fill. The fact that we stuck to 20 will hopefully provide some consolation to those who are disappointed not to find their names here…

December 2009/January 2010

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Frank O’Halloran Chief Executive, QBE Group HE’S been named Australian “Insurance personality of the year” twice (2004 and 2009) and recently Global Re magazine placed him 28th in its list of the 40 most important people in reinsurance. There are always accolades bouncing around the 62-year-old O’Halloran, who took the reins at QBE nearly 12 years ago after working in the finance end since 1976.

His highly disciplined acquisition strategy has been running 20 years, with QBE taking over more than 100 insurance operations around the world in that time.

These days, with 13,000 employees scattered around the world, QBE’s Australian operations account for only 25% of the company’s earnings. However, the company has spent nearly $1.25 billion in the past year to acquire local mortgage insurer PMI and rural specialist Elders, and O’Halloran makes no secret of his desire to make a big acquisition in Australia to put QBE in the top tier of the local industry. But he’s happy to wait until the price is right, thanks.

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John Trowbridge Executive Member, Australian Prudential Regulation Authority NOT since Warren Tickle in the 1970s has there been a senior public servant like John Trowbridge – one who understands the insurance industry from the inside and has a clear vision of how it should operate. When he was appointed as a member of APRA’s tripartite leadership in July 2006, Trowbridge had already run a major insurance company (Suncorp General Insurance), been a director of a reinsurance company and founded a leading actuarial and management consulting firm which dealt with most of the big financial services companies. He also served as a member of the Treasurer's Financial Sector Advisory Council from 1998 to 2004, so his knowledge of insurance and its issues from many different perspectives is unique.

APRA’s “tough but fair” approach is credited with keeping Australia’s financial services sector safe from the negative effects of the global financial crisis. As United States insurance chief Bill Berkley put it recently, APRA “has a lot of power but they use it in a totally rational way”. As regulators around the world develop more universal rules to oversee financial services, expect to see Trowbridge’s knowledge of what works and doesn’t work in insurance becoming even more important.

Mike Wilkins Chief Executive, Insurance Australia Group WHEN IAG was at its lowest point in late 2007, the appointment of Mike Wilkins as Chief Operating Officer served to calm increasingly hostile investment analysts and shareholders.

And after QBE came calling last year with a $7.8 billion merger proposal, the profile of Wilkins – who became Chief Executive within weeks of the deal collapsing – was seen as a significant reason for the IAG board’s confident rejection. And incidentally, as an indirect reason for QBE not wanting to try again.

Wilkins is a behind-the-scenes player in industry affairs with a reputation for speaking his mind to other influencers when he feels it’s warranted. He masterminded the construction of the Promina financial services group after persuading British owner Royal & SunAlliance to float its Australian operations in 2003 rather than split them up for sale. In 2007 Suncorp paid $7.5 billion for Promina, with the board ignoring institutional investors’ demands for Wilkins to run the merged group.

Insiders say Wilkins understands the risk business inside-out and knows how to appoint the best people and let them operate within specific earnings measures – in contrast to the management ethos of his predecessor at IAG. He serves on the Insurance Council of Australia board – he was president from 2003 to 2005 – and is a former director of the Insurance and Financial Services Association. He was voted as Outstanding Chartered Accountant in Business in 2004 and as Insurance Personality of the Year in 2005.

Terry Ibbotson Chief Executive, QBE Australia THE organisational and motivational skills of Terry Ibbotson are legend. He has a PhD in business organisation, and has used his expertise in change management to build the company’s Australian team into a powerful local force. In the past year the company has added considerable local strength through the acquisition of Elders’ rural insurance operations, and looks set to continue adding strategic acquisitions as they arise.

QBE hasn’t yet made that top-end acquisition everyone is waiting for – attempts to merge with IAG and then (allegedly) Suncorp having come to nothing – but Ibbotson continues to build the local operation’s strength and effectiveness anyway, with the significant addition of the Elders rural insurance business in the past year.

The 40-year insurance veteran doesn’t operate in the considerable shadow of his boss, Frank O’Halloran, maintaining his own close professional relationships across the local industry. A shrewd player in the development of new intermediary sector services and a tough negotiator, his influence in industry forums is considerable. He tends to say what he thinks, and you’d be a fool not to listen. insuranceNEWS

December 2009/January 2010

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Terry Towell Managing Director, Allianz Australia; President, Insurance Council of Australia FEW insurance executives in Australia can match Terry Towell’s depth of experience in managing insurance companies. He ran NZI and Suncorp General Insurance before building up the Allianz operation from the former MMI insurance company. He became Managing Director of Allianz Australia in 1998, and under his control Allianz Australia has grown into an insurance giant with more than 2 million customers and strong positions in several key classes of business.

The company’s success in Australia hasn’t gone unnoticed in the global Allianz organisation, where Towell is highly regarded. He is now a member of the International Executive Committee of the global Allianz group, which directly advises the board.

He is also halfway through his two-year term as President of the Insurance Council of Australia (ICA). His long experience on the council board will be valuable as he considers the type of professional needed to replace Chief Executive Kerrie Kelly, who leaves ICA in January.

His management of the changeover process will be crucial in setting the role ICA should play in the risk insurance community.

Chris Bowen Federal Minister for Financial Services HAVING Chris Bowen as the minister responsible for most regulatory and legislative aspects of the risk insurance industry isn’t a bad thing at all. He’s an ambitious and wellregarded cog in the Australian Labor Party machine and a quick learner about his multiplicity of portfolios.

In 2006 Bowen was appointed to the Opposition front bench as Shadow Assistant Treasurer and Shadow Minister for Revenue and Competition Policy. In December 2007 Prime Minister Kevin Rudd appointed him Assistant Treasurer and Minister for Competition Policy and Consumer Affairs.

In June Bowen was promoted to cabinet rank as Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services.

His long service as a city councillor and mayor in the Sydney dormitory city of Fairfield, and then working within the arcane mechanisms of the New South Wales ALP machine as a ministerial adviser, has helped in the development of an open and consultative approach to industry affairs. He’s across the major issues and knows who the leaders are.

His many roles within Federal Cabinet means he’s unlikely to be a crusader for major reform in the sector – unless he’s convinced it’s needed.

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Robert Kelly Executive Chairman, Steadfast PERSONABLE, tough-minded, witty and often controversial, Robert Kelly is the most recognisable insurance broker in the Australian market and it’s hard to think of any broker who could lead the increasingly complex Steadfast organisation with such aplomb.

A 40-year veteran of insurance broking, Kelly was Steadfast’s first shareholder and company secretary when it was launched as an unlisted public company in April 1996. Today Steadfast generates more than $2.5 billion in premium and has more than 280 insurance brokerages operating from around 400 offices.

The organisation gives Kelly considerable clout in the market. The cluster group has become – almost accidentally – a de facto representative body, with its own agenda and a chairman unafraid to comment on industry issues. That’s not to say he doesn’t pay due deference to the role of the National Insurance Brokers Association, but Kelly operates on a different level, across governments and leaders of all branches of industry.

His ability to speak about the nitty-gritty of the intermediary channel and its place in the risk business has given him a very wide audience and a high profile. He addresses many industry forums and is in constant contact with other movers and shakers who respect his hands-on approach and market knowledge.

Steadfast’s key position as a major distribution channel and its board’s willingness to be bold in developing new member services can only be enhanced by its chairman’s considerable influence in the market. insuranceNEWS

December 2009/January 2010

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David Smith Chief Executive, Zurich Financial Services Australia FOR the past three years David Smith has been making waves in the local insurance industry, sharpening Zurich Australia’s profile as a responsive and scene-setting insurer. At the age of 49 his experience is broad and his passion for new approaches to old issues can be compelling. A popular speaker at industry forums, Smith has occasionally found himself all alone expounding the need for universal flood cover – a stance that irritated the Insurance Council – and a higher industry profile in global warming-related issues.

Like some notable names in the insurance industry’s history, Smith has his professional foundations in banking. Recruited from a regional general management role in Westpac to head up IAG’s human resources division, he soon found himself running IAG in New Zealand, and was responsible for negotiating the takeover of New Zealand’s State Insurance in 2001 and then NZI in 2003. Alarmed by the amounts being paid out for multiple flood events in the country, he consulted communities to promote and support mitigation programs.

He was President of the Insurance Council of NZ for two years until he quit IAG in 2006 to return to Australia and joined Zurich later that year. He wasn’t the first to provide flood cover in Australia but he was the first to openly question his peers’ reluctance to address the issue. His willingness to push for change places Smith in a position of considerable influence among the younger managers emerging in the industry.

Kerrie Kelly Chief Executive, Insurance Council of Australia ALTHOUGH she has resigned from the Insurance Council of Australia (ICA), the position of chief executive is pivotal inside and outside the general insurance industry.

During her three-year tenure Kerrie Kelly continued the basic line of activities introduced by the previous administration – flood mapping, issues blueprints, lobbying – while dramatically changing the way ICA operates. The council ceased to be the industry’s spokesman on all issues to the wider community, business and the media, concentrating instead on solid research, saying little and lobbying behind closed doors.

It’s difficult to know whether the low profile approach adopted by ICA over the past three years has been successful. What is certain is that Kelly, a former lawyer, is a highly successful administrator and lobbyist, building on her three years running the Financial Planning Association and three more at ICA to land the top job at the influential Association of British Insurers.

How her successor will manage the chief executive’s job may be as much about personality as approach. Many would welcome a more inclusive and communicative insurance council, but a chief executive at this level of association management needs to be much more than just a communicator. The ability to maintain relationships across the political and industry spectrum requires special qualities which aren’t all that easy to find.

Heinrich Eder Managing Director, Munich Re Australia MUNICH Re has been at the forefront of climate change awareness since before climate change was an issue. Heinrich Eder’s position as the local point man for the giant reinsurer gives him considerable clout in government and industry circles. After eight years running Munich Re Japan, he moved to Sydney where after two years he took the top job overseeing the company’s business in Australia, New Zealand and the Pacific Islands. In his four years in the job the parlous state of some small low-lying Pacific states, in particular, have come to the forefront of public debate.

While he doesn’t have a significant public profile, Eder is well known in the industry and commercial communities, and has been a regular speaker at industry events explaining such subjects as emerging risks.

Expect to see reinsurers taking a harder line on climate-related issues in the years ahead. And as an erudite speaker with the power of the world’s largest reinsurer behind him, Heinrich Eder may well become a spokesman with a much wider audience.

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Russell Higginbotham Managing Director and Head of Australia & New Zealand, Swiss Re Australia LIKE his counterpart at Munich Re, Russell Higginbotham’s knowledge of the risks being faced by individuals and organisations in the local market, as well as Asia and the wider world, is drawn from the enormous accumulation of information available from his head office in Zurich, where research and risk measurement is a daily preoccupation.

Reinsurers are at the centre of the industry, and what they say counts. Higginbotham knows the short-term pressure points and the long-term challenges facing the industry, and he also knows how to communicate his company’s concerns.

Prior to his appointment as Managing Director of Australia & New Zealand in September 2006, Higginbotham spent five years in Tokyo running Swiss Re’s life and health insurance operations in Japan and Korea. He has become a strong voice for greater awareness of the consequences of climate change. “Climate change is like a supertanker heading towards the rocks,” he said recently. “It’s very slow, but if it doesn’t change course it’s all over.” Such plain speaking is a trait Australians tend to admire – and take note of.

John Brogden Chief Executive, Insurance and Financial Services Association (IFSA) IN July former New South Wales Leader of the Opposition John Brogden was appointed to run the major financial services representative organisation in Australia, marking a new point in a colourful career. Life insurance is an under-sold commodity in Australia – sales are the lowest in the developed world on a per capita basis – and the influence of someone with the sort of political and business connections Brogden has may well make a substantial difference to the way it’s regarded.

He has walked a very public journey of success, failure and redemption, from the highs of political leadership at the age of 33 through the lows of his resignation and eventual success in business. He had an impressive two-year stint as Chief Executive of health insurer Manchester Unity until it disappeared in a merger late last year.

Regarded as a passionate and charismatic speaker, his position at IFSA representing more than 140 financial services companies gives him the ability to influence the way life insurance is treated. As links between general and life insurance continue to strengthen, Brogden’s wider influence may become more obvious.

Graeme Samuel Chairman, Australian Competition and Consumer Commission (ACCC) A tough and sometimes outspoken advocate for consumer rights and fairness in business, former lawyer and businessman Graeme Samuel has a wide mandate to monitor and act on the actions of individual insurance businesses or even the industry. He can reject insurers’ attempts to devise solutions to problems, as he did last year when consumer groups objected to the proposed common definition of flood; or he can refuse to sanction the merger of two major insurance companies if he thinks it’s anti-competitive – which he hasn’t done.

By listening to the concerns of politicians and groups representing (however loosely) the interests of insurance customers, Samuel has to be regarded as a significant player in any attempt to alter the balance of power in the industry. His political skills and his media profile make him someone whose support and understanding of issues and opportunities is crucial. For a business sector transforming as quickly as the risk insurance industry, Graeme Samuel is a definite “go to” person. insuranceNEWS

December 2009/January 2010

Lach McKeough Chief Executive, Austbrokers REGARDED as an astute businessman and a keen judge of companies and their owners, Lach McKeough was a pioneer in pulling together small insurance broking businesses to gain more muscle with underwriters and ease the cost burdens a standalone operator has to deal with.

The cluster group has been growing steadily since it was formed in 1985 with the former Mercantile Mutual manager at the helm. Under Austbrokers’ owner-driver model, the principals of acquired brokerages and other key intermediary businesses usually maintain a 50% interest in their businesses. This allows the Austbrokers network to retain experienced operators – and their clients – while still having the ability to move to full ownership when the principal retires.

Austbrokers became a public listed company in 2005. Its board of directors makes it flexible and agile, with McKeough happy to be bold when opportunity knocks. For example, his initiative in bringing on board the numerically powerful but organisationally weak Insurance Brokers Network of Australia (IBNA) through the Austbrokers & IBNA Member Services joint venture vehicle in 2006 was ingenious, with a combined 120 brokerages feeding in a gross premium income of some $1.8 billion.

While relatively low-profile in the industry, McKeough is highly respected for his achievements and his company’s actions are closely watched by happy shareholders and wary competitors.

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Duncan West Chief Executive, CGU; President, Australian and New Zealand Institute of Insurance and Finance HIS business acumen and his passion for professional education have served Duncan West well. CGU is an important provider for insurance brokers, and West has worked hard to improve the business since he was appointed Chief Executive in January last year. As parent company IAG’s commercial insurance heavyweight, West’s leadership is crucial to the group’s return to the glory days.

His industry experience in a variety of environments is impressive. He ran Royal Insurance’s direct operations in the UK before setting up a new business for Royal & SunAlliance in India. He became chief executive of the Vero general insurance operation within the new Promina group after Royal & SunAlliance sold its Australian business.

When Suncorp bought Promina in 2007, West was cast aside in the rationalisation of senior executives and didn’t re-emerge until February last year, when his old Promina boss Mike Wilkins appointed him to manage IAG’s intermediated business.

While he’s free to run his own race within a less centralised IAG structure, West’s presidency at ANZIIF is more important to the wider industry. High-quality professional education in Australia and New Zealand is increasingly crucial in an industry undergoing rapid change. There’s also increasing competition in the financial services education sector, and West’s leadership and vision will be crucial in the continuing development of a responsive and effective ANZIIF.

Patrick Snowball Chief Executive, Suncorp IT’S early days in the local market for this experienced manager, but Patrick Snowball’s history in the UK financial services hothouse speaks for itself. Since arriving in Australia some three months ago, Snowball has taken a relatively low profile within the wider industry, but he hasn’t been slow in making his mark with a concise reshuffle of his senior executives.

He was a mover and shaker in the British insurance industry, and there’s little doubt he’ll be similarly influential in Australia, with a seat on the Insurance Council board and the attention of many of the people listed here.

The former British Army tank commander has been managing big insurance operations for years, including stints as Managing Director of Norwich Union Insurance and Chief Executive of Aviva’s general insurance operations in the UK, Canada, Ireland and Asia. Most recently he was Chairman of Towergate Financial Services in London.

He brings to the local industry an incisive approach to issues and a wealth of international experience. Expect him to make an impact once he has Suncorp sorted – no easy job in itself.

Steve Lardner President, National Insurance Brokers Association; Director – Broking Operatons, Aon Risk Services Australia

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December 2009/January 2010

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Broking is changing in many ways as younger and more qualified professionals move into management and new opportunities emerge, the economy grows and client businesses develop and multiply. NIBA is a respected fixture in the industry, but how it responds to, and capitalises on, the longer-term issues in a world fixated on regulation, standards and professional education is increasingly important. The intermediary sector is rapidly changing, and Lardner is a proven performer who won’t let things drift.

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Rob Scott Managing Director, Wesfarmers Insurance TYPICAL of the new generation of senior managers in risk insurance in that he is well qualified and experienced in many non-insurance areas of business, Rob Scott is unique in the industry in that he oversees the work of a direct insurer (Wesfarmers Federation Insurance), two insurers focused on intermediaries (Lumley in Australia and New Zealand) and three major insurance broking businesses (OAMPS in Australia and the UK and Crombie Lockwood in NZ). The former chartered accountant moved into insurance at Wesfarmers in 2007, and hasn’t been slow in making major changes. The two Lumley operations have had management overhauls to arrest declining performances, and OAMPS now has a new manager brought across from Crombie Lockwood.

Respected and even admired for his calm and personable approach and sharp decisions, Scott has all the hallmarks of continuing business success. As a significant player in Wesfarmers’ management, the former Olympic rower may one day find himself moved into another area of the Perth-based conglomerate.

For now, he’s happy to build his businesses, seek new synergies like the Coles supermarkets insurance project, and push for even better performance.

Leon d’Apice Managing Director, Ebix Australia TECHNOLOGY is king in the world of insurance distribution, and Leon d’Apice runs the biggest operation in the country. In December 2007 United States-based Ebix swooped on the Telstra-owned Sunrise Exchange, which had developed over 10 years as the major link between insurers and brokers. Since then d’Apice has kept Ebix Australia staff hard at work developing new products to maintain the company’s edge over competitors and new industry IT systems.

He has the experience to get the best bang for the buck. d’Apice has been working in insurance IT for many years, and he knows his customers and their developing needs.

He’s well connected in the industry and a tough negotiator with good strategic skills.

Listening to the customers, no matter how demanding they may be, isn’t the easiest thing in the world, but d’Apice knows the way to stay ahead is to understand the market and adapt to changing circumstances.

Having the global backing of the Ebix product range can’t hurt, either.

Keith Stern General Representative for Australia, Lloyd’s MAINTAINING the considerable presence of the Lloyd’s market in the Australian insurance industry requires some special skills, not least among them the ability to know everyone. Keith Stern took up his Australia posting in January 2000 after working in Lloyd’s regulatory and international divisions in London. He is also Regional Manager for Asia-Pacific (excluding China and Japan).

The Australian market is very important to Lloyd’s – it’s the fourth-largest source of revenue for Lloyd’s globally and the gross premium income from Australia in 2008 was $1.05 billion. And Lloyd’s is very important to the Australian industry, which parks a considerable amount of commercial business and reinsurance in the market. Stern’s role places him across the large and small underwriters in the industry as well as government agencies and large businesses. Urbane but incisive in his judgements, he commands affection and respect in equal measure.

He knows everyone he should and plays the role of Lloyd’s ambassador with

considerable skill.

Don’t agree?

Email us at editor@insurancenews.com.au with your own list – and your reasoning

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December 2009/January 2010

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MACQUARIE RELATIONSHIP BANKING INSURANCE BROKING BENCHMARKING SURVEY

Today’s insurance broker They’re doing well and planning for growth – but aware of the pitfalls ahead

By Jeff Morse

ptimistic, acquisitive, planning to recruit but expecting trouble finding the right people… It’s not the profile of all financial services sectors coming out of the global financial crisis, but it’s what brokers are saying about themselves in Macquarie Relationship Banking’s latest Insurance Broking Benchmarking Survey.

Conducted in September, the survey was completed by 214 brokers or broking businesses throughout Australia.

Macquarie’s Head of Insurance Broking Peter Conquest says the world has changed since the company’s first broker benchmarking study in 2007. Businesses, industry bodies, governments and households have faced “unprecedented challenges”, and also opportunities.

He says performance benchmarking “is a powerful business management tool that can assist with building the value and profitability of your business”.

“Benchmarking data allows brokers to critically assess how their insurance broking business is performing against those of their peers, highlighting both the strengths of the business and potential improvement strategies.”

Mr Conquest says global economies are “moving towards brighter times”, and it’s critical for brokers to evaluate their businesses and their strategies in the changed business environment.

The crisis appears to have had a limited impact on insurance broking businesses, with just 10% of the respondents to the survey making any significant changes because of it.

Another 15% said they are concerned or extremely concerned about its impact on their business over the next 12-24 months.

Nor has the financial crisis affected most brokers’ revenue in the past financial year.

Some 83% of brokers reported their earnings rose, and 88% expect to see continued revenue growth in this financial year.

Almost half the participants see increased premiums and marketing to acquire new clients as the key sources of higher profitability in the coming 12 months. They believe the top two threats facing their business are the economy and increasing competition.

The national average gross written pre-

O

Macquarie’s Peter Conquest: benchmarking allows critical assessment

mium (GWP) for brokerages in the past financial year was $11.9 million, with New South Wales and the Australian Capital Territory averaging highest at $15.9 million, followed by Western Australia’s $13.6 million and Victoria/Tasmania’s $10.2 million.

Domestic policies accounted for 28.6% of GWP for South Australia/Northern Territory brokers, which was significantly higher than the 17% national average.

Commissions account for the vast majority (67.3%) of brokers’ revenue, followed by fees at 23.3%.

All other revenue sources combined accounted for less than 10% of total business income.

Almost half (47.2%) of the survey participants do not foresee any changes to the way insurance broking businesses will be remunerated into the future, although this did drop to one in three of the large firms (those generating more than $3 million a year).

Those that envisage changes mostly see a greater emphasis on broker fees charged to the client.

Average revenue per staff member (excluding authorised representatives) was $162,766, with state-by-state averages ranging from $132,088 in Queensland to $174,393 in Victoria/Tasmania. insuranceNEWS

December 2009/January 2010

Efficiencies of scale also appear to be working for large firms, as their revenue per staff member is much higher than for smaller businesses.

Merger and acquisition activity continues to be a major catalyst for growth, with half the firms participating in the Macquarie survey saying they have been approached in the past 12 months to merge or sell their businesses.

In 39% of cases the brokers say they are willing buyers of another business and are not thinking of selling, while just 9% are willing sellers and 20% could be either sellers or buyers.

How much are they worth? A strong 80% believe insurance broking businesses should be valued as a multiple of commission and fees, with the average multiple being 2.26.

Mr Conquest says the competition for talent could be very intense over the next year. “This will be especially so for incomegenerating staff, as a third of participants say they will be looking to recruit people only with this capability.”

More than half (55%) of brokers say they plan to take on additional team members in the coming 12 months. Most firms (69%) think it will be either extremely difficult or quite difficult to find and employ the new staff they require.

Almost two-thirds of brokerages (65%) say they do not have any authorised representatives and half of these firms would not consider doing so as a part of their revenue growth strategies. The increased compliance burden was seen as the greatest concern.

Of those businesses with an authorised representative, 60% say the experience level is their major consideration.

The Macquarie survey found the most pressing issue facing the insurance broking industry today was by far the levies and government charges applied to premiums.

However, 71% thought the chances of a change to the current application of taxes and levies was either low or very low.

Insurance News thanks Macquarie Relationship Banking for providing a draft copy of the survey and allowing us to reproduce the results for our readers. The following pages contain many of the survey results.

37

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1. Gross Written Premium ($m)

Page 38

3. Total Revenue 2009 ($) 1m

7.8

QLD

QLD

13.6

WA

7.810.2 13.6

WA NSW/ACT Small

15.9

8.0

SA/NT Medium

9.4 10.7

VIC/TAS Large

10.2

26.0

11.9

National

8.0

Small

10.7

Medium

26.0

Large

11.9

National

2. Personal Lines (%) 20.7

QLD

15.6

WA NSW/ACT

2. Personal Lines (%)

10.9 28.6

SA/NT

20.7 20.6

QLD VIC/TAS

15.6

WA

10.9

NSW/ACT Small

18.4

SA/NT Medium

28.6

18.0

VIC/TAS Large

20.6

12.8

National

17.4

Small

18.4

Medium

18.0

Large 3. Total Revenue 2009 ($)12.8 1m

National QLD

2m

3m

4m

5m

6m

MACQUARIE RELATIONSHIP BANKING INSURAN

WA

NSW/ACT 15.9 Gross Written Premium ($m) 1.

SA/NT 9.4 QLD VIC/TAS

2m

3m

4m

17.4

5m

6m

WA NSW/ACT SA/NT VIC/TAS

NSW/ACT PREMIUM 1. GROSS WRITTEN The smaller firms also appear to have been 3.

Total Revenue 2009 ($) 1m (GWP) 2m 3m 4m hardest 5m 6mhit during the year, with 14% reporting SA/NTpremium The average gross written a drop in revenue compared to just 3% of the varied from a high of was $11.9 million. This QLD VIC/TAS large businesses. $15.9 million in New South Wales and the ACT WA to a low of just $7.8 million in Queensland.

This is a very positive result for the insurance NSW/ACT broking industry given the challenges the Small Average gross written premium is influenced global economy faced throughout this Western Australian by a number of factors.

SA/NT Medium financial year. While broking businesses are brokerages tend to have higher GWP volumes VIC/TAS Large workers’ not recession-proof, these results do due to their ability to place emphasise their resilience in the face of a as well as significant compensation insurance, National financial crisis. They are also consistent with premium throughput coming from the mining Small the expectations of brokers in the 2008 and resources industries.

Medium survey.

However, the number of broking businesses in Large greater (and their Queensland tends to be average premium smaller) Nationalgiven the diverse 5. HOW BROKERS EXPECT REVENUE TO population spread across the state.

PERFORM IN FY 2009/10 Most brokers are quite optimistic about the 2. PERSONAL LINES prospects for the coming year, with 88% expecting revenue to grow when compared to On average, 17.4% of the GWP was made up the 2008/09 financial year. of personal lines policies. This percentage also varied significantly by state. South All of the SA/NT businesses are expecting Australia and the Northern Territory had by far 5. How do growth, you expect your revenue to perform revenue but fewer of them are in FY 2009/2010? the highest average (28.6%) compared to just 10.9% for NSW/ACT. Participants (%) While there was little difference between the QLD personal lines GWP average of small and 16 9 50 25 medium-sized firms (18.4% and 18% WA 10 53 30 7 respectively) that of the large firms was NSW/ACT significantly lower at 12.8%.

21 52 14 2 23 8 It is no surprise that the smaller businesses SA/NT 89 11 had a greater focus on personal lines.

VIC/TAS Macquarie Relationship Banking says that in 4 9 20 58 9 its experience business profitability “tends to be inversely related to the proportion of Small domestic insurance within a portfolio”.

6 9 23 43 19 However, exceptions exist where there is a Medium 1 9 55 14 21 focus on niche personal lines or superior Large systems and processes to manage this high 33 15 66 13 volume/low premium business.

National 12 8 21 54 15 One thing is certain for this class of insurance Revenue to decline15% or more – brokers will continue to have to work hard to Revenue to decline 5 – 14% retain this business as the direct insurers become increasingly competitive and Revenue to decline 1 – 4% innovative in their marketing.

Remained at the same size as prior year Revenue to increase 1 – 4%

Small Medium Large National

4. Changes in business revenue experienced in 2008/2009 Participants (%) QLD 5 8

9

9

47

22

WA 3 7 10

50

30

NSW/ACT 13

33

25

40

16

SA/NT 11

45

33 11

VIC/TAS 33

6

26

46

16

3. TOTAL REVENUE IN 2009 The average total business revenue was $1.9 million. This average was highest in Western Australia ($2.07 million) but was closely followed by NSW/ACT ($2.06 million) and Victoria/Tasmania ($2.01 million).

The average revenue per business owner was just over $1 million. Outside of SA/NT this remained relatively static across the states and perhaps not surprisingly, was much higher in the large firms.

The average revenue per staff member (excluding authorised representatives) was $162,766. This ratio was highest in Vic/Tas where each staff member was generating on average $174,393 and lowest in Queensland ($132,088).

The large firms appear to have been able to leverage some scale efficiencies – their average revenue perstaff member was much higher than the smaller businesses.

Small 5

9

11

23

37

21

47

19

Large 33

19

47

28

National 3 4

9

21

44

19

Revenue declined 5 – 14% Revenue declined 1 – 4% Remained at the same size as prior year Revenue increased 1 – 4% Revenue increased 5 – 14%

4. CHANGES IN BUSINESS REVENUE Some 83% of all participants stated their business revenue increased in 2008/09. This was most pronounced in WA, where 90% of firms reported revenue growth and 30% significant growth. In Queensland, 78% of businesses stated their revenue had grown.

At the other extreme, only 7% of brokerages reported a decline in the year-on-year business revenue. None of the SA/NT firms stated their revenue had dropped.

Revenue increased 15% or more

38

Revenue to increase 15% or more

6. CURRENT Current percentage breakdown of total 6.

PERCENTAGE BREAKDOWN OFrevenue TOTAL REVENUE

Revenue Source

Percen Small

Mediu

Commission

69.1%

67.0

Fees

22.5%

23.1

Profit share/overrides

0.7%

1.4

Interest

3.2%

3.3

Premium funding

3.7%

3.6

Other financial services

0.6%

0.7

Other non financial services

0.2%

0.9

15

Medium 22 9

Revenue to increase 5 – 14%

insuranceNEWS

December 2009/January 2010

Commission accounts for the vast majority (67.3%) of business rev across firms, no matter what their size.

Fees accounted for 23.3% of total revenue, and again there was lit firms have slightly more fee income.

All other revenue sources combined accounted for less than 10% These results show a fairly consistent revenue break-up across bu are not surprising with larger businesses having a greater proportio clients they tend to attract – many of whom prefer a fee rather than The larger brokerages also demonstrate slightly greater profit shar generate additional revenue by offering other financial services (eg

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Page 39

G INSURANCE BROKING BENCHMARKING SURVEY predicting high growth.

New South Wales and the ACT are the only states to have any brokerages predicting a decline in revenue.

The optimism of the broking community reflects renewed business confidence within the economy as a whole. The common theme among consumers, business owners and the media is that “the worst is behind us”.

Brokers have some specific reasons to be optimistic about their revenue lines. The longanticipated hardening of premiums has largely been non-existent despite the rhetoric of the insurers, and there is an expectation that the cycle must turn upward soon.

Brokers also suffered in financial year 2009 from declining interest rates with a direct impact on their investment income. The tide has now turned on interest rates.

While the economic and insurance cycles should favour brokers in 2010, the common theme among principals was that they won’t rely on “the uncontrollables” to drive growth.

7. KEY AREAS BROKERS EXPECT TO MOST POSITIVELY IMPACT PROFIT IN 2010

8. Positively impact the profit of your brokerage in 2010?

Acquisitions

6

Cost reduction

6

Higher staffing efficiency Premium funding revenue

25 1

Increased premiums

45

None of the above

3

Other Reduced competition

13 1

Premium rates are the key, with 45% of all participants expecting increased premiums to most positively impact on the profit of their brokerages this financial year. This was more pronounced in the small firms, where 56% selected this as the key area.

One in four businesses saw improved staff efficiency as the key area to positively impact on their profitability. This dropped to just 16% of small firms, while 34% of the medium-sized

evenue TOTAL REVENUE

Percentage Of Revenue

all

Medium

Large

National

%

67.0%

63.9%

67.3%

%

23.1%

26.1%

23.3%

%

1.4%

1.4%

1.1%

%

3.3%

3.4%

3.3%

%

3.6%

3.2%

3.6%

%

0.7%

1.2%

0.7%

%

0.9%

0.8%

0.7%

%) of business revenue. This percentage remains relatively similar

again there was little variation by size – on average, the larger

or less than 10% of the total business income. reak-up across businesses of various size. The subtle differences a greater proportion of fee income, typically a result of the larger er a fee rather than commission structure. greater profit share/overrides revenue and are more likely to ancial services (eg life insurance or financial planning).

firms selected this area. highlights the need for brokers to be able to demonstrate their value proposition and to These results support the wider industry view focus their energies towards business lines that insurance premiums will harden during where they can clearly differentiate. the coming 12 months. While this will provide a revenue benefit to brokers, it also heightens Some regional brokers also provided some the need for brokers to be working hard and interesting commentary on the challenges of communicating proactively with their clients. drought.

History has shown that when markets harden the willingness for clients to seek out 9. THE BEST STRATEGY TO IMPROVE alternative options also increases.

PROFITABILITY 9. Best strategy to improve profitability Staffing efficiencies was the other key area anticipated to positively impact on Business acquisition/merger 8 profit. Some of the comments from Diversifying products and services 12 respondents that supported this view Improvement in office efficiency 19 highlighted improved systems and Increased broker fees 6 technology, heightened sales activity from existing staff and an overall focus Marketing to acquire new clients on organic growth with the resources 3 Negotiating improved terms that brokerages have to hand.

2 Other Staff recruitment

5

8. KEY AREA BROKERS EXPECT TO IMPACT PROFIT IN 2010 NEGATIVELY 7. Negatively impact the profit of your brokerage in 2010?

Some 45% of all respondents believe marketing to acquire new clients is the best Competition 22 strategy to improve their business profitability.

Compliance 7 The next most popular strategy – improving Declining interest/investment income 17 office efficiencies – was favoured by 19% of None of the above 4 respondents.

Other 3 But “winning new clients is” overwhelmingly Staff resourcing issues 13 seen as the best way to grow profitability – which leads to the question, what is the best Technology inefficiencies 4 way to win new clients? For some brokers it is The economy 30 focusing on a niche, for others it’s marketing, recruiting quality staff or upskilling existing staff.

The economy was seen as the key area most Improving office efficiencies was noted as the likely to negatively impact on business next best way to improve profit. This is high profitability in the coming year, with 30% of all on the agenda for the industry as a whole, respondents selecting this option. with brokers particularly focused on improving Almost one in four principals (22%) thought systems, getting paper out of the office and competition would be the key area to automating processes. negatively impact on business profit and this Many brokers stated a willingness to outsource was highest (31%) in the large firms. some of their administrative office functions.

Overall, 17% of respondents selected Some comments: “Staff are the key. We need declining interest/investment income. This to invest in grooming the young generation.” jumped to 27% in the medium-sized firms.

“All options above will improve profitability.

While we have seen previously that However, the best strategy would be to confidence has remained relatively high acquire or merge businesses.” across the sector and that the industry appears resilient in the face of the challenges 10. STAFF – WHO DOES WHAT of the past two years, this does not mean that The average number of staff (full time insurance brokers are immune to the equivalents) in each business was 11.4. The economic downturn. average number of principals was two.

In terms of what brokers believe will Assuming business owners are client-facing, it negatively impact profit in the coming year, shows that on average 59% of staff have competition rates highly, with much of this direct client-facing roles, with the remainder in concern centred on the growing competition support or operational roles. Having the right from insurers going direct. balance is a critical measure when This is not a new threat for brokers. But it will we consider that the overwhelming majority of not diminish, as evidenced by recent moves principals believe acquiring new clients is the into direct personal lines business by Coles best way to improve profitability. and Australia Post.

Average revenue per staff member is This continuing threat of competition

10. Breakdown of staff in your business

Role

Average Number Of Full Time Equivalents

Size

Small

Business owners New business development staff

Medium

Large

National

1.5

2.1

2.8

2.0

0.6

1.6

2.4

1.3

Client servicing brokers

1.3

3.3

9.4

3.4

Broker support staff

1.3

2.8

7.0

2.8

Administrators/other

0.6

1.7

4.4

1.7

Other

0.1

0.2

0.8

0.2

Total Staff (excluding ARs)

5.4

11.7

26.8

11.4

insuranceNEWS

December 2009/January 2010

39

45

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Page 40

MACQUARIE RELATIONSHIP BANKING INSURANCE BROKING BENCHMARKING SURVEY $162,766, and $1,047,642 per principal.

How a business tracks on this benchmark often tells a great deal about the make-up, discipline and profitability of the business.

11. HOW DIFFICULT IS IT TO FIND AND 11. How difficult is it to find and employ new staff?

STAFF? EMPLOY Participants (%) QLD 3.1

21.9

59.4

15.6

WA 7.4

33.3

37.1

22.2

NSW/ACT 8.6

24.1

36.3

31.0

SA/NT 55.6

44.4

VIC/TAS 3.8

29.1

41.8

25.3

Small 6.5

19.5

45.4

28.6

versus 63% in small brokerages).

Nationally, only 19% of principals indicated salary expectations were the main hindrance; this jumped to 36% in WA. Why are brokers finding it extremely difficult to recruit? This is endemic of an industry that struggles to attract enough young people to start their careers as an insurance professional.

They are also challenged by the salary expectations of those who are qualified and looking for change.

What was particularly relevant in the commentary was that the regional brokers are particularly hampered – they simply cannot find staff. This is a major issue for the industry and there is no quick solution.

So those brokers who are well-resourced with high-performing staff have a major competitive advantage.

support employees and income-generating staff. A third (33.3%) are looking to attract income-generating staff only, while 23.7% are looking to recruit only back-office support staff.

In WA, 88.9% of firms and 86.4% of large revenue brokerages are looking for income generators.

14. THE INDUSTRY’S RESPONSE TO NATURAL DISASTERS How do you view the response from the insurance industry to claims following the fires and floods earlier this year?

Participants (%) QLD 6.5

41.9

51.6

WA Medium 2.1

32.0

40.1

10.0

25.8

12. WHERE TO ADD STAFF

Large 12.9

22.6

45.1

19.4

1.6

What areas do you plan to add staff?

National 5.4

25.9

42.8

33.3

56.7

NSW/ACT 6.4 9.7

82.3

11.1

88.9

SA/NT

25.9

Participants (%) Easy QLD

A little difficult

41.2

35.3

Quite difficult

50.0

11.1

38.9

NSW/ACT 28.1

Just over half of all businesses (55%) plan to take on additional staff in the coming 12 months.

Two-thirds (69%) of the large firms are looking to grow their staff numbers, compared to 41% of the small revenue businesses.

68.7% of all participants stated it was either “extremely difficult” or “quite difficult” to find and employ new staff. Only 5.4% of firms thought it was easy.

This task also appears to be more difficult for the small brokers – 74% of small business respondents indicated it was either “extremely difficult” or “quite difficult”.

Two thirds of all participants (67%) said finding suitable candidates was the main hindrance to employing new staff. This was more of an issue for the large firms (72%

21.9

25.0

25.0

50.0

Neutral

VIC/TAS 20.9

32.6

46.5

Somewhat positive Very positive

Small 26.5

41.2

32.3

Medium 25.9

25.9

48.2

Large 13.6

40.9

45.5

National 23.7

33.3

43.0

Back-office staff Income-generating staff Both

Of the businesses that plan to take on additional staff in the coming 12 months, 43% are looking to recruit both back-office

Rating Rating 1

Rating 2

Rating 3

Administration skills

4.2%

1.5%

6.2%

Advertising/marketing skills

4.2%

4.2%

7.2%

Communication skills

3.3%

5.7%

15.8%

Customer relationship and negotiation skills

9.9%

29.7%

25.8%

General management skills

2.8%

4.7%

5.7%

48.4%

22.6%

9.1%

IT skills

4.2%

9.0%

11.0%

People management skills

6.6%

4.7%

7.2%

16.4%

17.9%

12.0%

Training on industry knowledge and expertise was by far the greatest need identified. This was greatest in the small brokerages, where 55% indentified this as their number one need.

More than two-thirds of the businesses also ranked customer relationship and negotiation skills in their top three training needs.

This data again highlights the deficiency of core insurance skills within the industry. It’s not surprising when we consider that many brokers have opted to recruit non-insurance staff and then develop their insurance skills.

While technical insurance training was a starting point, principals also see a need to improve the customer relationship and sales skills of its staff, while administration and management skills are less of an issue.

40

72.6

21.7

Somewhat negative

Business Function

Sales skills

National 1.0 4.7

Very negative

50.0

SA/NT

13. Greatest training needs 13.

GREATEST TRAINING NEEDS

Industry knowledge and expertise

77.5

23.5

WA

Extremely difficult

VIC/TAS 1.31.2 20.0

insuranceNEWS

December 2009/January 2010

Most brokers (73%) viewed the insurance industry’s response to claims following recent fires and floods as very positive.

This ranged from a high of 88.9% in SA/NT to a relative low of 51.6% in Queensland.

Virtually no-one – less than 1% of all participants – rated the industry’s response to natural disasters at all negatively.

But they do resent government assistance provided to uninsured property owners following the most recent natural disasters, with one in four participants (26.8%) viewing it as “very negative”.

Another 37.3% viewed government assistance in such circumstances as “somewhat negative”, and nationally, only 2.4% viewed assistance as “very positive”.

Asked about taxes and levies on insurance that most industry organisations blame for causing high levels of underinsurance, 70.8% of all respondents thought that current levels of taxation and levies on insurance premiums were “grossly inequitable”. This jumped to 90% of VIC/TAS businesses.

However, only 19.4% of WA principals held this view, while nationally, 6.6% thought the current level of taxation and levies were “not ideal but necessary”. This ranged from a high of 37.5% in SA/NT to a low of just 1.6% in NSW and the ACT. Only 3.8% of brokers said they thought the current levels were “effective”, although this jumped to 9.7% in WA. Almost half of all principals believe the likelihood of a change in the current application of taxes and levies on insurance premiums within the next 18 months is “very low”, and a further 28% rate the chance as

“low”.

– The full report can be downloaded at www.macquarie.com.au/insurancebrokers

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Page 41

W. R. Berkley Insurance Australia is an APRA authorised insurance company specialising in:

Professional Indemnity Associations Liability Directors and Officers IT Liability Management Liability

We are rated ‘A Stable’ by Standard & Poor’s and ‘A Excellent’ by the A.M. Best Company.

We have access to assets of more than AU$800 million and net assets of AU$250 million.

For more information contact Christian Garling W. R. Berkley Insurance Australia Darling Park, Tower 2, Level 21, 201 Sussex Street, Sydney NSW 2000 Phone: 02 9006 1140 Email: Australia@wrberkley.com

W. R. Berkley Insurance Australia is a trading name of W. R. Berkley Insurance (Europe), Limited

Website: www.wrbaustralia.com

INMAG Dec09:page layouts

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Page 42

Tussling for talent Big insurers are set to fight it out for the high performers as the industry emerges from a recruitment dip

By David Darragh

he flow-on effects of the global financial crisis buffeted the Australian economy early this year and led to a slowdown in recruitment in the insurance industry. But as our economy picks up, insurers are positioning themselves to emerge from the downturn next year.

Industry recruiters Michael Cichoki and Joe Ruggerio, account managers for Arnold Group Australia, say the economic downturn had a significant impact on recruitment activity, particularly between January and March this year.

The specialist insurance and safety industry recruiters say a reduction in available positions across all industry sectors was matched with a “lack of confidence in relation to career decision-making” among candidates.

“Further impact of the downturn is evidenced by clients undertaking their own recruitment,” Mr Ruggerio says.

Many specialist agencies have been forced to reduce their numbers of recruitment consultants and some agencies, particularly generalist agencies, are understood to have found it difficult to continue trading.

While the insurance industry experienced a marked dip in vacancies at the executive and middle management levels late last year, by mid-year the market was much stronger, with signs of activity improving across the board.

“We are seeing a slowdown in activity at present, but this is a normal seasonal issue as we approach the festive season, as opposed to a downturn issue.”

Companies are generally being much more selective with their recruitment processes, and good recruits are just as difficult to get as pre-downturn.

“We may have seen an increase in the volume of applications but this does not translate to quality,” Mr Cichoki says.

“Organisations shouldn’t be complacent or fooled into thinking it’s an employers’ market, because it’s not.”

Long-term shortages of recruits in particular areas of the industry continue, according to Mr Ruggerio. “In the insurance sector, underwriters and claims specialists with professional indemnity

T

and public liability experience are highly sought.

“All organisations will compete for high-calibre talent to position themselves once we come out of the downturn. Employers still need to be focused on attraction and retention strategies, because good candidates are still hard to get and they are selective about where they go.”

A spokesman for QBE Insurance told Insurance News the economic downturn has had a significant impact on demand.

“We saw a reduction by 50% in recruitment activity,” she said. “There has also been an increase in the number of candidates in the market, possibly due to reductions in workforce numbers within financial services.

“The economic downturn was in fact an opportunity for considering efficiencies and improved ways of working with the current workforce.

“As confidence in the economy improves we are seeing an upturn in recruitment activity, although it is too early to estimate how this will pan out.

Recruitment cycles and trends were turned on their head with the scale of the economic downturn, so it has been more difficult to forecast activity.”

QBE says highly experienced insurance specialists continue to be in demand, but this has not changed since before the economic downturn. Demand for IT specialists also appears to have increased.

Sourcing talented insurance professionals will be an ongoing challenge for the insurance industry, particularly as demographic changes such as the ageing workforce start to have an impact.

The company says that over the past year there has been an increase in the number of expressions of interest for working at QBE, even when a role is not being advertised.

“This has enabled us to fill roles with good people in less time,” the spokesman said. “We have also tried to be responsive to opportunities to employ top talent who have found themselves on the market or have been looking for opportunities to join a financially strong company.”

But there are still hard-to-fill roles within the industry.

“We have to work hard to market the industry as

There are still hard-to-fill jobs within the industry

42

insuranceNEWS

December 2009/January 2010

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News Ltd

INMAG Dec09:page layouts

an attractive career option. We have a competitive offering and to get the best new recruits, insurers have to get that message out to new sources of talent, such as graduates and non-traditional industries.”

Senior risk managers and experienced underwriters are also in demand. “We expect that labour force changes, such as the ageing workforce, will make this a longer-term skills shortage for the industry.”

Banks and financial institutions, especially those that are strengthening their position in the risk insurance market, and professional services and brokerages, compete for top talent.

Cameron Skews, General Manager, Marketing and Communications at the Australian and New Zealand Institute of Insurance and Finance, told Insurance News that after a cautious beginning to the year, the insurance industry has returned to investing in staff through education “in their droves” with record numbers of enrolments from May onwards.

“After a particularly busy first quarter for most companies the Institute has seen an industry-wide push to hold on to, and invest in, valued staff, evidenced by two periods of record enrolments experienced during 2009.”

Allianz Australia spokesman Nicholas Schofield says while the insurance industry avoided the levels of retrenchments that banks and funds experienced, a general decline in recruiting eventuated as companies tightened their belts during the economic downturn.

Hiring rates decreased due to a decline in turnover of staff from about 20% in a strong business cycle to around 10% as people became more wary of leaving their jobs.

The bigger insurers will be the main recruiting rivals when the economy picks up.

But there were specific areas in the industry that have had endemic shortages for some years. These in-

clude technical areas such as underwriting, product delivery, actuaries, claims management (especially in personal injury and workers’ compensation), occupational therapists and injury management specialists.

“There’s been a shortage of insurance expertise across the whole gamut of specialties for quite a number of years,” Mr Schofield says. “The economic downturn has not really changed that. We are generally recruiting across the board most of the time.”

Allianz believes the big challenge facing the industry is to market itself to recruit people from a wide variety of backgrounds.

National Insurance Brokers Association (NIBA) Professional Development Executive Linda Evans says some NIBA members reported a downturn in new recruits.

“And as a training provider we definitely saw a slowing down of traineeship participants, particularly in the larger brokerages,” she says.

Nor has there been a noticeable jump in recent recruitment. “Brokers seem to be more cautious about new hires, trying to achieve process improvement instead.”

Ms Evans says some employers are struggling to hire specialist staff because people working in broking are “hard to move”.

Even before the financial crisis there were shortages in broking roles, and brokers of all sizes have used traineeships with some success to recruit outside the industry. But they’re competing with other industries, and some of them have a higher profile among school and university students. So they gravitate to those jobs first.

“Over the years the insurance and broking industries have both undertaken a range of initiatives to get the message out to these groups about the great career prospects on offer. But it’s a big job that we have to

continually work on at all levels.

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insuranceNEWS

December 2009/January 2010

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Is PI worth the risk?

Some industries are finding it difficult to get professional indemnity insurance, and it’s not likely to get cheaper

By Sarah Schwager alk of rate rises in professional indemnity (PI) insurance has been going on since the competitive market of a couple of years ago began to diminish.

In some industries the number of claims has gone through the roof, forcing smaller players out of the market and some underwriting agencies have stopped placing the risk altogether.

Professions such as financial planners and property valuers are finding it harder than ever to get PI. It seems logical that these industries would be hardest hit, with more people being sued as the global economy took a nosedive.

But liability experts say this isn’t necessarily the reason for the increased number of notifications swamping PI insurers.

Aon Australia National Manager Professional and Consumer Services Robert Di Pasquale says there has been a stabilisation of prices over the past 18 months and insurers are now having a closer look at their risks.

He told Insurance News some professional sectors are now seeing rises of 20% or more, while other sectors are experiencing steady 5% to 10% increases or are even still enjoying competitive rates.

“Insurers are now taking more of a particular view on professional sectors and looking at the experience of those sectors, which is different to what occurred eight or nine years ago when insurers reacted with across the board increases,” he says. “Now they’re particularly focused on sectors.”

Mr Di Pasquale says Aon has found it’s not just the traditional professions – such as lawyers, accountants and engineers – that are buying PI. There is now a demand for the insurance from other sectors.

“This is probably a result of better education of the community about its rights, and the community therefore demanding greater expertise from its advisers and from its service providers,” he said. “I think this is why we’re finding claims are on the increase.”

This demand for PI over the past couple of years puts a strain on those insurers still providing PI for the risky sectors.

As the global financial crisis has pushed smaller players from the market, with many sole traders going back into full or parttime work, it also creates a scenario of less supply, more demand, heightening the push for rates to increase.

But Miramar Underwriting Professional

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Lines Manager Stuart Finlay says while many people in the market are trying to talk rates up, and while practically everyone in the industry wants rates to go up, he hasn’t seen any evidence of it.

“At the Australian Professional Indemnity Group annual conference in September, the market talk was about rates being unsustainable,” he said.

He says the push for rates to go up is only in certain occupations – primarily engineers, accountants and real estate agents, while investment managers and financial planners are “old news” now.

Miramar is one of the underwriting agencies that has steered clear of financial planners.

For insurers, PI for planners is a difficult risk. The situation so dire, the Australian Securities and Investments Commission’s recent push for Australian financial services licensees to have an automatic run-off provision within their PI policy failed because it is not available in the marketplace.

The regulator has instead had to amend regulatory guidelines to reflect that it’s not available.

Mr Finlay says property valuers, mortgage brokers and financial planners are occupation classes they have never been involved in.

“I personally have seen valuers and mortgage brokers as too high a risk at the market rate. I’ve just not written it.”

But he doesn’t deny rates need to go up.

“The market is in a state of flux at the moment,” Mr Finlay says. “I like to use the analogy that it’s like a big game of chicken and everyone is waiting for someone else to blink first.

“You would think rate rises are inevitable. If rates don’t go up you will start seeing people disappear from the market, whether that’s through mergers and acquisitions or consolidation – or they just disappear.”

It won’t be just rates that will change, either. Terms and conditions are also likely to become more restrictive as companies start to feel the pinch on their bottom line.

Mr Di Pasquale says as an insurance broker, Aon is encouraging its clients in those sectors which are struggling to get PI to have a “relationship” with their insurer so it becomes comfortable with them and understands their business.

“It’s critical in a time when claims are insuranceNEWS

occurring that insurers know how a particular client or firm operates. It makes it more attractive to them.”

He doesn’t believe the market is at a stage where some industries are becoming uninsurable.

“There will be a market there, but it will be incumbent upon the insurance buyers to display that they are worthy risks for an insurer. There may be individual cases where they are unable to purchase insurance, but I don’t think we’re there yet.”

The industry experienced a similar phase after the 2001 collapse of HIH, when some insurers withdrew from the market and there were huge price increases.

But, as a cyclical industry, slowly the supply returned and insurers came back into the market, whether they were the same or new insurers. And the competitive nature of insurance means it built up again.

Traditionally seen as a risky industry in the PI space, accounting is leading the way in minimising its liability risks.

The PI Insurance Limitation of Liability Scheme gives full coverage to members of the Institute of Chartered Accountants in Australia.

Chief Executive Graham Meyer told Insurance News that if someone makes a claim against a member of the institute, the thresholds set out in the schemes will apply.

“Before this there was the opportunity for jurisdiction shopping,” he said.

“This is good not just for the accounting profession but also the insurance industry because it provides some certainty in relation to the level of damages likely to be awarded to members of the state schemes.

“In the past, with unlimited liability, who knows what damages would be awarded.

Now as long as requirements in professional standards legislation are met, insurers will have a greater degree of certainty to what the payouts are likely to be, and the ultimate cap on those payouts as well.”

Mr Meyer believes greater certainty will lead to greater stability in the market.

Whether the industries themselves must make sure their members are protected or whether insurers decide to dramatically raise rates, there is little doubt that PI is in for some major changes over the next few years as demand continues to increase.

And whether an industry puts itself in a position where it becomes uninsurable – a direction in which financial planning has been slowly heading – will have to be seen.

December 2009/January 2010

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Fees v commissions Financial planners are banning commissions.

Should insurance brokers follow suit?

By Jamin Robertson

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she told Insurance News. “But avoiding that conflict or bias is a big step forward.

“Remuneration is the issue the community has latched on to and we’ve had to deal with that.”

The FPA board opposes commissions paid for the promotion of a product on the basis they can expose planners to the accusation that they promote advice in the interests of the planner rather than the client. The FPA’s decision does not extend to risk insurance products, which it says require further investigation.

The FPA’s stance appears to be very much in vogue, after the UK Financial Services Authority moved in June to announce a ban on commissions for financial advisers.

That met with opposition in some quarters, with UK trade press reports suggesting thousands of independent financial advisers may leave the profession as a result of the planned ban.

In Australia, opposition comes in the form of a minority of FPA members in addition to rival industry body the Association of Financial Advisers, which has issues with several aspects of the FPA’s approach. The AFA did not respond to an Insurance News invitation to comment.

“Some of the longer-serving planners are reluctant to make the change to their business

The FPA’s Jo-Anne Bloch: arresting negative publicity

signed more for the investment sector than brokers dealing in commercial risk, is it time for insurance brokers to start moving away from commissions?

ASIC thinks so. In a submission to the parliamentary joint committee’s inquiry, it claimed commission-based pay structures “can distort the quality of advice” received by clients.

A spokesman confirmed to Insurance News that ASIC’s view

There is no evidence of widespread client dissatisfaction with insurance broker services models,” Ms Bloch says. “They may be close to retirement and may not want to change the way they do business.”

There is further speculation the FPA’s move could have longterm implications for other financial services intermediaries who receive commissions, including insurance brokers. Caught up before in previous regulatory waves like the Financial Services Reform Act 2001, which was deinsuranceNEWS

extends to all intermediaries, including insurance brokers.

National Insurance Brokers Association (NIBA) Chief Executive Noel Pettersen says changes are unnecessary.

“Australian insurance brokers have high ethical standards and serve their clients well,” he told Insurance News. “Those using the services of an insurance broker appear to be well satisfied with the service they’ve received

December 2009/January 2010

and there is no evidence of widespread client dissatisfaction with insurance broker services.”

Mr Pettersen says risk insurance is “very different” to investment products, and regulatory changes to overcome managed investment scheme collapses are inappropriate when applied to insurance and broking.

“The licensing arrangements for insurance brokers are working well and there is no market distortion or client-driven demand for change. NIBA members generally have not had any involvement with the recent collapses of a number of managed investment schemes that were the subject of a recent inquiry.”

When it comes to the subject of commissions, there are few more outspoken authorities than Willis Group Chairman and Chief Executive Joe Plumeri, an ardent critic of contingent commissions paid on factors such as volume of business, renewals and profitability.

His company placed a voluntary ban on contingent commissions in 2004, a year before global rivals Marsh and SUMMIT2072

inancial Planning Association (FPA) Chief Executive Jo-Anne Bloch describes as “historic” her board’s decision to move away from commission-based fees by July 2012.

The FPA decided in October to amend its remuneration policy in favour of a fee-based structure, a revolutionary move for its membership of about 12,000.

It proposes clients be given a choice between hourly fees and asset-based fees, and would allow a transition period to give the industry several years to reconsider client-directed remuneration for advice.

It followed an FPA consultation paper that attracted 250 submissions from planners, with 68% of members in favour of the move.

The timing of the move away from commissions was fortuitous.

On November 23 the Federal Parliament’s Joint Committee on Corporations and Financial Services issued a report calling for greater transparency from financial advisers on the commissions they receive. It also advocated the development of an “appropriate mechanism by which to cease payments from product manufacturers to financial advisers”.

The Australian Securities and Investments Commission (ASIC) was also urged to work with the financial services industry on the establishment of an “independent, industry-based, professional standards board to oversee financial advisers’ nomenclature, and competency and conduct standards”.

Ms Bloch believes her association’s decision to move to a fee-based system goes a long way towards arresting some of the negative publicity surrounding the profession in the wake of the global downturn, as heavy investment losses threw the spotlight on the industry.

“We think this is one very significant step, but remuneration is not the be-all and end-all,”

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Aon followed suit.

“We’ve decided at Willis that we’re not going to go back to the old ways – we’re looking to the future and we will continue to put in place the measures that will enhance trust and transparency, not undermine it,” he told a Chicago business function in November.

“It may mean that Willis will be the only company not taking contingent commissions, but that’s okay with me.”

That’s not to say Willis bans all forms of commission. As the local arm’s financial services guide demonstrates, clients have a choice between brokerage – defined as a percentage of the insurance premium allowed to Willis by the insurer – or a fee agreed with the client. A third choice allows clients a combination of fee and brokerage.

What then, doesn’t Willis accept? The company won’t take payments based solely on the promotion of a product, known as contingent commissions.

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So much for worthwhile advice NZ financial advisers take a hit as ‘secret shopping’ study exposes some big problems

By Terry McMullan t hasn’t been a good couple of months for financial advisers in New Zealand. Legislation has been introduced to enforce a new regulatory regime, and last month a “mystery shopping” campaign by the country’s preeminent consumer group made the profession look – well, a bit crook.

Consumer, the NZ equivalent of Australia’s Choice consumer organisation, set a group of ordinary people on 33 financial advisers, with devastating results.

In a report issued last month, an expert panel judged only three of the financial plans were worth anything, with Consumer Chief Executive Sue Chetwin saying some of the remaining 30 were “just wrong” and others so confusing they even confounded the experts.

Ms Chetwin says advisers should be paid fees for quality advice, not commissions for the financial products they recommend. The NZ Securities Commission agrees, with Commissioner for Financial Advisers Annabel Cotton describing the findings as “very disappointing but not surprising”.

So disappointing, in fact, that Ms Cotton “accepted the resignations” of two members of a key committee who were attached to firms that gave advice rejected by the Consumer report’s expert panel.

Ms Cotton says she accepted the resignations to “remove the potential for loss of public confidence” in the work of the Code Committee, which she set up in July to develop a code of conduct which will form an important part of the new regulatory environment for financial advisers.

The Financial Advisers Act 2008 will be implemented from December next year, and brings NZ advisers broadly into line with their international counterparts.

It takes a tiered approach to the licensing of intermediaries, with category 1 advisers – those providing financial advice on “complex products” like shares and managed funds – being autho-

I

Willis chief Joe Plumeri: enhancing transparency

“Our basic principle and guiding philosophy is that we represent our clients, and we operate in the best interest of our clients at all times,” Willis Australasia Marketing & Communications Manager Claire Webb told Insurance News. “Contingent commissions are not, and never will be, best for clients.”

As for financial planners, the FPA’s Ms Bloch is emphatic that the abolition of a commissionbased fee structure will greatly improve consumer confidence in her industry – a great boon during uncertain times.

“Consumers want this change, the majority of members want this change, and so do key stakeholders,” she said. “You’d have to be blind not to see what’s going on and to walk the other way.”

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December 2009/January 2010

rised by the Securities Commission, with the code of conduct setting minimum standards of competence, ethical behaviour and client care.

General insurance brokers are regarded as category 2 advisers, who provide advice on “simple products” such as consumer credit and insurance products. The Insurance Brokers Association of New Zealand plans to introduce its own professional education system to enhance the effectiveness of its members following the introduction of the new system. Its Chief Executive, Gary Young, is also a member of the commission’s Code Committee. The draft code is expected to be completed early next year.

For financial advisers, the Consumer investigation has been a bitter pill. Its report found only three of 17 plans could be rated as “good”; investment plans were mainly “disappointing” and pre-retirement plans were worse.

As for analysis and advice, the report says there was little advice, inadequate analysis and some advice was “not in the customer’s best interests”.

It also noted a lack of information about investment costs, the impossibility of assessing whether portfolio services were value for money; the high cost of getting advice; and the fact that recommended investment strategies could be too expensive to be of value.

The study involved 11 “mystery shoppers” who used their own circumstances. They approached 33 advisers representing institutions, nationwide chains and standalone adviser firms.

Eighteen were asked to provide investment advice and 15 were asked to provide “preretirement planning” advice.

Eventually 17 advisers provided plans – 16 in the form of written plans and one consisting of documents related to the verbal advice the adviser gave.

The plans were then submitted – with names blanked out – to a three-member expert panel, which sorted them into “good” (clear, relevant and specific advice that was likely to be in the shopper’s best interest); “disappointing” (lacking good analysis, unclear or costly and needing modification); and “rejected” (little relevant analysis or advice, some of which was not in the shopper’s best interest.)

Of the 17 plans, six were rated as disappointing and eight were rejected.

Ten were seen as investment plans. Two of those were rated good, five were disappointing and three were rejected.

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The remaining seven plans were rated as preretirement plans. Only one was rated as good, one was disappointing and five were rejected.

Of the 17 plans reviewed by the panel, 12 were found to have poor analysis or to lack a meaningful rationale. “This was a particular problem for the six investment plans where the adviser was recommending the shopper put most or all of their lump sum with one provider group.”

No reason for the selection of the provider group was given.

Ms Chetwin says most of the plans were “seriously lacking in analysis and advice – areas that demand good knowledge and technical skills”.

“Consumers need access to unbiased advice,” she says. “But this won’t become an industry norm until commissions are banned. Doing away with commissions is an essential change.”

The quality of disclosure about costs and provider/adviser relationships was “appallingly low” among most advisers involved in the study, and Ms Chetwin says NZ consumers aren’t getting the information they need.

“Advisers can over-charge for their services because consumers don’t know when they’re paying good money for bad advice.”

The report says the cost of financial and investment plans ranged from zero to more than $NZ1200 ($941), and in all but one case the advisers also appeared to accept remuneration by way of brokerage, commissions, trading margins or other payments from product providers – “although to what extent was often unclear”.

Commissions on life insurance sales may be providing a benchmark for the remuneration expected by advisers selling other financial products, the report says. Typical sales commission appears to be 90% of the first year’s annual premium for the life policy, “plus various ongoing trailing commissions that are paid as long as the policy is maintained by the client”.

“Sales commissions on investment products may also be leading to expectations of remuneration levels which exceed the level of service offered.”

Several plans initially appeared to be personalised, independent advice, but were eventually revealed to be “a carefully worded sales pitch for the products of one provider group to which the adviser had remuneration and other ties”.

“Financial literacy is not the main issue, information quality is,” the report says, noting the low quality of information provided to consumers is a

problem resting with the providers who rely on selling via advisers.

“Given the providers are tied so closely to advisers in many instances – providing material for the plans, for example – they must share responsibility for the quality of information which flows through advisers to consumers.”

What’s to be done about the problem?

Consumer suggests the “secret shopping” approach could be continued by the Commerce Commission – in much the same way that the Australian Securities and Investments Commission has done in the past – with advisers and providers facing fines or paying compensation if the goods or services were unsuitable.

“We believe immediate changes to how the current consumer legislation is enforced could bring real benefits,” the Consumer report says.

“Consumers need enhanced protection from poor-quality financial products and services as

soon as is practicable.” insuranceNEWS

December 2009/January 2010

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No poor excuses Taxes aren’t the only issue for low-income earners seeking insurance

By Jeff Morse s insurance too expensive for some people? Does the low-income earner or pensioner not figure on the insurance industry’s radar? If the industry’s interest in studying the problem is anything to go by, they certainly are on the radar.

While Victoria’s deadly February 7 bushfires have brought underinsurance and non-insurance under renewed scrutiny, with the role of premium taxes as a disincentive to insure also being criticised, it would be all too easy to forget that affordability isn’t all about taxes.

Not all advocates of affordable insurance are putting their eggs in the taxation basket.

Recognising links between income, home ownership versus renting and underinsurance, there are mounting calls for greater flexibility on things like payment options on premiums and excesses – even the design of the policies themselves.

Lawyer Denis Nelthorpe says his discussions with insurers are yielding increasingly broad support for the “particularly radical” propositions on his affordability wish list.

As a former independent consumer representative on the general insurance industry’s Code Compliance Committee and a member of the Financial Ombudsman Service board, he knows the insurance industry and is well-known within it.

Among Mr Nelthorpe’s wish list: • Introduction of a fortnightly Centrepay option to have premiums paid directly through Centrelink, as a matter of urgency.

• Removal of unaffordable excesses or the introduction of options for the payment of excesses by instalments.

• Promotion of increased availability of car and contents insurance for low and lower-middle income consumers with more affordable and appropriate policies such as renters’ insurance.

• Renters’ contents policies to include emergency accommodation as a benefit in the event that leased premises are destroyed or made uninhabitable.

• Group contents policies for tenants in government housing with a lower sum insured and collected through a small contribution included in the rental payment.

• Insurers to help consumers reinstate policies if they lapse due to non-payment through financial hardship.

Mr Nelthorpe says at least three major

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insurers are well down the track of looking at alternative payment arrangements.

“We would go so far as to say that if you want people on low incomes to purchase insurance products and you don’t have Centrepay capacity, you either aren’t serious or you don’t know what you’re doing,” he told Insurance News.

Age pensioners provide a good example of cashflow being an issue in insurance affordability, as they may be asset-rich through home ownership, but income-poor.

The Brotherhood of St Laurence called for “no frills” insurance products and payment methods more appropriate to people on low incomes in a submission to the General Insurance Code of Practice review earlier this year.

Low income, high exposure • 23% of Australian residential households have no building or contents insurance • People with building insurance are more likely to have contents insurance • Those on lower incomes (including home owners) are less likely to have both building and contents cover • The rate of non-insurance is much lower for those with mortgages but it is still significant • Non-insurance appears to be higher for those most exposed in case of loss, such as single parents and retirees with mortgages Source: Insurance Council of Australia report, 2007

insuranceNEWS

December 2009/January 2010

Apart from Centrepay capability, the charity wants more options for the payment of excesses than are currently available, a level of cover for people with limited household assets and “disaster cover” that pays out only in the event of substantial loss above a certain value.

Spokesman Gerard Brody told Insurance News people on low incomes need a fortnightly payment option because that is the way they budget – especially if they are receiving payments through government assistance.

He says the group has been in continuing discussions with insurance companies.

“I understand some of them are looking closely at the issues,” Mr Brody says.

Insurance groups contacted by Insurance News for comment on the affordability proposals by Messrs Brody and Nelthorpe neither rejected nor embraced them.

Suncorp and IAG declined to comment, as did the Insurance Council of Australia.

Whether affordable insurance along the lines proposed is financially viable is unknown.

Monthly premium payment options throughout the industry have provided an aspect of flexibility, but it often comes at an additional price.

A survey by consumer organisation Choice found only eight of the 27 general insurers it investigated allow monthly payments at no extra cost.

Just who bears the cost of underinsurance and non-insurance is a vexing question, particularly against the background of more frequent extreme weather events anticipated as a result of climate change.

For instance, a report based on resident surveys after the Coffs Harbour deluge in March has provided food for thought, revealing not only gaps in insurance but in government-funded relief.

Apart from identifying cases of underinsurance and resultant financial hardship, it found that only 10% of respondents received government financial assistance while 23% had applied but were ineligible.

The social problems arising from loss of homes and contents in the face of inadequate insurance and governments’ limited ability to meet the shortfall provide challenges for the community in general.

How the insurance industry reacts to the challenge will be of unquestionable public

interest.

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NEWS

Law

Legal eagles spread their wings The industry’s law leaders are expanding their educational reach beyond the CBD

By Jeff Morse irst, the bad news: insurance law isn’t getting any simpler. The good news is that insurance lawyers are doing more to help people understand it.

David McKenna, the new president of the Australian Insurance Law Association (AILA), has unveiled a range of initiatives for the coming year that will take insurance law beyond capital cities and to as many people in the insurance industry as possible.

He says the association wants to maintain and build on its position as “the pre-eminent provider of insurance law education” and, in particular, expand its services to regional areas.

“A major initiative to achieve this is the addition to the AILA website of a library of resources from conferences, seminars and presentations that date back to AILA’s origins,” he told Insurance News.

“We will also explore video streaming and other new technologies to ensure we can

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provide an improved service to members in regional areas.”

Several people in regional Australia have taken up the association’s new associate membership. Other new membership classes include corporate and student.

Mr McKenna is a partner in Perth-based boutique insurance litigation firm Jarman McKenna.

He replaces Chris Rodd, the technical counsel at CGU Insurance in Victoria, who is staying as an AILA board member.

Mr McKenna says Mr Rodd’s presence on the board means a lot in terms of industry representation.

So too does the entry of two new board members from the front line of the industry – Kate Farrell, Liability Account Manager at Proclaim Management Solutions and Nick Codd, the General Manager of Austbrokers Professional Services.

The next 12 months promises no shortage of issues for those who follow insurance law.

Looming over the horizon are the ongoing review of the Insurance Contracts Act, proposed harmonisation of state laws and further developments in case law.

Several significant High Court decisions are expected in the next six months. Two that insurance lawyers are keeping a close eye on are Gett v Tabet (loss of chance due to negligence) and Amaca v Ellis (causation and insuranceNEWS

proof when a smoker exposed to asbestos dust at work dies of lung cancer).

While conceding that some insurance law subject matter can be “fairly technical”, Mr McKenna says it need not be offputting, particularly with the care AILA takes to be mindful of seminar audiences.

“AILA provides a range of practical seminars that enable lawyers and non-lawyers to come to grips with what can be quite complex areas of law and how they will impact everyday claims management.”

The goal, he says, is to use presenters who can pitch their material towards those who are not lawyers or are relatively new to the industry.

“The seminar programs run by the state chapters are very successful, but the programs are constantly being reviewed to see if there are areas for improvement.

“New South Wales, for example, has been very successful with functions for young people in the industry – 400 were registered for one event. This is something other states are monitoring, with a view to emulating NSW’s success.”

Mr McKenna’s association with AILA dates back to 1987, the year he began practising insurance law.

He joined the national board in 1997 and was secretary from 1998 to 2007, before becoming

Vice President last year.

December 2009/January 2010

New AILA President David McKenna: taking legal education beyond the capital cities, and (below) the Australian Insurance Law Association’s updated logo

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Britain wins the battle of Lexington The House of Lords considers how different jurisdictions consider similar wordings This is an abridged version of an article by Heidi Nash-Smith, a lawyer, and Amanda Lees, a senior associate at Blake Dawson in Sydney he governing law provisions in reinsurance contracts need careful examination, because so-called backto-back insurance and reinsurance contracts are separate agreements and each may have its own separate meaning according to its own terms and governing law.

Under English law, reinsurance contracts reinsure the original subject matter of the insurance, but not the liability of the reinsured as such.

In a recent decision dramatically overturning a judgement by the British Court of Appeal, the House of Lords dealt with important issues regarding the relationship between back-to-back insurance and reinsurance contracts where they are governed by different systems of law.

As a result of this decision – Lexington Insurance Co v AGF Insurance Ltd – identical clauses in back-to-back insurance and reinsurance contracts may be given different interpretations, with sometimes serious and surprising consequences for the reinsured.

Insurers seeking reinsurance in the London reinsurance market now need to be aware that equivalent language in each of the contracts may have a different legal effect as a result of different governing laws.

Insurers who want to reinsure themselves on a fully back-to-back basis should ensure that the insurance and reinsurance are subject to the same identifiable governing law. Where this is not possible, the reinsurance contract should make it clear that the reinsurer’s liability is to be interpreted according to the terms of the underlying insurance as governed by the law of the insurance contract.

Swedish insurer Wasa International and Allianz-owned French insurer AGF provided facultative reinsurance cover to Lexington in respect of its liability under an insurance contract provided by Lexington to the Aluminium Company of America (Alcoa).

The insurance contract provided property and business interruption cover.

Alcoa sustained environmental damage at a number of sites in the United States between 1942 and at least 1986 – a period

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of about 44 years.

The US Environmental Protection Agency and various state agencies required Alcoa to clean up this pollution and contamination, and Alcoa sought a declaration of entitlement to insurance coverage in respect of the cleanup costs at 58 US manufacturing sites.

Lexington’s insurance contract with Alcoa provided cover for 36 months from 1 July 1977 to 1 July 1980 with a sum insured of $US20 million per occurrence. The policy did not contain an express choice of law clause, but contained the following standard US service of suit clause: “In the event of the failure of this company to pay any amount claimed to be due hereunder, [Lexington] at the request of the insured, will submit to the jurisdiction of any court of competent jurisdiction within the US and will comply with all requirements necessary to give such court jurisdiction and all matters arising hereunder shall be deterinsuranceNEWS

December 2009/January 2010

mined in accordance with the law and practice of such court.”

Lexington reinsured the exposure on the London reinsurance market on the same terms and conditions “as original” including, specifically, the three-year insured period.

The reinsurance slip was held to be governed by English law.

In all material respects save the applicable law governing the contracts, the terms of the reinsurance mirrored those of the insurance contract.

Alcoa commenced proceedings in the state of Washington to determine whether and to what extent it was entitled to be indemnified against the clean-up costs by its insurers, which included Lexington. One of the coverage issues considered in the US litigation was whether pollution damage which had spanned more than one period of insurance should be allocated to the period of any particular policy, and if so how.

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The Washington Supreme Court decided that under the law of Pennsylvania – the state where Alcoa’s headquarters were located – Alcoa could recover from Lexington the full costs of remediation at any particular site provided only that some damage had occurred at the relevant site during the years when Lexington was at risk.

As a result, Lexington was liable to indemnify Alcoa not only for loss or damage during the three-year policy period, but also for pollution damage over much of the 44year period.

Lexington settled a claim of about $US180 million for $US103 million and then looked to its reinsurers, Wasa and AGF, for indemnity. Both reinsurers sought declarations in the English Commercial Court that they were not liable to indemnify Lexington.

They contended that the loss arising from Lexington’s settlement with Alcoa did not fall within the terms of the indemnity provided by the reinsurance slip.

As a matter of English law, the reinsurers could not be liable for the cost of remedying damage which occurred before or after the three-year reinsurance period.

Lexington contended that the reinsurance and insurance contracts were intended to be “back to back”, with the result that any loss within the coverage of the insurance would be within the coverage of the reinsurance. It said English law should read the language of the reinsurance in the sense given it by the Washington court.

The commercial court judge agreed with the reinsurers that the loss claimed by Lexington did not fall within the reinsurance contract as a matter of English law.

Lexington appealed, and in a unanimous and strongly reasoned decision, the Court of Appeal reversed the lower court’s decision and found the reinsurers liable.

The appeal court judges considered the extent that the parties used the same or equivalent wording in the reinsurance as in the underlying insurance, and whether the wording had the same meaning in both contracts.

While the clause covering the period on cover was expressed in slightly different words in each policy, Lord Justice Andrew Longmore found that the period was effectively identical. He said the parties must have intended that wording to have the same ef-

fect in each contract, and concluded that the “same period of cover should receive the same interpretation in both the original insurance and the reinsurance” unless there were clear indications to the contrary – which there were not.

The reinsurers then appealed to the House of Lords, who unanimously allowed the appeal by the reinsurers and restored the commercial court judgement. The policy period in the reinsurance is therefore to be given the effect it has under English law.

The House of Lords held that it could not have been anticipated at the time the reinsurance was written that the primary insurance would be determined according to the law of Pennsylvania. It found that the US judge decided to apply Pennsylvania law because that state was “the one commonality between all the sites and all the defendants”.

Under English law, a contract has a meaning which is to be ascertained at the time when it is concluded, having regard to its background and surrounding circumstances within the parties’ knowledge at the time.

It followed that the reinsurers could not have intended at the time the contract was entered into that the period of cover in the reinsurance would be interpreted according to Pennsylvania law.

In the Court of Appeal, Lord Justice Sedley had suggested that the “need for the fiction that reinsurance covered the primary risk and not the insurer’s own potential liability” is “long spent” and that the “reality” is that “what is reinsured is the insurer’s own liability”.

This was rejected by the House of Lords, which confirmed it is an established principle under English law that under a contract of reinsurance in relation to property the reinsurers insure the property that is the subject of the primary insurance. It is not simply a contract under which the reinsurers agree to indemnify the insurers in relation to any liability that they may incur under the primary insurance.

The House of Lords reaffirmed that even if there is a “follow the settlements” clause, a reinsurer would only be bound to follow its reinsured’s settlement and indemnify the reinsured provided that the claim “falls within the risks covered by the policy of rein surance as a matter of law”. insuranceNEWS

December 2009/January 2010

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lawNEWS

D&O insurers can take heart from a judge’s thoughts on the business judgement rule

n November 18 New South Wales Supreme Court Justice Robert Austin delivered his long-awaited judgement in the drawn out claim by the Australian Securities and Investments Commission (ASIC) against two directors of the now defunct One.Tel for breaches of their duties of care and diligence as directors.

In a stunning blow to the regulator, the judge ruled against ASIC on all aspects of its claim.

In 2001 ASIC brought proceedings against three former directors and the non-executive chairman of the now defunct One.Tel Limited and its relevant subsidiaries, alleging they had breached their duty of care and due diligence under section 180(1) of the Corporations Act 2001 by failing to disclose the company’s true financial position to the board and to the market over a five-month period from January to May 2001.

The proceedings against one of the executives and the chairman were discontinued in 2003 and 2004 following settlement agreements which effectively banned those directors from future directorship for defined periods and held them liable to pay various amounts of compensation to the company.

ASIC maintained the proceedings through a marathon hearing against the joint chief executive and director, Jodee Rich, and finance director, Mark Silbermann.

The sole cause of action pleaded by ASIC against the defendants was a breach of the duty of care and diligence under section 180(1) of the Act. It alleged the defendants misled the board about the true financial position of the company, among other things.

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One.Tel: a matter of business judgement

News Ltd

By Matt Foglia, Special Counsel, and Richard Bassingthwaighte, a solicitor at law firm Wotton & Kearney

Sending a message: Jodee Rich shortly after a judge threw out ASIC’s case against him

The regulator sought civil penalties, including banning orders preventing the defendants from holding future company directorships; and $92 million compensation on behalf of the company’s creditors for losses.

More particularly, ASIC alleged that the defendants misled the board and the market as to the true financial position of the company across an extended period in 2001. That meant the court was required to consider the financial position of the company, and the group of which it was a part, in order to determine whether the defendants had breached their respective duties.

The defence focused on ASIC’s failure to prove its case.

They also relied heavily on the business judgement rule contained in section 180(2) of the Corporations Act, which provides a defence that where commercial decisions are made there should be a rational belief the business judgement is in the best interests of the company.

Justice Austin found against insuranceNEWS

ASIC on all aspects of its case and granted judgement for Mr Rich and Mr Silbermann. In a written decision which ran to more than 3000 pages, the judge painstakingly analysed the relevant facts and the law supporting his decision in favour of the defendants.

We do not propose to go into detail in this article about the evidentiary basis for the decision, as the basis can be succinctly summarised from the following extract of the judgement: “ASIC’s contentions have a superficial appeal, but time and again they were shown to be unpersuasive when the underlying financial detail was investigated.”

Instead, we propose to focus on two particular aspects of the judgement which are likely to be of interest to directors’ and officers’ (D&O) insurers, namely the criticisms of ASIC’s handling of the case; and Justice Austin’s analysis of the business judgement rule.

Both of these issues may help shape the future direction of ASIC’s enforcement activity.

December 2009/January 2010

The most significant criticism was that ASIC’s case was far too broad. It directly put in issue the financial condition of the company over an extended period of time, rather than at a single date.

In the words of Justice Austin: “There is a real question whether ASIC should ever bring civil proceedings seeking to prove so many things over such a period of time as in this case.

“A case might have been brought focusing attention on One.Tel’s financial condition at a particular point in time.

“I do not mean to express an opinion about the likely outcome of such a case. Rather, my point is that such a case would have established much more limited boundaries of relevance and would have required an assessment of the group’s financial position at the precise time of publication of the media statement.

“Instead, we have had a case which seeks to prove the financial condition of a large multinational corporate group with various businesses, some in start-up mode and some more established, over a period of four months, with a view to establishing not one but many breaches of the statutory duty of care and diligence.

“I wonder whether that is beyond the bounds of reasonable scope of civil litigation.”

A director’s duty of care under section 180(1) of the Act is an objective “reasonable person” standard. According to Justice Austin, the objective standard in the case of an executive officer or executive director “has regard to the knowledge and expertise of persons in the same recognised calling as the person charged with contravention, and therefore recourse may be had to the evidence of experienced people who have occupied similar offices”.

The business judgement rule, contained in section 80(2) of the Act, essentially provides a defence to an alleged contravention of section 180(1). Three areas of significance identified by the judge were: 1. Onus of Proof: Justice Austin concluded that the onus of proving the four elements of the business judgement rule rests on the defendant.

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2. Informing oneself about the subject matter: The judge said the qualifying words, “to the extent they reasonably believe to be appropriate”, convey the idea that protection may be available even if the director was not aware of available information material to the decision, if he reasonably believed he had taken appropriate steps on the decision-making occasion to inform himself about the subject matter.

3. Rational belief as to the best interests of the corporation: ASIC contended that the terminology of a “rational belief” should be equated to “a reasonable belief”. But Justice Austin said such an interpretation would render the business judgement rule useless, as the “rational belief” element would only be satisfied in circumstances where there was a “reasonable belief”, in which case there would be no contravention of section 180(1).

Instead, he concluded that the “rational belief” element of the rule is satisfied “if the evi-

dence shows that the defendant believed that his or her judgement was in the best interests of the corporation, and that belief was supported by a reasoning process sufficient to warrant describing it as a rational belief, as defined, whether or not the reasoning process is objectively a convincing one”.

In other words, the rule has real work to do in that the “rational belief” standard is a lower standard than the objective “reasonable person” standard of the duty of care and diligence.

It is too soon to tell whether ASIC will appeal the judgement.

Nevertheless, there are clear lessons which ASIC will likely take away from this case.

In particular, we would expect that ASIC will in the future try to narrow the scope of its enforcement activities to a particular contravention at a particular point in time in order to avoid the significant evidentiary problems it encountered as a result of the breadth of this case.

insuranceNEWS

Such a development would no doubt be welcomed by D&O insurers as this could result in lower litigation costs in civil penalty proceedings such as this.

D&O insurers and their insureds may also find some comfort in Justice Austin’s expansive analysis of the business judgement rule.

The decision confirms that directors and officers have the potential to argue that commercial decisions, coupled with a “rational belief”, remain reasonable.

We would also expect to see ASIC continuing the trend of pursuing enforceable undertakings as an alternative to costly – and, as this case has demonstrated, risky – civil penalty proceedings.

Is this the end of the One.Tel saga? Not yet. Apart from a potential appeal of this decision by ASIC, there also remains a filed but as yet unserved claim by the company’s special purpose liquidator which includes

December 2009/January 2010

allegations against Publishing & Broadcasting Ltd (PBL) and News Ltd regarding a decision to cancel a $132 million rights issue which may have contributed to the company going into voluntary administration in May 2001.

Justice Austin commented: “One of the unanswered questions is whether One.Tel would have survived if, in May 2001, PBL and News had maintained their support for the company and implemented their plan to underwrite a deeply discounted rights issue to raise $132 million.

“The withdrawal of that support, and the abandonment of the rights issue, may well have ensured that the company could not survive.”

The liquidators of the company must now decide whether the cause of the collapse can be attributed directly to those associated with the withdrawal of support for the rights issue, or whether those decisions were based on misleading information

from the company itself.

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Back in the centre Premium funding specialist Centrepoint Alliance has emerged from a difficult year positioned for growth

Driven to perform: Lumley Chief Executive Vivek Bhatia (centre) congratulates Daniel Berenger of Woolworths (left) and broker Mike Walsh of Aon on Woolworths’ award

Hard times drive safety focus Lumley Insurance’s benchmark program helps curb rising fleet claims costs umley Insurance says fleet and risk managers are raising the bar on safe driving as they battle cost pressures in tough times.

The insurer, which presented its 15th annual motor Benchmark in October, says its clients are more aware than ever of collisions as a cost to business, as well as an occupational health and safety risk.

Lumley’s New South Wales Motor Manager, Robert O’Shea, says managers are really feeling the financial crunch.

“The cost of claims is up 10%, largely due to the rising price of spare parts,” he told Insurance News. “Add to this increased maintenance costs as companies keep their fleet vehicles for longer.”

The Lumley Insurance Benchmark, which has been operating for 15 years, is based on a partnership between the insurer, its clients and their brokers to analyse motor fleet collision statistics and costs for sedans and light commercial vehicles. It also helps identify other relevant issues.

The program allows clients to see how

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their fleet compares to the industry average and benchmarks on a range of operational points.

For 2008/09 the average number of driver-at-fault claims was 58%, continuing a stable trend over the last three years.

The average claim rate, based on the percentage of crashes per 100 vehicles, was 30% over the same period, down from 37% five years ago. Lumley’s benchmark is 20%.

“Fleets that perform significantly below the benchmark have strong fleet risk management programs in place,” Mr O’Shea says.

“On average, 93% of all crashes involve driver error. This means effective programs must focus on driver awareness and training.”

This year’s awards function in Sydney, the largest yet, was attended by 120 fleet manager clients and their brokers.

The Woolworths fleet won this year’s Lumley Insurance Benchmark Award for Inspiring Excellence in Fleet Risk Management.

Fleet insurance is a core specialty for the insurer.

Mr O’Shea says driving is probably the most inherently risky thing people do daily.

“Many Australians drive as part of their job, and we believe companies can reduce their collision rate and protect employees by implementing some simple education and training along with appropriate manage ment controls.” insuranceNEWS

December 2009/January 2010

Dual’s Damian Coates: trouble-free transition

ual Australia continues to grow rapidly, with a new Lloyd’s underwriting partnership and an extended product range.

Since December 1 the underwriting agency has been writing solely on behalf of Lloyd’s syndicate Arch, placing Dual in the top three Lloyd’s coverholders in Australia with a $50 million book of business. It has also extended its range of insurance products to include

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companyNEWS entrepoint Alliance is in good shape at the end of a tough year, the premium funder having trimmed any excess to emerge at an appropriate fighting weight.

Its prospects are emboldened by the presence of new Managing Director Tony Robinson, known in the insurance industry as something of a “floating Mr Fixit”.

He laughs off the tag, but the specialist manager – “I do the managing and help the experts to get on with their work” – is well regarded in the industry.

His colourful corporate career includes serving as chief executive of broker OAMPS from 2001 until 2006, and then as managing director at IOOF, where earlier this year he organised the merger of the funds manager with AWM. Five months into his new role at Centrepoint, Mr Robinson is firmly focused on delivering for the premium funding specialist.

“We’re adopting a change in attitude, and a change in outlook,” he told Insurance News, reiterating his belief in strong client relationships.

The company’s prospects appear bright.

In late November directors confirmed the success of an $8 million capital-raising and have positioned the company to take advantage of opportunities for further growth.

Some of that will be organic, but the fourth-largest Australian premium funder is also maintaining a watching brief on some of its smaller rivals.

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“We’re looking for complemetary operations, perhaps with a different geographical exposure,” Mr Robinson told Insurance News.

“We think there are some opportunities.”

Chief Executive Insurance Premium Funding Bob Dodd says the focus “is clearly back on the customer”.

“We’re concentrating on service, consistency and reliability for brokers.”

There are already signs of Mr Robinson bringing his experience to bear, having joined Centrepoint Alliance at a time of considerable upheaval for the company.

Centrepoint reported a net loss of $30.4 million in the financial year to June 30 compared to a loss of $9.5 million the previous year.

It was clear the company’s future lay in the profitable insurance premium funding business led by Mr Dodd. Last year his unit returned a net profit of $2 million amid less impressive results from other arms of the business. Unprofitable finance units responsible for much of the damage were jettisoned from December 31.

Further restructuring followed after the company voluntarily suspended trading in its shares in May as the then-directors worked through the company’s funding, strategy and capital structure.

Nearly two months later Centrepoint announced a major restructure, ending a preferred funding agreement with Wesfarmers Insurance and emerging with a leaner, more efficient business model.

Mr Robinson says Centrepoint’s simpli-

Centrepoint’s Tony Robinson: change in outlook

fied approach sits well with its backers. It has secured the financial backing of the National Australia Bank and maintains its joint venture with cluster group IBNA, which Mr Dodd describes as “solid and growing”.

That could be something of a mantra for the whole company as the new year

approaches.

Still growing fast Dual Australia introduces new underwriting and product initiatives

accident and health cover.

The partnership allows Dual to offer security through Lloyd’s A+ rating, viewed as an attractive proposition in the wake of the global financial crisis.

“During uncertain economic times, Lloyd’s with its 321-year history is the safest place to be,” Dual Australia Managing Director Damien Coates told Insurance News.

The transition of Dual’s financial lines from Lumley

Insurance to Lloyd’s has been trouble-free, he says.

The new arrangement with the Arch syndicate brings Dual Australia into line with Dual International subsidiaries in the UK, Italy, Spain and Germany.

And entry into the Australian accident and health market allows the local operation to further capitalise on five years of strong growth at an annual compound rate of 30%.

The company has recruited insuranceNEWS

former Ace Insurance managers Clinton Evans and Dominic Brannigan to lead the business, with Mr Evans serving as National Accident and Health Product Manager and Mr Brannigan as Senior Underwriter.

Mr Coates says the company’s rapid growth is due to its ability to serve the needs of the small and medium enterprise (SME) sector.

“Our modus operandi has been to take complex products and

December 2009/January 2010

deliver them in a simple way that suits the SME segment,” he said.

That approach has underpinned Dual’s reputation as a mid-market specialist, with the company serving more than 12,000 Australian policyholders from bases in four state capitals.

With its new underwriting partnership offering further scope for opportunities through Lloyd’s, there is every chance that growth will continue at a

swift pace.

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Generating togetherness Facebook, social networking and the web are all weapons in the battle for the next generation’s hearts and minds

By David Darragh nsurance industry associations have turned to modern communication tools such as Facebook, social networking events and funky-looking websites to engage the new generation of professionals.

In recent years, programs such as Australian and New Zealand Institute of Insurance and Finance’s (ANZIIF) Generation i and the National Insurance Brokers Association’s (NIBA) Young Professionals have been created to target the next generation and help them make their way in the industry.

Generation i is tailored to provide young insurance professionals (under 35s) with regular networking opportunities ranging from social occasions to educational, professional development and career-building events that are kept to a minimal cost.

ANZIIF General Manager Marketing and Communications Cameron Skews says the institute, with industry support, created the Generation i program in a bid to build and foster camaraderie among young professionals.

“Generation i seeks to engender a sense of community and support, pride and industry engagement in young insurance professionals who are still finding their place in the industry.”

The new program promotes its educational, social and networking events on a website and, of course, has its own Facebook page boasting 196 members at this stage. It describes Generation i as “a portal for young insurance professionals to check out what’s new in the industry, and chat to other young professionals”.

Generation i says it provides young insurance professionals with “a collective voice, to gain a stronger sense of community while you are finding your place in the industry”.

“Key to this is a range of regular networking events that make it easy for

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like-minded professionals to meet and engage with others from different facets of the industry – to learn, network and develop relationships that will continue to benefit them throughout their professional lives.”

Mr Skews told Insurance News that chief executives last year listed the talent and skills shortage as one of the top three problems facing companies.

“The high turnover levels dipped significantly during 2009 as people hunkered down during the global financial crisis,” he says. “But with employment and employee movement levels starting to return to some level of normalcy the issue of talent will soon be edging into the risk lists of major companies once more.

“With that in mind, retention of staff is a major priority and the industry is deploying all sorts of strategies to retain performing staff.”

Mr Skews says the institute believes creating a stronger community for young insurance professionals is vital to the longterm strength of the industry.

“It’s an important step towards improving our position in the recruitment and retention market. In terms of attracting new talent to the industry, one of the biggest barriers is a lack of understanding of insurance itself and the opportunities that our industry offers”.

ANZIIF has also developed the Careers in Insurance booklet, which engages a young audience and highlights the scope and size of the industry, the vast breadth of opportunities, and the “interesting and sexy side” to working in insurance.

With the support of seven companies – QBE, Steadfast and CommInsure in Australia and NZI, State, QBE and Sovereign in New Zealand – ANZIIF set up what Mr Skews says is “the largest careers initiative ever seen” in the two countries.

He says 100,000 copies of the careers booklet have been distributed to every high school, college and university in Australia and New Zealand.

“A dedicated Careers in Insurance website has also been aligned with the booklet to better educate young people so that they discover the industry for themselves rather than just ‘ending up in it’.”

NIBA has also been actively courting the industry’s younger generation through its Young Professionals program.

Professional Development Executive Linda Evans says Young Professionals run educational events, social functions and some special projects. insuranceNEWS

December 2009/January 2010

“Young Professionals have been around for many years, and each group is connected to a NIBA state committee,” she told Insurance News. “NIBA helps run seminars and events for the groups, which are made up of brokers, insurers and others who want to network and participate in the learning activities.

“I would recommend that people get involved in YP committees because it gives you a chance to meet a wide range of people and an insight into the workings of the industry from a different perspective than your dayto-day broking role.”

Ms Evans told Insurance News the New South Wales Young Professionals mentoring program is an exciting new initiative.

“We have two free 12-week programs each year, and we’re now in our third round.

I have to say it is one of the best things we do to help younger brokers and insurers develop professionally.

“It’s all about experienced mentors helping their less experienced colleagues to understand how to work professionally, how to understand themselves and what they want out of their profession.

“There are lots of people in our sector – insurers, loss adjusters, brokers and lawyers – who have wisdom to offer. It’s great to see how much this is valued.”

Ms Evans says the average age of principal brokers is around 55-60, and it’s a good time for the “30-somethings” to focus on their management and supervision skills.

“They need to learn as much as they can from the older generation while they can – even if they have to prod the ‘oldies’ to give them more mentoring and training. A lot of companies have good training courses for younger managers – broking and insurance

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Social networking helps: around 500 people at last month’s Australian Insurance Law Association Young Professionals “Summer Stimulus” party in Sydney

alike – so everyone is recognising that there is a changeover of the leadership reins in progress.

“There will be a huge skills shortage in a few years, so we can’t let all the 50-plus people just walk out the door. It’s time for businesses to get creative in terms of how they manage their talent at all ages.”

Ms Evans also says NIBA’s annual Warren Tickle Memorial Award, which is sponsored

by Vero and recognises the achievements of young brokers, is now attracting increased interest.

The Institute of Actuaries of Australia (IAA) has also developed several initiatives aimed at under-45 actuaries.

IAA President Trevor Thompson says the

association has started a Young Actuaries program, which meets every quarter for a social and networking event.

“We often mix this with good speakers – generally more experienced actuaries doing exciting projects or working overseas,” he told Insurance News.

It has also developed the new “Step Up” program to provide an accelerated leadership development program for young actuaries.

Mr Thompson says the program includes a boot camp [focused on emotional intelligence skilling], mentoring and then a project on a community issue of the participant’s choice.

He says the first group under this program was formally selected in October last

year and began their projects early this year.

“A core premise of this initiative is that actuaries have a significant contribution to make in many capacities – in the financial health of financial institutions so that these organisations can fulfil their social equity role; in the community; and on important public policy issues.”

The IAA is currently planning a social networking capability as part of its website revamp in the first half of next year.

The Financial Planning Associated (FPA) has also turned its focus to the under-45 group and developed programs to cater for them. A spokesman told Insurance News they offer student and graduate memberships, a careers day program for undergraduates promoting a career in financial planning, and national Young Planner events.

The FPA has also created the Ipan2 website, which was designed with a “funky” feel specifically for undergraduates and maintained by a student “blogstar”. The website has so far had 3366 visits from 2060 unique visitors with more than 15,000 page views.

Many of the FPA’s initiatives are driven by the Future Financial Planners Council, an initiative of the medium and large principal members, who are focused on clarifying, enhancing and promoting the career path for future planners – whether graduates or career-changers.

“The FPA’s initiatives for under-45s are the result of concern over the future supply

and quality of young planners.”

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December 2009/January 2010

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Vero kicks off 2010 young talent search Warren Tickle Memorial Award sponsor Vero chose an interactive cocktail night at Brisbane’s Jade Buddha Lounge on November 5 to kick off a national promotion campaign for next year’s award.

The award is organised by the National Insurance Brokers Association and recognises the sector’s young achievers and future leaders.

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The Brisbane event attracted 50 brokers, including 32 Young Professionals. This year’s Queensland finalist, Lana Rose from Aon, was on hand to encourage her peers to nominate and be nominated for next year’s state finals, with the winner going on to the national final and into the running to win the big prize of air tickets to London, education opportunities and expenses.

December 2009/January 2010

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Well equipped QBE’s eQuip program graduates celebrate a year of development inishing any education and development program deserves celebration, and participants in QBE’s eQuip Annual Program had every reason to relax. Dinners were held across Australia during November to give 2009 program participants an opportunity to celebrate successfully completing the program, as well as welcoming successful applicants to the 2010 program.

Hosted by Shaun Standfield, QBE’s General Manager Australian Intermediaries and the respective regional managers, the dinners featured guest speakers such as former Brisbane Lions AFL player Richard Champion, Commonwealth Games medallist Jane Fleming and former AFL premiership coach David Parkin.

QBE’s eQuip program is a strategic investment in the development of the broader capabilities of Australia’s next generation of industry leaders.

Since its inception in 2007, more than 120 participants, including intermediaries and QBE staff, have completed the 12-month program. Its “blended development” approach includes workshops, coaching and networking.

The program is made up of three two-day state-based learning modules that focus on key business competencies for small to medium-sized enterprises.

All 2009 program participants were presented with a Certificate of Completion and are now invited to join the eQuip Alumni program, which provides additional learning opportunities, as well as a vehicle to maintain their industry networks.

Our pictures show eQuip participants in Brisbane, Adelaide and Melbourne. Perth and Sydney events were held at the end of

November – too late to make the deadline for this edition.

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CGU always a winner at the cup Melbourneâ&#x20AC;&#x2122;s Spring Racing Carnival is a favourite event for insurers to host guests at their trackside marquees, where everyone talks insurance in the most relaxing of surroundings.

CGU has been organising events at the Flemington racecourse for many years, and last month key insurance brokers and clients gathered to enjoy the sunshine, fashions and fun with Chief Executive Duncan West and his management team.

IAG Group Chief Executive Mike Wilkins was there to watch the Melbourne Cup and enjoy the festivities with guests also.

These pictures were taken on a number of special days during the carnival.

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Express ride for 30 years Many bus lines have stuck with Australian Bus and Coach since its beginnings t’s been a great ride for a remarkable underwriting agency named Australian Bus and Coach. Thirty years after John Wymond responded to a lack of available bus insurance by starting up his own underwriting operation, the now-thriving business covers about 60% of the national market.

Today it’s owned by Austbrokers subsidiary Austagencies, but little else has changed.

Australian Bus and Coach Underwriting Agents (ABCUA) recently celebrated 30 years in business with a stylish cocktail party in Melbourne. Austbrokers Chief Executive Lach McKeough and Mr Wymond were on hand to celebrate ABCUA’s achievements with the managing directors of local, regional and interstate bus companies and their brokers.

In 1979 Mr Wymond founded the firm in response to the needs of regional bus operators, who were having difficulty finding insurance cover for their vehicles. Mr Wymond saw demand for a specialised product, and ABCUA was born.

“Our aim was to eventually provide somewhere for brokers for place their bus insurance,” he told Insurance News. “There really wasn’t anything available. We went to London to see if we could get a binder over there, and I think local insurers realised we were serious.

“When we came back the insurers were interested in talking to us.”

The company’s underwriting partners,

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which have since evolved to become part of QBE and Allianz, have been on board from day one.

From those early days the Melbournebased company has grown to become a dominant player in the local bus and coach industry and a key member of the Austbrokers Holdings stable.

ABCUA is a dominant supplier of comprehensive motor and depot and liability packs, with clients ranging from single-bus route operators through to large coach transport companies.

Mr Wymond still enjoys a hands-on role as a consultant to the business. He pays tribute to the company’s loyal clients, many of whom have grown and prospered alongside their underwriting agency. “We’ve got a lot of clients who have been on board for 25 to 30 years.”

The team of dedicated staff have played their own role in the company’s success. An obvious example is fleet underwriter Keith Thorn, who has served 27 years with ABCUA, while long service records are a common thread among the company’s 15 staff.

“Staff have played a big role,” Mr Wymond says. “We know what we’re doing and what we’re talking about, because we only do the one thing – we only insure buses.”

That team, headed by retiring General Manager Bill Patterson, has worked hard to develop strong relationships with all of the Australian state bus associations. Incoming General Manager Craig Patterson (no relation) says he’s already been struck by the “outstanding relationships” the company has with brokers and the wider bus industry.

As bus lines grow even more as public transport becomes more important, it’s clear that ABCUA will continue to be right

alongside them. insuranceNEWS

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Big night out as law and insurance mingle About 500 lawyers and industry specialists swarmed Sydney’s exclusive GPO for the Australian Insurance Law Association Young Professionals “Summer Stimulus” cocktail party last month. The legal profession and the insurance industry enjoy a close relationship, so there was plenty to talk about and much relationship-building.

The association – which acts as a forum for lawyers and industry personnel – used the open-invitation event to raise awareness of their educational events for the insurance industry, encouraging young professionals to get involved.

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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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A Kiwis hail their best and brightest More than 330 guests gathered for a gala dinner at Sky City in Auckland last month to celebrate the presentation of the 2009 Insurance Brokers Association of New Zealand (IBANZ) awards.

Vero took out the main honours on the night, winning the award for Insurer of the Year, and Chief Executive Roger Bell was presented with the award for â&#x20AC;&#x153;best professionalâ&#x20AC;?.

John Blackmore of CFS Risk Services won Broker of the Year.

It was a night to also celebrate the achievements of New Zealand insurance professionals and relax near the end of a tough and challenging year.

A panel of insurance industry leaders and professionals from other disciplines judged the awards.

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iClose On Demand Solutions A new era of Insurance Software Introducing Ebix iClose the next generation of e-commerce business solutions. iClose is the a complete solutions framework developed after a thorough analysis of current available facilities as well as research into industry technology and standards.

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

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

For more information on iClose On Demand solutions contact us on 02 8467 3000 or email sales@ebix.com.au

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maglog » WELCOME to the Insurance News Holiday Quiz, with questions from all corners of the industry. Keep a tally on the points you earn and rate your knowledge at the end. If you get your copy at the office, run it as a group activity. Be amazed at the knowledge of your peers, or (more likely) bask in the realisation that you didn’t know you knew so much.

1 POINT EACH 1. What kind of insurance did Richard Branson recently launch in Australia through Virgin Money?

2. Who are the top four global broking firms?

3. Name three of the eight most expensive natural catastrophes that have occurred in Australia (1 point each).

4. And, for an extra point for each correct answer, what year did they occur?

5. What year was the National Insurance Brokers Association set up?

6. Who is its president?

7. Which insurance company owns NZI? 8. In which three states does the fire services levy apply?

9. Name five direct motor insurers (excluding Royal Auto Club insurers).

10. What year was insuranceNEWS.com.au launched?

11. What do the following acronyms stand for: a) ACCC, b) ASIC, c) IBNR, d) AICLA, e) ARPC (1 point each)?

12. Who owns Vero?

13. And who used to own Vero?

14. Who owns CGU? 15. And what was CGU formerly called?

16. Who owns Sunrise Exchange?

17. And who used to own it?

18. Who is the largest Australian insurance company by gross earnings?

19. And what colour is their logo?

20. For one point each, which city is the global headquarters for: a) Zurich Financial Services? b) Munich Re? c) Swiss Re? d) Allianz?

21. What is the new name of AIG? 22. In which city was AIG first established?

23. Who was the legendary CEO of AIG who was forced out in 2007?

24. Which Atlantic island nation is a reinsurance centre?

25. Which Australian insurance company ran a “rap” advertising competition this year?

2 POINTS EACH 26. Which former NSW Government police minister threatened to taser an Insurance Council of Australia manager last year?

27. Who is the global CEO and Chairman of Willis?

28. Who is the Federal Government Minister responsible for the insurance industry?

29. Another minister handles consumer matters. Who? 30. Who insures Ugly Betty star America Ferrera’s smile, and for how much?

31. Who was the insurance salesman who so annoyed Bill Murray’s character in Groundhog Day? 32. And what is the town in which Groundhog Day is set?

33. Which company took over Elders Insurance this year?

34. The head of IFSA used to be a politician – what is IFSA (one point), and who is that person (one point)?

35. Which two AFL teams are sponsored by insurance companies, and who are the companies?

36. Which insurance company sponsors the A-league soccer comp?

37. And which financial services company sponsors the Wallabies rugby union team?

38. Which Act governed insurance brokers prior to the Financial Services Reform Act? 39. Name two things that Russell Higginbotham and Heinrich Eder have in common 40. Who owned the financial services companies that became Promina?

3 POINTS EACH 41. Name three movies with insurance themes. Double points if you can name six.

42. Who is the new General Insurance Ombudsman?

43. Eight people have been jailed since the collapse of HIH. Name three.

44. What was APRA’s predecessor?

45. Who is the largest (by premium) Lloyd’s coverholder in Australia?

46. Who are the most recent three chief executives of the Insurance Council of Australia (including the current one)?

47. Who are these famous (and not so famous) insurance managers?

A.

B.

C.

D.

48. What was the government program from the mid-late 1990s that led to changes in financial services legislation?

49. Who was the federal minister who enacted the Financial Services Reform Act? 50. And why was the date of enactment for the new legislation March 11 2002?

If you scored 10 points or less, you’re obviously a new recruit or just passing through. 11-25 pay more attention; 26-45 you’re alert; 4660 you’re up to speed; 61-80 you’ve been around a while; above 81 you’re a veteran, you’re switched on, you know what’s what.

That’s all from the team at Insurance News for 2009. Thanks to everyone who wrote welcoming our new magazine – we’re still a bit overwhelmed. We have lots of plans in train to make Insurance News even more responsive and interesting in 2010.

From all of us on the Insurance News team – editorial, production, advertising and online administration – have a safe and happy summer break.

ANSWERS: 1. Car insurance. 2. Aon, Marsh, Willis, Jardine Lloyd Thompson. 3. and 4. In order of cost, the top eight are: Newcastle earthquake (1989), Cyclone Tracy (1974), Sydney hailstorm (1999), Brisbane floods (1974), Brisbane hailstorm (1985), Newcastle/Central Coast NSW storms (2007), Victorian bushfires (1983), Victorian bushfires (2009). 5. 1982. 6. Steve Lardner. 7. IAG. 8. NSW, Victoria, Tasmania. 9. AAMI, Youi, Budget Direct, Just Car Insurance, Virgin, Insure My Ride, Shannons, Swann Insurance, The Buzz – to name just a few. 10. 2008. 11. a) Australian Competition and Consumer Commission, b) Australian Securities and Investments Commission, c) incurred but not reported, d) Australasian Institute of Chartered Loss Adjusters, e) Australian Reinsurance Pool Corporation. 12. Suncorp. 13. Promina. 14. IAG. 15. CU or Commercial Union. 16. Ebix Australia. 17. Telstra. 18. QBE. 19. Cyan (blue). 20. Zurich, Munich, Zurich, Munich. 21. Chartis. 22. Shanghai. 23. Maurice (Hank) Greenberg. 24. Bermuda.

25. CGU. 26. Tony Kelly. 27. Joe Plumeri. 28. Chris Bowen. 29. Nick Sherry. 30. Lloyd’s; $US10 million. 31. Ned Ryerson. 32. Punxsutawney, Pennsylvania. 33. QBE. 34.

Insurance and Financial Services Association; John Brogden. 35. Sydney Swans, sponsored by QBE; West Coast Eagles, sponsored by SGIO. 36. Zurich Financial Services Australia. 37. Suncorp. 38. The Insurance (Agents & Brokers Act) 1984. 39. They both run the Australian operations of global reinsurers (Swiss Re and Munich Re), and they both worked in Japan before moving to Australia. 40. Royal & SunAlliance. 41. Choose from: The Man Who Sued God, Entrapment, Double Indemnity, The Rainmaker, The Thomas Crown Affair, To Catch a Thief, Along Came Polly, Memento, The Fortune Cookie, Save the Tiger. 42. John Price. 43. Ray Williams, Rodney Adler, Brad Cooper, Dominic Fodera, Terry Cassidy, Federick Lo, Tony Boulden, William Howard (term suspended). 44. The Insurance and Superannuation Commission. 45. SRS Underwriting Agency. 46. Kerrie Kelly, Alan Mason, Peter E Daly. 47. a) Anthony Day (Suncorp), b) Andrew Barrowman (Zurich), c) Alan Bishop (EBM), d) Joan Fitzpatrick (ANZIIF). 48.

Corporate Law and Economic Reform Program (CLERP). 49. Joe Hockey. 50. It was Joe Hockey’s mother’s birthday.

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QBE Australia Pr oud to be your NIBA General Insur er of the Year Year 2002-2009* Proud Insurer Australian Banking & Finance Best General Insurance Company 2008 T o lear n more more about QBEâ&#x20AC;&#x2122; To learn QBEâ&#x20AC;&#x2122;ss latest initiatives contact your local QBE rrepresentative, epresentative, or visit www.intermediary.qbe.com.au www.intermediary.qbe.com.au QBE Insurance (Australia) Limited ABN 78 003 191 035 AFS Licence No 239545 *Awarded *Awar *A warded to a QBE Group Group Company 009_0315 9 _ 0315

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