June/July 2020 Insurance News (magazine)

Business, interrupted: How countries are handling BI disputes

Cost of COVID: The true scale of the crisis revealed

ICA chief signs off: “I wish I’d done more on climate change”

DIGGING IN AT HOME: How our resilient industry is adapting to new ways of working

June/July 2020

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Contents 6 Newsmakers 11 Double punch

Insurance claims and assets are both affected by a pandemic that has led to an economic shutdown and left few areas unscathed

16 Floods, fires and making a difference

Rob Whelan looks back at the highs and lows of his decade-long leadership of the Insurance Council of Australia

22 The game-changer

Andrew Hall’s move to run ICA indicates the importance industry leaders place in raising the profile of insurance

25 A messy business

Business interruption coverage amid the COVID-19 crisis has sparked furious rows at home and abroad

30 Recovery and protection

Finalising claims from last summer’s catastrophes is moving ahead as insurers adjust to operating amid a pandemic

35 No going back

The virus lockdown has forced the insurance industry to discard its go-slow tech approach

38 Time to reinvent firefighting

Technology is the missing link in killing bushfires before they become giants, says this expert. And much of it is ready right now

52 Deadly combination

Swiss Re says insurers mustn’t underestimate the combined impact of urban development and climate change

54 Ahead in the cloud

BAIS has been developing insurance systems for more than 25 years, innovating and evolving along the way

58 The sting in COVID-19’s liability tail

Insurance law experts warn the coronavirus is likely to leave insurers with a nasty ‘tail dependency’ problem

62 Driving through the economic roadblock

How brokers can help commercial motor clients navigate the downturn

companyNEWS 65 New abode

Zurich’s new home nears completion

65 ‘Simple and straightforward’

360Globalnet ramps up digital offering

peopleNEWS 67 New reality hits home 74 Maglog

42 Fairness first

For the Australian Financial Complaints Authority, a fair go is most important. So what happened to the laws insurers are also guided by?

48 Ready and able

Business, interrupted: How countries are handling BI disputes

Not many businesses last long enough to reach the 120-year milestone. But then, there aren’t many out there like medical insurer MIGA and its 20-year chief executive

Cost of COVID: The true scale of the crisis revealed

ICA chief signs off: “I wish I’d done more on climate change”

Pictured: IAG Delivery & Performance Coordinator Daniele Anzaldi

insuranceNEWS

DIGGING IN AT HOME: How our resilient industry is adapting to new ways of working

June/July 2020

June/July 2020

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June/July 2020

STICKING WITH THEIR POLICIES Most SME owners and managers have not changed or cancelled their business insurance to cut expenses, even though their revenues have taken a hit from the coronavirus-induced economic slump.

A new Vero survey released in May says about two-thirds of the 500 businesses polled in the 2020 SME Insurance Index Pulse Check say their revenues have declined, some by more than 50%.

But 85% have kept the cover they had before the economy

began to stall in March.

Just 15% say they have been forced to make changes to their insurance arrangements because of the pandemic. Switching to a new insurer is the most popular option, with 6% saying they have moved.

Cancelling some insurance or pushing for a better deal are equal second on 5% each.

About 4% have moved to direct insurance, with the same proportion revealing they have cut the sums insured or turnover in their insurance programs.

Only 2% of SMEs have resorted to cancelling their insurance.

While nearly half of the SME owners and managers interviewed in late April-early May say they have little confidence that the economy will turn around soon, about 77% say they have no plans to change their insurance programs or brokers.

Only 7% say they may cancel their insurance in the near future, 5% have not ruled out a change in insurer and 5% say they will consider a new broker 0 and/or insurer.

“The global economy is not a tape recorder.

You cannot just do a lockdown and press on pause, or press on stop, and then once you have relaxed lockdown measures you restart. It doesn’t work like that.”

Swiss Re Chief Economist Jerome Haegeli warns that restarting the economy is a complex business.

REINSURANCE SKATING ON THIN ICE Reinsurance, the once-unassailable arm of the insurance industry that could be relied on as a rock solid investment by some of the world’s biggest funds, is facing what ratings agency S&P calls “historically unusual times”.

The company has lowered its outlook on global reinsurers to negative from stable, saying the coronavirus pandemic has pushed the sector “farther out on thin ice”.

The pandemic is materially disrupting both the asset and liability side of reinsurance businesses, S&P says.

The ratings agency calculates reinsurers will have failed to earn cost of capital three times within 2017-2020 – the worst

sequence of results in the past 15 years. The sector will not earn its cost of capital before next year at the earliest, S&P says.

“The sector’s ability to earn its cost of capital in 2020 has visibly reduced to almost negligible, bearing in mind the sector still faces the North Atlantic hurricane and Pacific typhoon seasons.”

With forecasts of above-normal activity during this year’s Atlantic hurricane season and expectations for additional COVID-19 related losses, reinsurers have less room to absorb major natural catastrophes.

S&P notes that reinsurance

profitability is “more akin to an endurance race than a 100-metre sprint,” and disciplined underwriting and risk pricing, tighter terms and conditions with clear exclusions, and overall proper risk management will be key if reinsurers are to preserve earnings and capital strength.

The ratings agency’s economists predict a global economic contraction of 2.4% this year before a rebound to growth of 5.9% 0 next year.

THE $5 BILLION SUMMER OF CATASTROPHES

CFA Devastating season: a burnt-out home in Gippsland

Insurance claim costs from Australia’s worst summer of natural catastrophes have reached $5.19 billion, with new claims at the end of May bringing the total number of claims to more than 288,100.

Insurers have already paid more than $2.85 billion for emergency accommodation, business interruption, repair and rebuilding work, replacement of motor vehicles and goods, services and settlements.

Almost 50% of claims

from the four storm, bushfire and hailstorm catastrophes have been closed by insurers.

For the bushfires disaster, almost two-thirds of residential building claims have been closed. In other lines, 80% of contents claims, 70% of motor vehicle claims and more than 50% of business interruption claims have been finalised.

The Insurance Council says the industry is still assessing the claims impact from the COVID-19 pandemic, which was declared a catastrophe on 0 March 1.

‘RESILIENT DESPITE NEW PRESSURES’

LEARNING ABOUT A NEW WORLD OF RISK

The COVID-19 pandemic has created a new suite of earnings pressures following significant summer natural catastrophe losses, but Australian and New Zealand-based insurers have been resilient, S&P Global Ratings says in a new report released on June 1.

It says outbreak impacts will include a slowdown in premium growth, elevated claims in some lines and declines in the value of investments. But strong capital buffers, reinsurance and relatively conservative portfolios will protect credit quality.

Financial assistance measures that many insurers are offering, such as premium deferrals, full or partial refunds and rebates will also lower earnings for the

The Royal Commission into National Natural Disaster Arrangements got into action online late in May, with an insurance expert among the first to be called.

IAG Executive Manager Natural Perils Team Mark Leplastrier outlined research that showed the changing patterns of cyclones, hailstorms and bushfires and the impacts that are often not captured in broader regional data.

“This is our best interpretation of how we think the risk will change, and we encourage feedback from the scientific community,” he said.

IAG has called for improved government mitigation funding and the introduction of a national rating system for all

current financial year.

While the financial assistance measures are designed primarily to support SMEs and keep them from dropping insurance altogether or bypassing brokers to go to the direct market, S&P says “ongoing affordability pressures may eventually result in higher lapse rates and potential underinsurance”.

S&P says the life and mortgage insurance will be most affected, with a higher unemployment rate likely to deliver higher mortgage claims over the next one to two years.

Other areas where increased claims are expected are travel, business interruption, landlords, trade credit, workers’ compensation, income protection and total 0 and permanent disability.

bushfire-prone communities, properties and structures in a submission to the royal commission.

The National Bushfire Risk Rating system is proposed in an IAG-commissioned Menzies Research Centre study into strengthening resilience in the wake of the past summer’s bushfires.

It says the system would “provide consistency when measuring risk, which will be useful to insurers pricing risk and provide a benchmark for individuals, businesses and communities that take steps to reduce risk”. insuranceNEWS.com.au is covering the royal commission hearings. The commission is due to deliver a final report by the end 0 of August.

INDUSTRY EARNINGS: OUCH! The general insurance industry sank into an after-tax net loss of $997 million in the March quarter, as last summer’s horror bushfires and fallout from the virus pandemic combined to devastate earnings, latest figures from the prudential regulator show.

In the December quarter, the industry recorded a $220 million net profit, the Australian Prudential Regulation Authority (APRA) says in a regular update based on filings from 96 insurers which was released on May 28.

Claims losses from the bushfires and storm events led to underwriting losses of $991 million

in the three months to March, a swing away from the $587 million profit the previous quarter.

On the investment side, the industry lost $81 million as worries over the economic fallout from the pandemic affected the global financial markets, impacting returns from equities and fixed interest instruments. In the December quarter, the industry made $1 million in investment income.

Gross earned premium increased 2.2% to $13.1 billion from the December quarter, and on a net earned basis, it was unchanged at $9.3 billion. But gross incurred claims grew at a faster

rate of 46.1% to $15.3 billion while the gross loss ratio worsened 33 percentage points to 110%.

For the year to March, the industry’s after-tax net profit shrank by 56.7% to $1.5 billion from a year earlier. Underwriting profit declined 47% to $1.5 billion, reflecting the impact of the bushfires and storm events in late December and early in the year.

Gross incurred claims increased 14.8% to $42.3 billion, the result of a large strengthening in long-tail claims reserves, APRA says. Gross earned premium grew at a slower 6.1% to 0 $51 billion.

insuranceNEWS

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FAREWELL FELS, BUT LEVY KEEPS BITING NSW Emergency Services Levy Monitor Allan Fels will close down his office at the end of June, after several years of activity that occasionally infuriated insurers.

The plan to introduce a new form of levy that didn’t lean disproportionately on people prudent enough to buy insurance was abandoned in 2017. But Professor Fels’ role, to oversee insurers during the transition, stayed.

The Insurance Council of Australia has previously accused Professor Fels of “overstepping” his role by commenting on issues such as what he dubbed a “loyalty tax” on customers renewing with the same insurer.

ICA has urged the NSW Government to reconsider reform of the levy, which

From the

PUBLISHER

insurers believe contributes to underinsurance and non-insurance. insuranceNEWS.com.au also reported during May industry agitation at the NSW Government’s decision to impose a 20% increase on the emergency services levy for 2020/21, which the Insurance Council described as “a severe and unnecessary blow” in the current economic climate.

Treasurer Dominic Perrottet wants to collect around $1.09 billion for the 2020/21 financial year – an increase of 21.38% on the previous year.

The combined levy and state stamp duty on NSW household insurance premiums typically takes 50% or more of the total, while small businesses will pay at least an additional 70% above 0 the base premium in taxes.

FUNDERS NEED A LICENCE Class action litigation funders – a business opportunity that has boomed in the past 10 years – have been brought under control.

Well, sort of. Players in the previously unregulated sector are now required to hold an Australian financial services licence.

A removal of exemptions, to take effect from late August, will also require funders to comply with the managed investment scheme regime.

The changes ensure litigation funders face the same scrutiny and accountability as other financial services and products

under the Corporations Act, he says.

Litigation funders have been blamed for fuelling a rise in class actions, particularly against listed companies, leading to soaring premiums for directors’ and officers’ cover.

Of course, the funders and their umbrella organisation, the Association of Litigation Funders of Australia, are not happy, saying the Government’s hand has been forced “by the power being brought to bear on politicians by entities representing the interests of corporate Australia and the insurance 0 industry”.

Terry McMullan

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Barely two months ago, Insurance News focused on the impacts of a pandemic that saw the industry close its doors and send its staff home to makeshift offices. We also took the first “hindsight” look at a summer of natural catastrophes that have caused claims which now exceed $5 billion.

It has been a very tough couple of months since then, but what has been pleasant to record has been the resilience of insurance industry people. We’ve all sheltered at home and got on with the job. We’ve been so successful that as life slowly starts returning to normal and we can contemplate returning to our “normal” offices, we’re also thinking about the features of home-working that we may not want to completely leave behind.

We’ve discovered flexibility with that resilience, and proved that sometimes it’s possible to load laundry and sort out business solutions at the same time. The 9 to 5 routine is, for many of us, something that we don’t necessarily want to return to. Maintaining social distancing for – well, really, who knows how long? – will assist us in formalising new ways of working flexibly on a permanent basis: a mixture of home and office to ensure there are always empty desks; an end to the rush hour, as we work the hours that make sense to us personally and professionally; and a resultant family and personal lifestyle that just might make a lot more sense.

While it would be easy to put a positive spin on all the changes that the coronavirus has forced on us, we must also acknowledge the huge hole it has blasted in the nation’s fortunes and the profitability of the general insurance industry.

Figures issued by the Australian Prudential Regulation Authority on May 28 show the industry suffered an after-tax net loss of $997 million in the March quarter – a result of the summer catastrophes and fallout from the lockdown.

Compare that loss with the $220 million net profit recorded in the previous quarter, in the early days of the bushfires and before the horror from Wuhan had spread around the world.

Investments are the industry’s bulwark against high claims rates, but not this time. Financial markets everywhere are in a shocking state, and the industry lost $81 million in the March quarter.

The next year could well be a grim one, so let’s focus on how we can contribute to achieving a swift recovery and a brighter future.

The insurance industry that emerges from the downturn will be sharper, more technologically adept and more responsive to the needs of customers and clients. How we all fit into that brave new world is going to be up to each of us.

insuranceNEWS

June/July 2020

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Double punch Insurance claims and assets are both affected by a pandemic that has led to an economic shutdown and left few areas unscathed

By Wendy Pugh

W

orldwide coronavirus cases are surging past 6 million this month as the insurance industry assesses the fallout and comes to grips with ramifications that will endure well after the outbreak emergency subsides.

Swiss Re Chief Economist Jerome Haegeli says the virus-triggered global recession is like “a car crash without airbags”, and the economic and political implications should not be underestimated.

Lloyd’s notes that it’s the first time in history where an event has impacted both insurance claims and assets. “What makes COVID-19 unique is not just the devastating continuing human and social impact but also the economic shock,” Chief Executive John Neal says.

Underwriting losses covered by the global industry this year as a result of COVID-19 will be about $US107 billion, a Lloyd’s study estimates. That’s similar to the impact of Hurricanes Harvey, Irma and Maria three years ago.

In addition, a $US96 billion fall in investment portfolios is also forecast, bringing total projected losses to $US203 billion.

“Taking all those factors together will challenge the industry as never before, but we will keep focused on supporting our customers and continuing to pay claims over the weeks and months ahead,” Mr Neal says.

The coronavirus pandemic has presented a very different risk to natural catastrophes that cause extensive

insuranceNEWS

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Australia’s real gross domestic product will contract 4% this year, before growing 3% next year, inflation will be 0.5% and the 10-year government bond yield will be 1%.

property damage in defined geographic areas and which are not correlated to the ups and downs of the international economy.

Forced to answer rising criticism of insurance pandemic exclusions, Lloyd’s says the global industry is paying out on a “very wide range” of policies to support businesses and people affected.

Business interruption, travel and trade credit have been among areas to cause angst, leading the industry to point out that covering all risks associated with an event that can impact everywhere at once would bankrupt the sector.

Based on calculations last month, the amount Lloyd’s expects to pay out for covered events is around $US3 billion to $US4.3 billion – similar to the total after the September 11, 2001 US terrorism attacks.

Coronavirus-related event cancellation accounts for about 31% of its likely losses, while 29% is attributed to property classes, 11% to credit lines and some 15 other classes account for the remainder.

In Australia, worst-case scenarios flagged in March as coronavirus case numbers escalated have so far been averted, but economic costs remain high as states cautiously ease restrictions amid fears of a more serious second wave.

The Insurance Council of Australia declared the COVID-19 outbreak a catastrophe on March 11, and established a taskforce to ensure accurate data is captured. But the extent of claims and losses is not yet known.

The Australian Securities and Investments Commission has also said it will be collecting data as it keeps an eye on the industry’s performance, while

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the Australian Financial Complaints Authority says it has received about 1070 general insurance disputes sparked by the pandemic.

AFCA says some 890 disputes relate to travel, which was one of the first areas to be affected as borders were closed and flights halted. More complaints from other areas such as business interruption are expected.

Listed insurance sector companies faced with high levels of uncertainty have in some cases withdrawn earnings guidance, while providing updates to the Australian Securities Exchange on expected impacts.

Suncorp last month forecast a “modest drag” on gross written premium for this fiscal year due to the take-up of hardship options and lower economic activity, while noting that landlord insurance claims are set to rise with rental defaults.

The insurance investment portfolio recorded a pretax loss of $205 million in the March quarter as volatility affected valuations, with some of that unwound during April.

IAG says investment income on shareholders’ funds amounted to a year-to-date loss of about $280 million pre-tax at the end of April. The insurer has warned of limited scope to pay a final dividend but says its underlying business performance has remained strong.

QBE has highlighted implications for trade credit and lenders mortgage insurance while forecasting a modest GWP impact for this year. In the UK, where it faces potential hospitality sector class actions, reinsurance will limit net business interruption claims costs to $US75 million, it says.

The insurer last month completed a $1.3 billion capital-raising as part of moves to position QBE to

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“We can learn from the experiences of the crisis to design risk-transfer systems that unite private and public sector financing to expand coverage and contribute to broader and more equitable financial recovery from catastrophes.”

withstand future severe economic and investment market downside risks.

S&P Global Ratings says the pandemic has pushed global reinsurers “farther out on thin ice” and has cut its outlook for the sector to negative from stable.

The ratings agency has also noted the “historically unusual” combined asset and liability pandemic impact, forecasting an aggregate combined ratio of 101-105% for the top 20 reinsurers this year, assuming these companies bear around 30% of insured COVID-19 losses.

The main loss burden in the first quarter came from cancellations or postponements for major events, such as the Tokyo Olympics.

Other lines to experience higher losses will include contingent business interruption, where claim levels may depend on legal actions, aviation, credit lines including surety and mortgage, directors’ and officers’, errors and omissions and workers’ compensation, it says.

Virus-related losses are set to keep emerging this quarter while indirect impacts are likely to become apparent further ahead, according to S&P, which expects a global economic contraction of 2.4% this year before a rebound to growth of 5.9% next year.

Swiss Re’s Dr Haegeli says when it comes to the ailing global economy government and central bank actions show “all emergency units are being deployed”.

But he says the international economy

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was less resilient heading into the pandemic lockdowns compared with the global financial crisis lead-in a decade ago. Therefore he expects a short, sharp recession this time, followed by a protracted recovery.

“The global economy is not a tape recorder,” he told a briefing. “You cannot just do a lockdown and press on pause, or press on stop, and then once you have relaxed lockdown measures you restart. It doesn’t work like that. It is much more complex to restart the economy.”

Still, demand for insurance will not be hit to the same extent as during the global financial crisis and there will be a “less deep” contraction for premiums, Dr Haegeli says.

Australia, which he described before the pandemic as the continuous economic growth gold medallist, is well placed compared to many countries.

Swiss Re forecasts Australia’s real gross domestic product (GDP) will contract 4% this year, before growing 3% next year, inflation will be 0.5% and the 10-year government bond yield will be 1%.

China’s GDP growth is forecast at 3.2% this year, rising to 7% next year, lending support to Australia, while the Eurozone is forecast to contract 7.5% this year and the US economy is set to shrink 6.4%.

The New York-based Insurance Information Institute has emphasised the important role insurance plays in supporting the economy, amid criticism over perceived

failings to provide cover for businesses.

“Insurance is a critical part of what’s keeping the American economy going right now,” Chief Executive Sean Kevelighan told a congressional subcommittee.

“Healthcare and first responders, and all essential businesses have insurance backing them in the form of workers’ compensation and commercial auto insurance.

“Restaurants, some of which are staying open for take-out and delivery, are covered for their delivery services as well as other covered events, such as a fire or property damage caused by vandalism.”

Debate is underway internationally on government-supported pools similar to those developed for terrorism or flooding to ensure business interruption insurance can be provided in future events.

The UK Government has also said it will temporarily guarantee trade credit insurance to assist businesses having trouble maintaining cover. The backstop will be delivered through a reinsurance agreement with underwriters to cover firms until the end of the year.

Carolyn Kousky, Executive Director at the Wharton Risk Management and Decision Processes Centre at the University of Pennsylvania, says opportunities to widen pandemic covers could include public backstops and increased use of parametric insurance.

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Facility in 2017 could also point the way for improved assistance for lower-income countries.

“We can learn from the experiences of the crisis to design risk-transfer systems that unite private and public sector financing to expand coverage and contribute to broader and more equitable financial recovery from catastrophes,” Dr Kousky says in a World Economic Forum report titled Challenges and Opportunities in the Post COVID-19 World.

Swiss Re’s Dr Haegeli says the pandemic will drive paradigm shifts and accelerate mega-trends that will affect insurance well into the future.

The reinsurer suggests globalisation has peaked, with implications for supply chains and international corporates including insurers, while faster digital transformation will benefit claims-handling and the insurability of risks.

Dr Haegeli says an orderly exit of government intervention as lockdowns end is important in keeping “dynamic capitalism” alive to help drive the economic recovery.

At the same time insurers, at the centre of building and improving resilience through underwriting activities and investment, have a critical role as everyone draws breath and assesses current and future exposures and new ways of doing business.

“I think the pandemic is a wake-up call in terms of risk awareness,” Dr Haegeli says. 0

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15

Floods, fires and making a difference Rob Whelan looks back at the highs and lows of his decade-long leadership of the Insurance Council of Australia

By John Deex

R

ob Whelan was just a few months into the job as Insurance Council Chief Executive when, as he puts it, “Brisbane went underwater”.

The impact of 2011’s Cyclone Yasi and associated flooding was huge – and so was the backlash against the insurance industry when it became clear that the vast majority of policies would not pay out.

Mr Whelan was subjected to intense personal criticism, and admits that he nearly walked away. He didn’t – but those traumatic events came to shape his work as he vowed to never allow such situations to develop again.

That meant instilling within the industry a true focus on customers.

“At that time about 4% of all policies covered riverine flood, and the floods were vastly riverine, not storm,” he tells Insurance News. “We were under enormous pressure because we were just declining policy after policy after policy, and the Government got involved very quickly.

“We had to explain in great detail that when you don’t collect premiums over the years you don’t have the money to pay claims that aren’t covered. We were constantly trying to teach people Insurance 101 and it wasn’t going over well.”

Mr Whelan fronted up for media interviews and community meetings – but became public enemy number 1.

“The question was always, ‘how is water different if it comes from a river or if it comes from the sky? it’s all water’. You can imagine trying to explain that to people.

“I was up in Brisbane and I got a call from a 60

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Minutes producer. He said ‘I’m recording this call and I want to know why you’re such a coward’.

“I got hate mail, I got classified as un-Australian on national television.”

Mr Whelan says the financial services minster at the time, Bill Shorten, called on insurance company chief executives to attend a community forum in Ipswich – but they declined.

“He demanded all the CEOs turn up. He demanded it. We even had the regulator saying ‘they need to go’.

And they all said no.

“I said, ‘well, that’s my job’. So I went and it was extremely hostile because most of the people there had had their claims denied.”

But Mr Whelan says once the meeting was over, the mood of many of the affected customers changed.

“We had a pretty rough time, and I thought, wow, getting out of here is not going to be easy. It was a very hostile crowd and there was no security.

“I thought, bugger it, I’ll just walk out. So I walked through them and quite few came up to me and said, ‘thank you for coming and telling us, because no one has spent the time to explain’.”

Feeling powerless to help those in need was the hardest thing, he says, and it became clear that change was needed.

“I went into their homes and looked at the damage and sat and had a cup of tea and listened to their stories.

“They’d bought the cheapest policy, and of course it didn’t cover flood, that’s why it was cheap. But they didn’t know that; they didn’t have the time or the inclination to go through their policies and no one

Getting things done: Rob Whelan

explained it to them.

“And I thought, this is really not good enough. We should have been able to help them. I can’t deal with their current situation, but I can try and make sure this doesn’t happen again.

“We eventually got to a point where we do now cover flood. And all right, it can be expensive in parts of the country, but we did respond, and we did it pretty quickly.”

Fast-forward to last summer’s horrendous bushfires, floods and hailstorms, and the level of progress becomes clear.

The Insurance Council has labelled it the worst disaster season on record, with $5.2 billion of losses to date, but despite the complication of the coronavirus pandemic and associated shutdown, the industry’s response has been efficient and effective.

“Our capacity to respond has vastly increased [since 2011],” Mr Whelan says. “We are far more professional in getting out into the field [and] far more capable of dealing with individual issues rather than treating everybody the same.

“Sometimes we have people in these areas before the disaster happens because we can see it coming.

“Our capacity to work hand-in-glove with emergency services, and the military, has been exemplary, particularly in the recent bushfires.”

Mr Whelan says in his interview for the top job at ICA he highlighted the need to focus more on customers.

The 2011 floods were an inspiration to improve cover and catastrophe response, but if the industry thought that was all that needed attention, the Hayne royal

commission in 2018 provided a harsh reality check.

Mr Whelan accepts the failings that were highlighted, and is committed to implementing the recommendations.

Insurers have thought “long and hard” about some of the issues that were exposed, and the industry is “signed up” to the change that’s required, he says.

“People suffered as a consequence. You don’t go through that without taking some heed about how others see you. We needed to do better and be more compassionate.”

However, he disagrees with the way the industry was portrayed by some witnesses, and believes careful thought and time is required to make sure the many Hayne recommendations have the overall desired impact.

“Some of the things the royal commission profiled as case studies were essentially process failures,” he says.

“They weren’t done with malign intent, and they weren’t driven by greed. They were just driven by incompetence in some areas.”

The Insurance Council has requested an implementation delay until July 2022, but the Federal Government has opted for a shorter six-month postponement.

“It was tight before COVID-19, but now with all the disruptions to normal business practices it is far more problematic,” Mr Whelan says.

“We are asking for a bit of leeway to be able to do these things properly. I don’t think that’s unreasonable.

“Where I’ve had an overall concern is whether much work or thought has been given to the aggregate

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Tim Marsden/Newspix Hot under the collar: Mr Whelan comes under heavy fire at an Ipswich community forum in 2011

“We had a pretty rough time, and I thought, wow, getting out of here is not going to be easy. It was a very hostile crowd and there was no security.” effect of all these changes occurring within a relatively short period of time – two years or so.

“Will they drive better consumer outcomes? I think we just need to pause and think that through.”

A key response has been the latest review of the General Insurance Code of Practice.

Its focus on customers, and support for the vulnerable, is something that brings Mr Whelan great pride. “[The new code] really does reflect a complete change of frame of mind and attitude towards the way customers are dealt with, and the whole issue about identifying and caring for vulnerable consumers is a major step forward.”

And yet, there’s more work to do, as highlighted by the ongoing coronavirus crisis.

Mr Whelan has been impressed with the way insurers have responded to the many and varied challenges thrown up by the pandemic.

But he’d have liked to have seen a much swifter industry-wide response to customers in need.

“We need to be a bit more fleet-of-foot around how to garner an industry response and be able to put that into the field. That is something we need to think a bit harder about going forward.”

The insurance industry did not compare favourably with the banks, Mr Whelan admits.

“At the end of the day the expectation is that we are able to respond at an industry level.

“It was a bit unco-ordinated.”

He says he was also concerned that the insurers’ program to support SME customers could adversely affect brokers.

“I was at pains to try to explain to the Government that we have a lot of small businesses out there that could go underwater called brokers, and we needed

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to be really careful about how we proceeded. But that wasn’t fully understood at the time.”

Mr Whelan says pandemic exclusions in policies are necessary, but there may be a way to give some coverage next time, if the Government was to back it.

“It would send a lot of companies to the wall if they were to overturn the exclusions,” he says. “But we do have to think hard about how we work towards covering these sorts of things more effectively in the future, and we are doing some work around that now.”

On the subject of climate change, Mr Whelan says that not taking a stronger stance on the issue earlier in his tenure is one of his greatest regrets.

But he says he had to weigh up his personal beliefs against what was best for the industry, and the opposing views of some politicians and member companies.

“When I told my staff that I was leaving, I said one of the regrets I have is we didn’t do more on climate change,” he says. “It’s a delicate balance with the political environment that you are working with, because there were very strong views within the Government at various times that this was not an issue, and that we needed to keep out of it.

“While we always maintained the view that [climate change] is an important material risk, the extent to which we could be vocal about this was somewhat limited.

“I would like to have done more, and taken a stronger stance.”

The Insurance Council now has a clearer strategy that supports the science, but still prefers to focus on mitigation than emissions reductions – an approach that was questioned by Greens leader Adam Bandt in April’s House of Representatives Standing Committee on Economics hearings.

“When I told my staff that I was leaving, I said one of the regrets I have is we didn’t do more on climate change.”

Three key highlights - Leading the drive to make flood insurance widely accessible - Building a strong team and enhancing catastrophe response, data analysis, government relations and communications - Enhancing the General Insurance Code of Practice to re-focus on the customer and protect the vulnerable

Three key regrets - Not taking a stronger stance on climate change - The survival of the NSW Emergency Services Levy - Not moving faster as an industry to help consumers hit by COVID-19

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“I did get some pretty sharp questions from the Greens,” Mr Whelan says.

“We are concentrating from the ICA’s point of view about how we can mitigate the effects that we will inevitably have as a consequence of existing climate change.

“Of course we support reduced emissions over time so that we can deal with the causal factors that are driving climate change.

“But right now the best thing that we can do from an ICA and insurers’ point of view is try to mitigate the existing effects.”

Mr Whelan says insurers across the world are acting on emissions and “voting with their chequebooks” in terms of investments. But he believes Australia is in a unique situation.

“We are very exposed to climate change, and we are essentially a fossil fuel economy. We depend very much on coal and fossil fuels for our economic survival.

“I get the issue about why that’s not a good thing and why we should be doing more – and absolutely we should – but we need to work through a good transition because the disruption would be enormous.

“You think we’ve got problems with unemployment now? If we don’t manage that transition, which inevitably has to happen, then we’ll have even greater problems than COVID-19 is causing us.”

But the tide is turning, he says.

“Progressively we have got overwhelming evidence convincing even the sceptics that these things are real.

“I think the bushfires probably brought that home in a very stark and brutal way to many that have not held that view before. Our timing is probably better now to be able to prosecute a strong position.”

Mr Whelan believes there is “a better dialogue” with governments in recent times, but the complexity of the issues and the short-termism of politics still creates problems.

North Queensland’s exposure to natural catastrophes is “a classic example”.

Towards the end of last year insurance chief executives were called to Townsville for a meeting with Assistant Treasurer Michael Sukkar and effectively railroaded into agreeing to investigate a cyclone reinsurance pool. “[In North Queensland] very little is done to control the population growth, the building standards and the planning methods,” Mr Whelan says. “We are seeing more and more dwellings built on flood plains which

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inevitably flood.

“These are the sorts of things that are frustrating from our point of view.”

Mr Whelan would rather see investment in mitigation to solve the core problem, rather than the quick fix of a reinsurance pool.

“Pools have an effect, yes. But do they have the longterm effect? The answer is no.

“The business case for spending more money on mitigation is hugely positive. But we are not necessarily winning the argument right now.

“Politics is a difficult business from the point of view of wanting to implement long-term solutions, versus someone who is concerned about next week and how the polls are going.

“We are saying deal with the cause, not the effect.

And so we are often faced with having to deal with the effect and not touch the cause.”

When Mr Whelan thinks back over his 10 years, he says he’s glad he didn’t quit when the going got tough at the start.

His personal highlights include building “a really good team of people”, which has enabled a transformation in communication, government relations and data collection and analysis.

There are regrets too: climate change, and not securing the removal of New South Wales’ Emergency Services Levy.

But most of all he’s proud of “getting things done” – things like flood cover, and the new code – and enabling that renewed customer focus in the wake of the Hayne royal commission.

Now he’s already looking for his next role. “I’m an extremely bad golfer and have no great ambition to improve my game,” he says.

“I’m more interested in challenges and staying alert and doing things that actually make a difference.”

But he hopes his successor takes over before the next natural disaster strikes.

“My tenure has been characterised by one disaster after another,” he says.

“It started with the floods and Cyclone Yasi, which was the biggest cyclone ever to pass the coast.

“When I’m transitioning out, we get the biggest bushfires we’ve ever had, but I thought, ok, so be it, I’m used to this.

“But then to get on top of that a pandemic? I’m thinking what’s next, an alien invasion? What else is there?

0 “It’s a hell of a way to go out.”

The gamechanger Andrew Hall’s move to run ICA indicates the importance industry leaders place in raising the profile of insurance

By Terry McMullan Persuasive: incoming ICA chief executive Andrew Hall

I

f anyone ever wanted an indication of how much profile the general insurance industry enjoys in political circles, it need only look at its treatment in May by the House of Representatives Standing Committee on Economics.

Over two days an online hearing saw insurance leaders quizzed on issues that mainly demonstrated the committee members’ hazy and in some cases non-existent knowledge of the industry’s workings and the many issues it is involved in.

Committee Chairman Tim Wilson started the hearing by stating the Hayne Royal Commission had accused the insurance industry of “widespread misconduct”, even though he’d already been told this wasn’t true. Insurance Council of Australia Chief Executive Rob Whelan was forced to clarify that his organisation doesn’t represent the life sector – a statement that did little to halt the life-oriented questions. Perhaps the Financial Services Council, which does represent the life sector, should also have been invited to attend…

What the committee hearings did demonstrate all too clearly is the general insurance industry’s lack of recognition by federal politicians. The problem is equally as problematic at the state level. While there is good interaction between insurers and governments at the “technical” level, there is little or no influence brought to bear on politicians who regularly foist laws on an industry they don’t understand.

When insuranceNEWS.com.au broke the news in February that Mr Whelan would step down as ICA’s chief executive after 10 years in the role, it pointed out that “Whelan’s low-key personal approach suits him, but such an approach needs to be considered in the context of today”.

What the industry has needed is a game-changer capable of building a strategic

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approach to governments that reflects the industry’s importance to the national and state economies, to build industry unity and break down the traditional sledging by politicians and media, and to advance insurance’s role in the debates over vital issues like climate change.

If it wasn’t stated quite that baldly, that’s certainly what ICA set out to find. Its board is considerably more willing to project the importance of insurance in politics and public awareness than was the one that plucked Mr Whelan from a middle-ranking management position at Suncorp 10 years ago.

Insurance News understands the selection came down to an impressive shortlist of two – Commonwealth Bank’s Executive General Manager of Corporate Affairs Andrew Hall, and former New South Wales Liberal Party leader (and later Financial Services Council chief executive) John Brogden, who these days heads up the NSW Government’s land and property development organisation, Landcom.

Mr Hall prevailed. He will take up the chief executive role at ICA in September, and he has the credentials to be the game-changer the industry’s leaders have been looking for.

Prior to heading up corporate affairs at Commonwealth Bank for the past seven years, he was Woolworths’ Director of Corporate and Public Affairs for six years.

Both roles have been crucial to those companies through some tough regulatory and business times.

Mr Hall started his career as a journalist in regional NSW in 1994, before moving to Canberra in 1996 where he worked in federal politics for 10 years as a ministerial media adviser.

Crucially, from 2001 to 2007 he was the Federal Director of the Nationals, a job that also involved leading the party as campaign

director for federal elections.

ICA President Gary Dransfield says Mr Hall’s corporate affairs and public policy experience will be “critical” in driving ICA and the general insurance industry through the pandemic recovery and a raft of regulatory, consumer and economic issues.

“His corporate knowledge, and his understanding of customers, the regulatory and political environments and the financial services sector, will help him chart the ICA’s advocacy program to elevate the value of insurance both to our economy and our society.”

In the statement announcing his appointment, Mr Hall gave some indication of how he sees his next task, saying general insurance “will also need to continue tackling the challenges of climate change and important regulatory changes, while also transitioning to the new code of practice, which must meet and exceed community expectations”.

He was named one of the Top 50 Outstanding LGBTI Leaders in Australia in Deloitte’s 2016 list for his work in leadership roles and diversity, and served on the Board of Equality Australia for the marriage equality campaign.

He also serves on the boards of Rural Aid, and The Avner Pancreatic Cancer Foundation.

From all accounts, this is not a chief executive with the traditionally buttoned-down approach of a lawyer or former insurance executive. Mr Hall has a reputation as a persuasive participant in business/political issues.

Sources have told Insurance News to expect a leader who is capable of projecting “a more real” view of the insurance industry, who will lead from the front rather than the side and who will press hard for change 0 where he believes it’s needed.

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A messy business

Deserted streets: New York’s Park Avenue towards Grand Central Station at the height of the shutdown on May 12

Business interruption coverage amid the COVID-19 crisis has sparked furious rows at home and abroad

By John Deex and Wendy Pugh

I

t may seem obvious to those within the industry that insurers cannot cover pandemic-related business interruption (BI) claims.

You can’t just go paying claims when you haven’t collected premiums – and this has been the case since reinsurers began excluding pandemics following the SARS and MERS outbreaks some 15 years ago.

It would seem to make sense too.

Insurance works best when the many pay premiums to cover claims by the few. If everyone is claiming, then the system falls over.

Even with large-scale natural catastrophes, where there will be many thousands of claims, events are restricted to one geographic area. Reinsurers can diversify their risk.

“Logically you can see why [insurers] wouldn’t want to pay for something that in the worst case

scenario is going to affect every business,” claims manager Sedgwick told Insurance News back at the beginning of the crisis.

What is more, BI cover just wasn’t intended to cover this scenario. BI almost always responds when there is physical property damage at the insured’s premises.

An infectious diseases extension is available, but even this is designed to cover localised outbreaks of illnesses such as Legionnaire’s disease.

Pandemics are excluded – or so we thought.

Unfortunately industry “logic” has not extended to those whose livelihoods have been taken away, and as ever with insurance contracts, it comes down to precise wording.

No pandemic insurance issue has caused more anger in the US and Britain than the realisation that most BI policies won’t help restaurants, pubs and shops left

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The show must not go on: a sign outside the closed Pavilion Theatre in the Norfolk coastal town of Cromer, UK

deserted after virus-triggered lock-downs.

And Australia, which initially looked to have avoided any major controversy, has its own problems thanks to outdated policy wordings. More on that later.

Class actions are being prepared on both sides of the Atlantic and UK trade groups representing 50,000 pubs and 2000 brewers say that “with one or two exceptions the collective failure of insurers to step up and meet their obligations has been deeply disappointing”.

US state and federal legislators have proposed legislation that would void exclusions, President Donald Trump has spoken on the issue, while the New Yorkbased Insurance Information Institute has condemned a campaign led by “the world’s richest chefs and a celebrity attorney”.

Frustrations over lack of cover have risked becoming a major threat, with the institute having to spell out to legislators that the industry won’t survive if it has to pay the type of claims never factored into premium calculations.

“The Federal Government is the only entity with the financial resources to help businesses during a widespread global pandemic,” Institute CEO Sean Kevelighan told a virtual forum hosted by a House of Representatives subcommittee.

“Make no mistake; retroactive business interruption payouts would bankrupt insurers.”

Business interruption is offered as an “add-on” to general property policies to cover lost income and expenses when premises are closed due to physical damage caused by events such as fires or hurricanes, Mr Kevelighan has stressed.

The Association of British Insurers notes that a minority of customers buy add-on cover that includes specific infectious diseases that could affect their

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workplace, such as norovirus, but these are limited in scope.

“They are not designed to cover an unspecified global, viral pandemic that is not present on the premises,” Director General Huw Jones says. “Nor were these policies sold to customers as being cover against this type of incident.”

The UK Financial Conduct Authority says most property-focused business interruption insurance is not likely to respond to the COVID-19 emergency, but it is launching a test High Court case to examine the wordings of policies that could be argued to include cover.

The eight insurers involved in preparing the case are Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox Insurance, MS Amlin, QBE, Royal & SunAlliance Insurance and Zurich.

While battles continue over existing policies, discussions are also underway on solutions to better protect businesses in the case of future pandemics.

London-based insurance leader Stephen Catlin and executives from Aon, Guy Carpenter, Willis Re and other companies have formed a steering group to examine ways for the UK insurance industry to respond to future outbreaks.

The group, chaired by Mr Catlin as Convex CEO will work closely with terrorism reinsurer Pool Re in making recommendations.

In the US, legislation to create a Pandemic Risk Reinsurance Program, involving private insurers and the Government, has been introduced into the Congress.

The proposal, which would provide a Government backstop similar to arrangements under the Terrorism Risk Insurance Act (TRIA), has received support from broking giant Marsh & McLennan and the Risk and Insurance Management Society (RIMS).

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“Our view is that it is not correct to interpret the exclusion as applying to COVID-19. For one thing, the Quarantine Act was repealed nearly five years ago.”

But the National Association of Mutual Insurance Companies, the American Property Casualty Insurance Association (APCIA) and the Independent Insurance Agents and Brokers of America favour an alternative federal plan to help businesses.

The groups argue a TRIA-like program, with an industry financial role, does not square with the fundamental notion that pandemics are not insurable risks.

“We need a sustainable solution that provides simplicity, certainty, and immediate relief to impacted businesses,” (APCIA) President David Sampson says.

Here in Australia, many hoped for a more “sensible” reaction.

But it has emerged that many policy exclusions still refer to “quarantinable diseases” under the Quarantine Act 1908, which was repealed and replaced by the Biosecurity Act 2015.

As a result, some law firms are advising clients with denied claims that they should continue to fight for a payout, believing the issue could be heading for a very expensive and drawn-out court battle.

Clayton Utz believes policies which have broad infectious diseases cover, with exclusions that refer only to the Quarantine Act, should respond.

“Where the policies simply require that the outbreak occur within a specified radius of the premises, the insurance policy should respond, as it is likely that the business will be able to establish that the outbreak is present within that area,” Partner Mark Waller says.

Special counsel Chris Erfurt explains further.

“Our view is that it is not correct to interpret the exclusion as applying to COVID-19,” he says.

“For one thing, the Quarantine Act was repealed nearly five years ago, so it does not apply to COVID-19.”

Some policies refer to the Quarantine Act “as amended” or “and subsequent amendments”, but the firm says this gives no protection.

“While some of the subject matter the repealed Act covered is now contained in the Biosecurity Act

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2015, that Act is not a ‘subsequent amendment’ to the Quarantine Act,” Mr Erfurt says.

“In any event, a listed human disease under that Act – which does include COVID-19 – does not fit within the description ‘quarantinable disease’ under the exclusion, as that is a distinct concept under the repealed legislation.”

The Insurance Council of Australia (ICA) and its members argue that the “the intention of stated exclusions was clear”, regardless of which Act is referred to.

Insurance News understands ICA sought legal advice, which advised that precedent in similar cases suggests the exclusions will hold up.

Overall, however, there is a resignation that this matter will end up in court – probably the High Court – and there are no guarantees which way it will go.

If Australian insurers were forced to pay out all business interruption claims, it has been estimated that this could result in claims of $30 billion for just a threemonth period.

The Quarantine Act issue would not account for the whole of this figure – far from it. But it is believed to be a significant problem, with most IAG and Allianz policies, and some QBE polices, affected.

Mr Waller has little faith in ICA’s legal advice, and says insurers would be better to pay out the claims and avoid litigation.

He says the “intention” of one party is not legally relevant. “[The customer] did not have that intention,” he said. “Legally, what one party asserts to be their intention does not matter.”

He says that “at best for insurers” the wording is ambiguous, which would lead to them not being able to rely on the exclusion.

Clayton Utz is not the only law firm with opinions on the matter, and others have expressed differing views.

An article on Piper Alderman’s website says that as the Biosecurity Act replaces the Quarantine Act, “an

argument that an exclusion referring to the Quarantine Act does not apply is not likely to succeed”.

Mills Oakley agrees that “the insurer’s intention to exclude cover for such notifiable diseases is clear to the insured, and the effect of the exclusion is the same, regardless of the Act referred to”.

However it adds that a risk remains that “these exclusion clauses may be successfully challenged by insureds”.

Colin Biggers & Paisley lines up with Clayton Utz, saying “it is unlikely that exclusions, which only refer to the Quarantine Act 1908, will operate to exclude cover for COVID-19 as the Biosecurity Act 2015 is unlikely to qualify as amending legislation”.

The first determination on the issue could come from the Australian Financial Complaints Authority (AFCA), rather than a court.

This is a concern to insurers, as AFCA rulings are binding on them but not consumers, and it has an increasing propensity to land on the side of “fairness”.

AFCA declined to offer a view on the issue when contacted by Insurance News, saying only that it has three current complaints relating to business interruption and COVID-19, and investigations are ongoing.

Whichever way this goes, it’s not good for insurers. It could be time-consuming, expensive, and damaging to the industry’s reputation.

Ultimately – both here and overseas – it will be up to courts to decide the outcome.

The repercussions could be incredibly damaging, and the industry will be hoping 0 that its “logic” prevails.

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Recovery and protection Finalising claims from last summer’s catastrophes is moving ahead as insurers adjust to operating amid a pandemic

By Wendy Pugh

H

andling claims after Australia’s worst natural disaster season on record was always going to be challenging, but the stakes have risen exponentially with the arrival of the most devastating pandemic since the Spanish flu.

Lockdowns and social distancing have seen masks worn on visits to the sites of property claims, digital technology accelerated and teams working from home as COVID-19 has added hurdles while increasing the importance of a rapid response.

“Right now, we need to be safe, but not lose momentum,” Suncorp Head of Claims Michael Miller told Insurance News. “In particular for bushfire-impacted communities, we know the faster we can inject funds into the local communities the stronger the recovery will be from the fires and the ongoing pandemic.”

The catastrophe season started last September and reached a crescendo early this year with bushfires raging in southeast Australia, hailstorms hitting the ACT, Victoria and New South Wales in January and severe storms battering the east coast in February.

Australia confirmed its first case of COVID-19 on January 25. By the end of the month it was evacuating citizens from overseas, and by mid-March the country was in lockdown.

“Since the start of the pandemic it has been far from business as usual,” Insurance Council of Australia (ICA) spokesman Campbell Fuller says. “Most of the industry is still working from home, and centralised call centres have been closed. This is affecting response times, claims-handling and other services.”

ICA figures show the value of claims from the

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summer storm, bushfire and hailstorm catastrophes reached $5.19 billion by mid-May, and despite challenges and the “handbrake effect” of COVID-19 almost 50% of those have been closed.

For the bushfires, which caused losses of $2.3 billion, almost two-thirds of residential building claims and more than 80% of contents claims have been closed.

Insurers say they have kept claims-handling on track through using new technologies to assess damage remotely, having appropriate protections in place for on-site visits, and minimising any disruptions from having staff working at home.

Mr Fuller says ICA liaised with state and territory authorities to ensure insurance personnel, including claims assessors and builders, could move freely within and between states, despite community travel restrictions, and developed health and hygiene guidelines for personnel accessing ccustomers’ properties and motor vehicles.

QBE Australia Pacific Chief Claims Officer Jon Fox says the insurer’s business continuity plans were activated at the early stages of COVID-19 and included a strong focus on supporting bushfire-affected customers with their recovery.

“We immediately initiated a screening process with our customers and suppliers that assessed any potential transmission risk, before any site visits would be arranged,” he says. “Aside from the health and safety implications, it was very important with the uncertainty of the situation that everyone felt comfortable proceeding in a protected environment.”

Mr Fox says that prior to the pandemic lockdown

New working environment: IAG’s Philip Silverman conducts a property claim assessment

QBE had created a dedicated “Bushfire Cat” team and it has been able to maintain the same level of service as it was achieving before the pandemic.

Loss adjusting firm Crawford & Co had to realign its workforce after personnel seconded from Canada to assist in the catastrophe response for three months were required to return home early due to the pandemic.

“In Australia, not only did we have to pivot rapidly so that 90% of people were able to work at home but our adjusters also had to adopt new working practices and embrace new technology solutions,” President Australia Tim Jarman says.

“Through this period a number of self-service tools rapidly deployed by Crawford and adopted by carriers helped replace the site visit during this unprecedented time.”

Technology uptake has been critical in allowing insurers, loss adjusters and builders to increasingly manage damage assessment virtually, minimising face-toface interaction and helping fast-track processes.

“Virtual assessments simply require a customer to have access to a compatible device and a mobile or wifi connection to transmit the audio and video data captured,” IAG Major Event Executive Manager Craig Byfield says. “If a connection isn’t suitable, the customer can still take video or photos offline and upload onto a secure portal provided by IAG.” When a property is visited, the insurer asks assessors and customers screening questions beforehand, and assessors will use personal protective equipment and follow health and safety advice.

Morse Building Consultancy Director Andrew

Morse says the designation of insurance as an essential service has meant it has largely been business as usual for his company.

Mr Morse, who is based on the Gold Coast, has been able to move freely between Queensland and NSW, and says the firm’s building and engineering assessments are often carried out without the property owner attending.

“We sometimes meet clients on-site, but all we have done is just keep our distance – we don’t shake hands, we just introduce ourselves,” he says.

“We had two claims in NSW in the early stages, within a week of it being declared a pandemic, where they didn’t want anyone on site, but a few weeks later that had changed.”

Steamatic, which provides cleaning and restoration services after catastrophes, has mostly finished work from the summer disasters, although some bushfire-damaged property owners have expressed a preference to delay until the surrounding landscape begins to green.

“The insurers have been amazing throughout this,” Chief Executive Oliver Threlfall says. “They are accelerating payments and allocating work as quickly as they can. It appears that they are just trying to keep their supply chain happy and in business so that we all come out of this together.”

Mr Threlfall says the wearing of masks by work teams during the pandemic is sometimes off-putting to householders, but reassurances are given ahead of time.

“You pre-warn them that you are coming, and that

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“From the outset of the pandemic we’ve been particularly mindful that this crisis adds yet more pressure to people and communities impacted by last summer’s bushfires and hailstorms.”

it’s no disrespect, but we will have masks on because we are going to multiple houses,” he says.

“Being an essential service we have to go if a house is full of smoke or water.”

The positive insurance performance so far in handling summer disaster claims amid the COVID-19 outbreak has been acknowledged at the Royal Commission into National Natural Disaster Arrangements.

For the bushfires, 0.66% of claims have been denied, which compares to an annual average across all lines of 3.9%, according to ICA data presented at the hearings.

Australian Financial Complaints Authority (AFCA) Lead Ombudsman Insurance John Price told the royal commission that the service has received 68 bushfire-related disputes compared with 14,000 for general insurance overall last financial year.

“That indicates to me, at this stage that the insurance industry has performed reasonably well, and proactively in dealing with a lot of these matters,” he said.

Insurers have improved their response over the course of the many natural disasters since the 2009 Black Saturday fires, becoming “very conciliatory” in their approach and working actively with communities, AFCA and consumer groups to resolve matters, he says.

Nevertheless, there is still a long way to go in finalising all claims from the latest catastrophes and the industry is continuing to navigate a range of obstacles caused by both the magnitude of the events and the virus.

ICA documents provided to the royal commission say delays to the removal of debris, which often involves government resources, may slow the repair, rebuilding and settlement of claims, while impacts on the supply chain for building resources are anticipated, especially where materials are manufactured overseas.

The ongoing pandemic means the capacity to have even essential workers attend homes to complete repairs has been limited in some cases as customers self-isolate.

“We have also seen many customers with more

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minor damage choosing to simply pause their claim until restrictions ease and it is more convenient for them,” Suncorp’s Mr Miller says.

“When a customer comes to us with an insurance claim, it’s usually after a significant event in their life and often it can be quite stressful, and coronavirus is making it even harder. So we have been focused on finding flexible ways to support them through this process.”

Consumer groups note that while the early response from the industry has been strong, disputes following natural disasters typically emerge at least six months after claims are lodged.

“That might be because it all starts out well, and then there are huge delays in the handling of the claim and at that point it becomes a dispute,” Consumer Action Law Centre Senior Policy Officer Cat Newton says.

“It is often only at that point of resolving the claim or during the rebuild work that people realise the policy isn’t meeting expectations.”

Ms Newton says many people in bushfire-affected regions have suffered financial loss from COVID-19 shutdowns and have a lot to deal with, which may contribute to delays in the emergence of claim issues.

“Insurers did take really good early steps after and during the Black Summer and the bushfires, and we want to see that people are not forgotten as we rebuild during these really difficult circumstances,” she says.

Insurers are careful to highlight their awareness of the financial stress that customers are experiencing as the recovery from the summer’s catastrophes now continues in parallel with management of the pandemic outbreak.

“From the outset of the pandemic we’ve been particularly mindful that this crisis adds yet more pressure to people and communities impacted by last summer’s bushfires and hailstorms,” Mr Byfield says.

“The safety of our people, customers and the community has guided our decision-making since January when the impacts of COVID-19 escalated, and this 0 will continue.”

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No going back The virus lockdown has forced the insurance industry to discard its go-slow tech approach

By Bernice Han

I

t’s finally happening. Technology is being embraced at unprecedented speed in an industry that has, fairly or unfairly, earned a reputation for its slow and cautious approach to the digital revolution.

Before the pandemic arrived nothing, it seemed, could nudge the industry into going faster in adopting new technologically-based ways of doing things.

Massive amounts of money may have been poured in recent years into mobile apps, drone research, artificial intelligence, bots, cloud solutions and insurtechs, but application-wise the industry is still perceived as behind the banks and other financial services providers.

The new technologies that insurance has invested in are either still in various stages of pilot development, or if used commercially they are usually being implemented on a limited scale.

But the pandemic has changed all that, pushing the industry out of its comfort zone. The sudden shift overnight to all things virtual and remote may well be irreversible, according to KPMG. “Coming out of the crisis, the sector could look fundamentally different: much more agile, secure, connected and digitally enabled,” the consultancy says. “Perhaps, indeed, COVID-19 was the digital wake-up call the industry needed. Now the opportunity is there for those

who can to gain value from it for their organisation.

“Just as COVID-19 has forced insurers to adopt remote and digital ways of working, so it is undoubtedly set to drive a wider acceleration of technology adoption across the industry. This is a trend, of course, that has already been with us for some years, but the current situation will significantly expedite it.”

As the industry starts turning its thoughts to what the post-pandemic landscape might look like, KPMG predicts there will be an increased focus on using technologies to improve pricing, underwriting, claims handling, policyholder interaction and fraud management.

Scott Guse, KPMG’s Brisbane-based Partner for Audit, Assurance and Risk Consulting, expects the industry to raise its focus on chatbots. With local and offshore call centres affected to varying degrees by the pandemic, customers have had to refer their enquiries to online chatbots, but the results haven’t been all that satisfactory.

“At the moment, the chatbots are not as sophisticated as they need to be,” Mr Guse told Insurance News.

“When they are too generic, they actually annoy the customers when their problems can’t be solved.

“Insurance companies have realised they need to enhance the ability of those chatbots to be more

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“We’ve had front-row seats in observing what can actually be achieved when the traditional way of managing claims has been torpedoed.”

sophisticated. They have recognised that in this COVID-19 environment they need to focus on ‘killing the cause for the call’.

“That’s a terminology being bandied around. If companies can keep a customer online and solve their problems online, it’s a lot more timely [and] cost-effective and will mean better customer service.”

Third-party suppliers of IT software and hardware to the industry say they have seen a sharp rise in sales and enquiries.

Insurance clients, who in the past have either been reluctant to try out new technologies or preferred to rely on internal resources for their IT needs, have had a change of mind since the pandemic.

Daniel Lukich, Asia Pacific Business Development Director with 360Globalnet, a UK-based claims specialist with significant business in Australia, says the pandemic has “pushed aside the traditional roadblocks” to digital transformation within the industry.

In the past, he says, efforts to advance claims processes through digitisation have often been stymied for a variety of reasons such as internal bureaucracy or simply a case of IT departments wanting to retain control over development.

“Often in normal times, the very people responsible for claims delivery find it difficult to implement wholesale changes easily within their organisations,” Mr Lukich told Insurance News.

That isn’t the case anymore. The scale and urgency of the pandemic crisis necessitated the need for decisions to be made quickly.

“We’ve had front-row seats in observing what can actually be achieved when the traditional way of managing claims has been torpedoed,” Mr Lukich says.

“Within many insurers, the business managers accountable for claim delivery under the current challenge have certainly taken the driver’s seat in identifying, adopting and implementing changes to maintain a continuation of servicing customers (after COVID-19).

“In our experience, both here in Australia and other regions, we have been able to move from initial

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discussions through to proposal, contract and implementation within a matter of weeks if not days.

“This is unprecedented for this industry and a great achievement for the individuals concerned. From our perspective, however, it’s unfortunate that it took an event like COVID-19 to force many to shift.”

Claims management company Sedgwick agrees that COVID-19 has accelerated the use of digital solutions – specifically remote loss adjusting or assessing via apps.

“We have the ability to be virtually in the building, in the room and viewing the damage,” Chief Executive Diego Ascani told Insurance News.

“We can use video, photographs and geomapping.

We can join in multiple parties.”

Mr Ascani says the technology has been available for some time, but traditional methods had previously remained dominant.

“Necessity is the mother of all invention. While we have had this technology for a while, traditional loss adjusting seems to have continued as it always has.

“There was a need to attend the site and make physical contact with the insured and physically inspect the property. That was our traditional methodology and I’d say 80% of all inspections and all claims were managed that way.

“But along comes COVID-19 and within two or three weeks it is completely the reverse, where 80% of assessments are now done by digital technology.”

Mr Ascani believes the switch will remain once the pandemic and its attendant restrictions ease.

“We’ve been doing a lot of thinking and planning for what happens post-pandemic – what is fundamentally going to change for insurance and claims management.

“We’ve agreed that this is almost for ever.

“We will continue to have the capability to attend sites. It could be that there is a vulnerable customer, or a suggestion of fraud, or a complex damaged property.

“But where we are heading is the majority of claims being far more streamlined.

“I think COVID-19 has accelerated digital and remote loss adjusting within two months, when the

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Insurance platform vendor JAVLN says it has seen a significant uptake in new clients, while enquiries have increased about 200% after Australia and New Zealand went into lockdown in March.

Chief Executive Dale Smith says the lockdown period has reinforced to the insurance industry that it needs to be quick and mobile, and the only way to achieve that is through increased use of technology.

“The industry in Australia and New Zealand has been very under-serviced from a technology perspective for a long time,” he told Insurance News. “That meant that when this terrible [pandemic] happened, for businesses that perhaps haven’t been as technology-focused as they should be it’s front of mind now.

“To operate in the new world, they need mobility, they need the information that they have in their businesses at their fingertips and they need to be able to log in from anywhere on any devices at any time and get access to information.”

He says the JAVLN cloud-based processing platform, which offers 24/7 full policy and claims lifecycle management, has enabled clients to continue running smoothly despite the strict lockdown rules. “That proves how relevant our technology is to the situation.”

He believes the industry’s newly developed focus on technology is here to stay. Insurance is under pressure, with the virus-induced recession adding a bigger strain on margins and profitability.

“Our region is no different to the rest of the world, there is huge pressure on SMEs and businesses,” Mr Smith said. “The argument is that the insured pool will get smaller and that will then put pressure on insurers and the value chain.

“In order for them to maintain profitability, they will have to invest in technology and business 0 efficiency.”

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Time to reinvent firefighting Technology is the missing link in killing bushfires before they become giants, says this expert.

And much of it is ready right now

By Miranda Maxwell

S

ix afternoons. That’s the timeframe for the bulk of all damage ever done to Australian property from bushfire, making up 12% of normalised insured natural hazard losses from 1966 to 2017.

Last summer was different. The deadly “black summer” fires, which have clocked up losses of more than $2.2 billion from 31,000 claims so far, spanned a much longer period and geography, creating the most catastrophic conditions experienced by firefighters.

The 2020/21 fire season could be less than 10 weeks away and Andrew Gissing, the General Manager of Resilience at catastrophe modeller Risk Frontiers, says this trend for an earlier start and more dangerous fire weather conditions in southern Australia is due, at least in part, to climate change.

Yet he has a dream of a future in which fires are suppressed before they become too big to stop.

“I’m painting a picture of an idealistic future of aspiration and trying to see if people want to catch on to it,” Mr Gissing tells Insurance News.

“The vision is about rapid suppression – that the fire is not really breaking out and becoming uncontrollable.

You are getting to the fire in its initial stages before it is able to grow into a mammoth beast.”

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Innovation should be a top priority for fighting bushfires, and institutions must “think big,” he says.

Improved detection, surveillance and communications using new technology to support traditional firefighters, trucks and aircraft would dramatically reduce losses.

“Rather than the trajectory of risk going upwards, especially with climate change and growing society exposure, you want to see it going downwards, and that would be tremendously beneficial to the insurance industry,” Mr Gissing says.

What he’s proposing isn’t some futuristic dream.

Right now, satellites and autonomous trucks and robotics are being used in Australia’s mining sector, and such technologies could be adapted to transform firefighting, along with agricultural monitoring technologies and balloons equipped with radio communications.

Small unmanned aerial vehicles (UAVs) could also create a “mesh network” to provide wireless communications.

Firefighters in the US are already using UAVs to provide enhanced imagery over firegrounds and, using infrared sensors, have supported monitoring of fire conditions at night.

In the longer term, say 10 years from now, swarms

Aerial assistance: IAI’s Heron unmanned aerial system craft

of UAVs supported by ground-based drones could be used to suppress bushfires and limit their spread.

The team at Risk Frontiers has made a 30-page submission to the Royal Commission into National Natural Disaster Arrangements. It is urging the creation of a “national innovation blueprint” to inform next-generation firefighting using advanced predictive intelligence and other technologies to revolutionise Australia’s bushfire resilience.

Mr Gissing says the old methods of fighting fires leave Australians exposed to too many risks, and it’s time to “disrupt the way we manage bushfires”.

“We really need to be encouraging this conversation. We’d be hopeful that there is at least a theme that comes out of (the royal commission) to say we’ve got to look at future capabilities.”

Stakeholders are overwhelmingly supportive, he says, but nutting-out the execution and tackling competing priorities such as vegetation management and conservative mindsets are slow going.

But the advocates for change are adamant innovation must be included in any consideration of the way forward for fighting bushfires. They point to the fact that loss of communication was a significant issue

last fire season, leaving firefighters in trucks with only radio and little to no awareness of the bigger picture.

There are anecdotes of firetrucks coming to a fork in the road and its crews deciding which way to go by looking to the sky to judge the colour of smoke and deciding whether it was property or bush that was burning.

Travis Ellemans, marketing director at Israel Aerospace Industries (IAI) in Australia, says the 2019/20 bushfire season was the “tipping point” where decades of traditional firefighting must be re-evaluated. He says his team is trying hard to get the message out that there is a better way to tackle fire, and changes can be ready for the next season.

“We have to get smarter because just putting more trucks and more people on the ground is not going to fix the problems at all,” says Mr Ellemans, who attended a forum hosted by Risk Frontiers that brought together experts in insurance, construction, technology, aviation and information technology to harvest fresh ideas.

He is conscious the 30-page Risk Frontiers submission to the Royal Commission was just one of 1400 submissions lodged, making up over 12,000 pages.

“How do you get these bigger ideas into play and

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“Our problem is, how do we allocate the resources to where they are most needed, to ensure the overall effectiveness of an outcome.”

how do you do it quickly? I don’t know how we influence that rapid change of approach and acquisition of technologies to help, but what I do know is that right now is the time to do something about it.”

He says his company could very quickly help with communications and surveillance of fire areas, transforming the effectiveness of the equipment and manpower that already exists.

“We can bring a very different perspective that doesn’t seem to have really been tapped into and literally fix the two critical issues by the next season. Instead of being blind you would now have everything you needed.

“The equipment that is available to actually fight the fire and the people who do the job are fantastic – there is absolutely no problem there at all. Our problem is, how do we allocate the resources to where they are most needed, to ensure the overall effectiveness of an outcome,” he says.

IAI can offer unmanned aircraft, satellites for 24/7 detection and mapping at low long-term operational cost. Its “Tac4G” high bandwidth network, designed for small groups of soldiers, could be applied to emergency response. It can run off towers mounted on vehicles and be used with regular phones and tablets.

IAI also has UAVs which can loiter high above the fire area for 24 hours and map the fire front, provide real time video of the area to assist the firefighter, and produce a radar picture of firefighting aircraft in the

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area to assist with traffic control and reduce the current aircraft-separation requirements dramatically.

“No one has to think, no one has to try harder,” Mr Ellemans says. He says smoke is a hazard for firefighting pilots, who often can’t see the fireground they are meant to be attacking.

“If someone was actually controlling the bigger picture and letting you know where you can be most effective, then the amount of resources that we have now for firefighting, and the way that we apply them, is likely enough.”

Overly cautious decision-making and fear of making the wrong choices could cost lives next summer, he says. “There comes a point where you just have to act.”

Modern management of fires would transform outcomes “particularly from the perspectives of insurance and loss of jobs and life.”

Mr Gissing says Victoria’s “Towards Zero” road safety campaign points the way for firefighting efforts, which he believes should be similarly ambitious. He hopes to spur a “groundswell” about a clearly articulated forward-capability vision for how Australians fight bushfires, which he hopes will promote investment and garner political will.

“There’s certainly more than a few bits and pieces to be worked through to get to this idealised space, but the first thing is really defining what that space is,” he says.

“That’s what we have been trying to do, saying ‘Let’s stretch ourselves and be aspirational’.” 0

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Fairness first For the Australian Financial Complaints Authority, a fair go is most important. So what happened to the laws insurers are also guided by?

By Bernice Han

F

ocus on fair, not blackletter law,” the Australian Financial Complaints Authority (AFCA) said in its July newsletter last year, outlining how it would make determinations.

“We decide each case as we see it and make determinations without favour,” the financial services sector’s new complaints umpire referee said. “The test we apply is, ‘what is fair in all circumstances of the case?’

“With that in mind, blackletter law arguments that are legally sound and well-articulated will not succeed if they deliver fundamentally unfair outcomes for consumers.”

The external dispute-resolution body, which replaced the industry-founded Financial Ombudsman Service in November 2018, was about nine months into its operations when the newsletter was published.

It came more than a year after the Hayne royal commission into financial services sector misconduct had wrapped up and Canberra had committed to act on all 76 proposed measures.

In the post-Hayne world, consumer protection has taken on increased importance. The royal commission exposed a range of practices and behaviour where financial products were designed to extract maximum benefit to the seller rather than value to the consumer.

Insurers and other financial services providers once operated within a system where caveat emptor ruled, with product design, sales and service relying on the exact legal meaning of controlling legislation and the contract between the parties.

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The insurance industry has been grappling since the 1980s with the transition from its previous focus on contract law to a consumer-conscious culture, where there is pretty much universal acceptance in politics and business that “doing the right thing” is the emerging key to success.

That transition is at the heart of AFCA’s approach to insurance disputes. The principle of “fairness” that guides its thinking is skewed heavily in favour of the consumer.

It holds that a financial services provider can act strictly within the law when responding to a consumer and still be in the wrong. Where a consumer has made what AFCA judges to be an innocent mistake, the financial services provider involved will end up on the losing side.

But John Price, the Lead Ombudsman for Insurance at AFCA, insists it’s more balanced than that.

“Fairness aims to achieve a fair outcome to all parties,” he tells Insurance News. “Certainly, reliance on blackletter law does not necessarily lead to fairer outcomes.”

As Mr Price also points out, these days “it is rare to see a court simply rely on blackletter law. Courts apply community standards and fairness in many ways.

“Fairness over-rides everything that AFCA does. It is our over-arching principle to do what is fair in all the circumstances. You cannot just extract fairness itself and ignore everything else.

“Fairness is looking at all the circumstances. It’s

looking at the arrangement between the parties, it’s looking at whether the parties have obeyed the law.”

He says the policy to place fairness at the heart of its decision-making process is not at all new.

“AFCA and its predecessor scheme, the Financial Ombudsman Service (FOS), never held themselves out to be blackletter law organisations,” Mr Price said.

“AFCA is required as part of its decision-making process to do what is fair in all the circumstances, as was FOS. “We are required to have regard to the relevant legal principles, to have regard to good industry practice including codes of practice and prior determinations of AFCA and its predecessor schemes. But our over-arching requirement is to achieve an outcome that is fair in all the circumstances. Fair to both parties.”

Sounds utopian? Maybe it is. The fairness of the fairness agenda, it seems, is in the eye of the beholder.

Depending on who you ask, a determination is either just or unjust.

AFCA decisions are binding on the financial services it adjudicates on, and insurers’ ability to challenge a decision in court is unlikely to succeed. They are tied to the scheme and its decisions.

Last month Brisbane-based QSuper backed away from an appeal against a ruling by the Full Bench of the Federal Court upholding an AFCA determination which the superannuation fund said “exercised an impermissible exercise of judicial power”.

Last December the court upheld AFCA’s ruling on

the matter, while accepting that QSuper had likely complied with its statutory obligations.

It said AFCA’s powers to settle disputes “are not judicial in nature” and therefore are not binding.

When AFCA has reached a decision on a dispute it “lacks conclusiveness” as it cannot force a company to obey it.

Therefore AFCA’s decision did not involve an exercise of sovereign power “but was a result of [financial services companies’] voluntary submission to the AFCA scheme”.

“A member is not compelled to do anything by AFCA’s determination itself. The inability of an entity charged with determining complaints to enforce its own determinations negates the conclusion that it is exercising judicial power.”

But AFCA does have support through the industry regulators. It can refer an issue of non-compliance to either the Australian Prudential Regulation Authority, Australian Securities and Investments Commission or the Commissioner of Taxation for possible further action.

“However, even action by any of those entities may not be the enforcement of the determination but effectively a sanction for the failure to comply with it,” the Federal Court said.

Legal sources say QSuper’s abandonment of the appeal was wise, because the courts are supportive of the alternative dispute resolution system.

As to AFCA’s overall performance, an independent

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Administering fairness: AFCA’s John Price

“Fairness over-rides everything that AFCA does. It is our over-arching principle to do what is fair in all the circumstances.”

review of AFCA was to have taken place in May, when the dispute mediator reached the 18-month milestone, as required by legislation. The Treasury-led review has now been put on hold because of the coronavirus pandemic and will most likely take place next year.

The feedback from insurance executives, law experts and consumer advocates will have to make do for now. And not surprisingly, their opinions are divided.

Consumer advocates like the way AFCA is handling disputes so far. But the insurance industry and lawyers are not so sure. A few cases in particular have left them concerned.

An industry source, who preferred not to be named, told Insurance News insurers “are deeply concerned about some of the decisions but they are not going to say that at this time”.

A dispute reported in April by insuranceNEWS.com. au was somewhat puzzling, if not downright unnerving for the industry.

AFCA ruled in favour of a complainant who had failed to disclose his prior claims history when taking out a comprehensive motor policy. It agreed Hollard had clearly informed the claimant of his duty of disclosure when the policy was purchased in 2018. But it did not accept Hollard’s submission that the policy would

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not have been issued had the claimant disclosed he had made five previous claims.

Furthermore, AFCA said two of the five claims would not have been counted within Hollard’s underwriting guidelines.

Some critics saw this decision as an attempt by AFCA to expand its remit by involving itself in an insurer’s underwriting guidelines.

Dean Pinto, Special Counsel in Wotton+Kearney’s national financial lines team, believes this decision is possibly a sign of what to expect from AFCA in future.

“The decision raises questions as to whether this will be used as a precedent by AFCA going forward and, if so, the evidentiary burden that an insurer must discharge to satisfy AFCA as to what it would or would not have underwritten had the insured complied with its legal obligations,” he tells Insurance News.

“The decision must be of concern to insurers in terms of assessing where that burden now sits and how they can convince AFCA of their underwriting processes and intentions.

“A balanced and independent assessment of insurance disputes that gives due consideration to the application of the law, including the legal obligations of parties to an insurance contract, are fundamental aspects

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“While it would be preferable that every customer who suffered a loss could be covered, that is commercially not viable if the insurance industry is to continue to provide affordable insurance products.” of the business of insurance.

“While it would be preferable that every customer who suffered a loss could be covered, that is commercially not viable if the insurance industry is to continue to provide affordable insurance products.”

A financial services lawyer, who requested anonymity in order to speak candidly, called the ruling against Hollard “appalling”.

“This is actually a decision about whether or not the law, the Insurance Contracts Act, gave the insurer the power to avoid paying the claim and AFCA has concluded that the insurer didn’t bring itself within section 28 of the Insurance Contracts Act,” the lawyer tells Insurance News.

“To my mind, that is entirely a question of law and that’s an exercise, in my view, of judicial power.

“This is very concerning because as best as I can see, AFCA is making decisions which are not consistent with the decisions that the financial firms are able to make consistently with their legal obligations.

“And it’s difficult because if you are a financial firm and you have a whole lot of legal obligations, you think you are complying with them but there is always the prospect that an individual might complain and AFCA might think the financial firm’s decision is unfair to that person.”

Cat Newton, Senior Policy Officer at the Consumer Action Law Centre, disagrees. She says AFCA is taking the right approach, and relying solely on legal principles is not enough to enable a fair outcome.

“I think most people would acknowledge the actual blackletter law is often imperfect and it often does lead to unfair outcomes when applied very narrowly,” she says. “That’s why it’s important to have that additional criteria in AFCA’s decision-making that it also has regard to fairness in all the circumstances to capture those times.

“It’s not going to be in every decision, but there are going to be times when a strict legal view really doesn’t 0 do justice to the dispute at all or to consumers.”

Key AFCA cases In October last year the Australian Financial Complaints Authority (AFCA) began naming financial firms in its published determinations.

While most insurance disputes were the normal vanilla-type complaints, a number stood out, either because they were quirky in their detail or because of the reasoning behind a decision.

Here’s our pick of some of the less-routine cases: Case number: 656359 Insurer: Hollard Insurance Company AFCA ruled in favour of a claimant whose vehicle damage claim was declined because he failed to disclose his prior claims history. AFCA agreed Hollard had clearly informed the claimant of his duty of disclosure when the comprehensive policy was purchased in October 2018. But it did not accept the insurer’s submission that it would not have issued the cover had the claimant disclosed he had made five claims in the relevant period.

Case number: 670570 Insurer: Zurich Australia The claimant suffered a panic attack just before

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boarding a plane to see his lover in the UK. His claim was declined, and AFCA accepted the insurer’s submission that the panic attack was triggered by a pre-existing medical condition the claimant had been diagnosed with after consulting a clinical psychologist. The claimant had provided conflicting evidence from his psychologist about his condition, compromising his credibility, AFCA ruled.

Case number: 669081 Insurer: AAI Limited The landlord won his dispute with the Suncorp-owned insurer over a claim for damage to his property caused by methamphetamine contamination. AFCA rejected the insurer’s argument that the contamination fell within its policy exclusions for “biological, chemical and other pollutants or contaminants”. Suncorp said the general exclusions were intended to cover any damage caused by chemicals or contaminants and should be read in terms of individual clauses. It said methamphetamine – a drug more commonly known as ice – is a chemical as well as a contaminant. But AFCA disagreed, saying “it is not appropriate to give an exclusion a meaning other than its plain meaning”.

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Ready and able Not many businesses last long enough to reach the 120-year milestone. But then, there aren’t many out there like medical insurer MIGA and its 20-year chief executive

By Bernice Han

T

he last few months have been nothing short of hectic for MIGA, the member-owned mutual medical indemnity insurer. Like nearly every business in the country, it hasn’t been immune to the upheaval caused by the coronavirus pandemic.

But unlike the many that were caught flat-footed without a plan B when the virus breached Australia’s borders in full force in March, the South Australiabased national insurer was ready when strict lockdown measures were enacted in the same month to suppress the spread of the deadly virus.

MIGA quickly swung into action once the social distancing curbs were announced, executing its business continuity plan without compromising its services to clients in the medical and healthcare sectors.

For Chief Executive Mandy Anderson, the way the insurer has responded to the biggest public health crisis ever to confront the country has been gratifying.

She says that from the get-go employees were prepared for the challenges of working remotely. MIGA had been planning in advance for it, familiarising staff with the procedures should the day come when the contingency measures had to be put into action.

“This has been a big test for our business continuity plan,” Ms Anderson told Insurance News. “We’ve been able to move all our people offsite and all our functions offsite, and the company has been running like normal.

“It has been really fantastic, to run the business continuity plan and to see it work so well.”

Equally satisfying for Ms Anderson has been the positive reaction from MIGA members and clients.

The coronavirus outbreak has created many complex legal issues and raised more questions than answers as federal and state governments moved to introduce temporary changes to healthcare policies in response to the crisis.

For instance, what do the restrictions on certain elective surgeries mean for a dermatologist? What do the new rules about telehealth mean for GPs? What about the drive-through testing clinics? In the last week of March, when the changes came streaming out, there

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was a 65% increase in calls from clients in need of advice from MIGA on what it meant and if they could carry on as usual with their practices.

“It was massive. Most of the calls have been about, I don’t know what to do in my practice, am I allowed to do that, what are the rules on telehealth?” Ms Anderson says. “It has all been advisory help that people have been wanting.

“So essentially as the government announces a new policy, be it federal or state, we’ve been responding really quickly and updating the information on our website so that our members and clients can get on with what they need to do with the confidence of knowing what their position is.

“It’s been good to have the opportunity to show our commitment to them, and the feedback from members and clients is they really appreciate it.

“You don’t want something like a pandemic to happen to have the opportunity to demonstrate the value you provide, but I guess we have at least had the opportunity.”

MIGA also allayed concerns from members and clients who wanted to know if they were covered for pandemic-related claims.

“We have been very clear that we don’t have a broad-brush pandemic exclusion,” Ms Anderson says.

“We’ve said to our members and clients ‘you’re covered’ if they are treating infected patients or have perhaps unknowingly become infected or infected someone. Provided they are following the guidelines, they are okay.”

The virus pandemic ranks as possibly the most testing challenge Ms Anderson has confronted since she took up her present role in February 2000, just before the medical indemnity crisis which eventually led to the collapse in April 2002 of UMP, then the country’s largest medical indemnity insurer.

She steered MIGA through the raft of regulatory and prudential reforms that were introduced to put the industry on a sustainable path. MIGA emerged better and stronger from the medical indemnity crisis, and has

There for clients: MIGA’s Mandy Anderson

expanded its footprint nationally during her 20-year stewardship.

And Ms Anderson believes the pandemic crisis, disruptive as it has been, has given MIGA the chance to show what makes the insurer distinctly different from other medical indemnity insurance providers.

Knowing that some of its members and clients may need financial support during this period, MIGA has in place a hardship program, providing premium relief and other arrangements to help them through the crisis.

“I’m really proud of that because I think it shows the kind of organisation that we are,” she says. “We have members and clients who have been significantly impacted.

“We’ve set up special arrangements for people who are no longer working, or who perhaps have lost all or a significant part of their income. We have arrangements now whereby we keep their cover going, or we put it on pause for them.

“In some cases, we’ve waived or reduced direct debit installments, or we’ve given them the option to adjust premiums.

“We’ve been really proactive around that.”

As Ms Anderson puts it, MIGA “isn’t your typical insurance company”. Unless you’re in the business or work in the medical and healthcare sector, the term medical indemnity insurance will hardly raise a flicker of

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“We’re supporting the doctors and the healthcare companies.

By helping them we’re also supporting the community, because if they suffer, then they get compensated.” recognition from the public.

Medical indemnity insurance is compulsory for all registered medical practitioners and allied health professionals such as dentists, chiropractors, pharmacists and psychologists. Ultimately it protects the patient.

“People make mistakes,” she says. “Things happen.

If someone suffers, the importance of what we offer is that there is compensation for that. So it’s really important.

“We’re supporting the doctors and the healthcare companies. By helping them we’re also supporting the community, because if they suffer, then they get compensated.”

Ms Anderson says MIGA is “an insurance company that is all about support and help and advice. Someone can ring us at 2am and say ‘I’m worried this has happened, can you help me’. We swing straight into helping them.”

When it comes to medical indemnity insurance, MIGA most probably has more experience in the field than anyone, boasting a history that goes back to 1899. It was founded by a group of 21 doctors in South Australia. Their idea was to start an organisation that would protect doctors against legal action from unhappy patients. It was rare in those days for patients to take legal action, but the idea nevertheless had support from the members of the medical community who paid subscription fee of a guinea each to join.

The organisation eventually evolved to be known as MIGA. From its humble beginnings in South Australia, it has successfully expanded across the country.

It has offices in New South Wales, Victoria, Queensland and Western Australia offering a range of services including claims services, client support, risk management, and underwriting services.

In the last financial year, its total membership base including medical students increased 47% to a record high of nearly 35,000. While its roots are in South Australia, its national representation is strong.

Insurance brokers remain an integral part of the MIGA ecosystem, Ms Anderson says.

“We have a team dedicated to looking after brokers.

They are really important because they are also looking after our clients. We see them as an important partner to us and we do put a lot of effort into training and educating and keeping them informed as well.”

Ms Anderson says the company is following a strategic plan to grow over the next three to five years. But she emphasises the business will not chase growth for growth’s sake.

“It’s not all about achieving pre-set financial metrics, and this is what makes MIGA different too,” she says.

“It’s growth to improve the company and to improve what we are offering to our clients and our members.

“While growth is important to us because it gives us economies of scale, we want to grow in a way that is carefully managed.”

She may have been at the helm of MIGA for two decades but Ms Anderson remains as energised as ever to drive the business forward.

“I wouldn’t be still here if the job didn’t continue to 0 offer lots of challenges and change.”

Injecting diversity Mandy Anderson belongs to an exclusive club in the Australian corporate world. She is one of a handful of women who have made it all the way to the top, and stayed there.

While she is proud of her achievement, Ms Anderson says her goal has always been about giving her best in every job that she has undertaken.

“My focus in my whole career has been on just doing my best, getting on with what I have to do and doing a really good job and really looking after my staff and growing the business,” she told Insurance News.

“I’m a firm believer that if you get on with your work and demonstrate your value, you can succeed.

“And I was really fortunate in different stages of my career to have male chief executives who gave me the opportunities. That means I have been really focused on making sure there is equal opportunity in my own workforce, which is very important.”

Like many of her peers, Ms Anderson never considered

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working in the insurance business when she completed her degree at Adelaide’s Flinders University.

She graduated with a Bachelor of Arts majoring in social sciences, psychology and biology.

One of her career choices then was to be a psychologist. But she needed a year’s work experience before she could get her practising certificate, so she applied for a few graduate positions and was offered a job by the Royal Insurance Company in 1982.

“As it turned out, it ended up being a really fantastic decision. I love the complexity of insurance, I love the legal work, I love the actuarial work and the people side of the business.”

Ms Anderson worked with broker Sedgwick (which later merged with Marsh) in various senior positions from 1986 until she moved to KPMG two years later to become an associate director at KPMG’s Insurance and Risk Management Advisory Division.

She joined MIGA in February 2000.

Nigel Hallett/Newspix

Looming danger: the Gold Coast could be threatened by future cyclones

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hen Cyclone Dinah devastated beaches on the increasingly popular Gold Coast in the late 1960s it delivered a warning signal on two fronts.

The tropical cyclone, rated a powerful category four, generated waves that caused part of the Surfers Paradise Esplanade to collapse and caused widespread flooding and damage.

Multi-level accommodation in the area was just taking off at the time, marked by the landmark 10-story Kinkabool apartment block, now heritage-listed. Skyscrapers today crowd the coastal strip, some rising more than 80 floors, and dense development also lines nearby canals.

Insurance Council of Australia figures show original losses from Dinah of $33.5 million. But adjustments for today’s building and population and other factors would bump up the estimate to $4.7 billion, according to ICA Dataglobe calculations made in conjunction with modeller Risk Frontiers.

The Gold Coast is an example of escalating twin risks that are highlighted in Swiss Re’s latest Sigma report, titled Natural catastrophes in times of economic accumulation and climate change.

Urbanisation and economic growth is increasing potential insured losses, while climate research suggests many regions will be more affected by changing characteristics

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of weather-related events such as bushfires and tropical cyclones.

“What we can expect over time, and what we have already seen in the climate data, is a gradual poleward shift of cyclones, which means they are holding their intensity further south,” David Sinai, Swiss Re’s Head of Property Underwriting for Australia and New Zealand, tells Insurance News.

The Gold Coast and Brisbane region hasn’t historically focused on constructing buildings to withstand cyclonic impacts, and a category four event today would potentially bring devastating results.

“That is where we see this accumulation of the economic assets and the shifting climate coming together to create scenarios that we haven’t seen in the past,” Mr Sinai says.

Swiss Re says insurers globally are at risk of underestimating potential exposures from these double-barrelled scenarios due to their reliance on historical data or incomplete and outdated models that don’t reflect the level of threat.

Whether it’s bushfires, North American hurricanes, typhoons, cyclones or flooding, similar issues are facing the industry in many regions.

An Australian addendum to the Swiss Re report highlights the issues for bushfires, noting that the past season was the most

extreme on Sigma and national records. It says warming and drying trends point to increased frequency of future events.

The report says global weather-related risks remain insurable so far, and the short-term nature of most property business allows for continuous premium adjustments.

But it warns the long-term risk of unmitigated climate change is irreversible “tipping points” that could threaten the insurability of assets, particularly in regions with high exposure accumulation.

Climate change is making the risk landscape dynamic, and insurers need to respond by continually updating and strengthening risk modelling to prevent being caught unprepared.

“Many of today’s catastrophe models are rooted in the past,” the report says. “They do not fully account for rising exposure from increased value concentration in a rapidly urbanising and, at times, more vulnerable world, especially when sprawling into higher hazard regions.”

Loss creep, which refers to mounting losses over time from an event, has also been evident after major hurricanes and typhoons. It reflects risk assessment shortcomings due to a range of issues.

For example, reconstruction costs for Christchurch were underestimated after the

Deadly combination Swiss Re says insurers mustn’t underestimate the combined impact of urban development and climate change

By Wendy Pugh

2010/11 earthquakes hit the New Zealand city, and replacement costs were almost three times higher than the insured value indicated in policies.

More recent typhoons in Japan have provided a wake-up call for improved risk assessment, the report says, with last year’s catastrophes showing the insurance industry needs to recalibrate its assessment of potential flood impacts in the country.

Concerted investment in coastal and inland flood defences following devastating typhoons in the 1950s and 1960s had led to views that Japan was largely well-protected against the risks.

But when Typhoon Hagibis hit last year at least 55 levee breaches and overflowing rivers in Nagano prefecture caused devastating damage, even though mitigation measures limited the impact in greater Tokyo.

Most of the $US8 billion in losses stemmed from flooding.

“Given a long history of typhoons, Faxai and Hagibis, and also Typhoon Prapiroon in 2018, were not ‘surprise’ events per se,” Swiss Re says.

“However, Typhoon Hagibis in particular, and also the flooding from Prapiroon the previous year, have put a spotlight on the flood risk potential in Japan.”

Swiss Re says insurers have traditionally considered natural catastrophe risks across

the dimensions of frequency and severity, and climate risks are not explicitly taken into account in longer-term mainstream economic and insurance market models.

Columbia University Professor Adam Sobel, who writes a chapter in the report, notes that the criteria climate scientists apply for detecting and attributing trends are conservative, to minimise the chance of false alarms.

But in an insurance context, that brings a danger that threats are underplayed.

“When faced with scenarios that cannot be assessed precisely, but where evidence points to risks that are increasing, mankind no longer has the luxury of time to wait till uncertainties become certainties: the time to act is now,” Professor Sobel says.

The Sigma report says that for a business model to be sustainable as the climate changes, insurers need to keep abreast of the latest scientific findings and incorporate them into their natural-catastrophe models.

They should use latest knowledge to de-bias historical records for exposure, hazard and vulnerability, as part of efforts to address the potential for wrong assumptions.

“Key is understanding how factors like GDP growth and urbanisation, which are currently not fully captured in risk models, impact risk and losses,” it says. “This will

also help counteract loss creep.”

Local-specific risk mitigation and adaptation measures need to be taken into account, and changing claims patterns should be monitored with increasing granularity to analyse the drivers for new trends.

In Australia, that means close examination of data from catastrophes such as last season’s bushfires, examining cyclone season impacts, and looking at information climate scientists can provide that shed light on future patterns.

Mr Sinai says the economic accumulation trends highlighted on the Gold Coast are evident in many other areas. In particular, the expansion of urban areas around Melbourne and Sydney are putting more assets at risk from events such as bushfires.

Australia’s normalised catastrophe data shows losses in the past decade were a stepchange above the relatively quiet decade before it, and above the longer-term average.

That highlights the need to prepare.

“If that is a trend that is going to continue, then obviously insurers need to factor it into their risk assessment, otherwise they will end up with underfunded risks on their books,” Mr Sinai says. “What we really can’t afford to do is wait 20 years to see what the emerging trends have been and only 0 then take account for it.”

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Leading the way: BAIS founder Jim Armstrong

Ahead in the cloud BAIS has been developing insurance systems for more than 25 years, innovating and evolving along the way

By John Deex

W

e were cloud before the cloud,” BAIS Managing Director, owner and founder Jim Armstrong tells Insurance News.

It’s something he’s rightly proud of, because investment in cloud-based solutions has enabled clients of the Sydney-based insurance software company to switch seamlessly to remote-working as the coronavirus took hold.

BA Insurance Systems (known as BAIS, pronounced base) was born in the early 1990s when Mr Armstrong, a chartered secretary and accountant, was convinced by a friend to help set up systems for the Lowndes Lambert Group.

“It started a very interesting ride,” he says.

After a period of resistance the company agreed to let Mr Armstrong purchase the system, with Lowndes Lambert continuing as the major client.

“Within two years we lost them because they were taken over by Marsh, so our great umbrella disappeared,” Mr Armstrong says. “We had a fairly rough time for a couple of years as we built our client base.”

But some 25 years later, BAIS has more than 120 clients, not just in Australia but also New Zealand, Asia and the Pacific.

Most customers are brokers, but there’s also a significant number of underwriting agencies, and growing insurer interest.

And the cloud has always been at the core of the company’s approach.

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“In the 1990s we decided that everything was going to move towards the internet, but the internet wasn’t strong enough to have a commercial product running on it at that point,” Mr Armstrong explains.

“So we sourced software and hardware out of England and created what we called the bureau – it was a cloud before the cloud.

“When the internet became strong enough we relegated that technology and went directly to the cloud.

“Most people are there now but I think we were first in the world in insurance to have a cloud product, and we’ve continued on that development path.”

As a result, adjusting to a virus-induced “new normal” has been “fairly straightforward”.

“If you think back to the 90s and how operations would have worked if we’d had to have worked from home, in many cases it would have been impossible.

“We’ve always been in the cloud, so our change was quite insignificant.

“You go home, you fire up your computer, put the URL into your browser and you’re working again. No big deal, as far as we’re concerned.

“Our software is available anywhere, anytime. That has been one of our catchphrases for a long time. It’s just a URL. You have a security profile and that allows you to get access.

“A number of organisations do have an issue because they have got technology that requires people to be in the office. That is the connectivity that they have got to their software. For them, to move is painful and complicated and expensive.”

BAIS also sets itself apart through its philosophy – something that is symbolised by the single word “Integrity”.

“Not many people talk about philosophy in IT, but we do,” Mr Armstrong says. “We’ve always believed that the software has to have integrity. We’ve always spent our money making sure the software has integrity.

“It is the word that sums up our whole operation.

We walk an extra mile for our clients.

“Insurance is a complicated area, and it gets more complicated with different legislation and changes.

“If our clients can’t rely on the fact that they put transactions through our system and our system treats them properly and our accounting all works, then we won’t have clients.”

Security and compliance has always been front of mind, and increasingly so. Cyber attacks can and do happen, and clients need protection.

Mr Armstrong says security is built into the BAIS product, and constant monitoring enables early action on cyber breaches. Individual companies going it alone on disaster recovery could be horribly exposed.

“If we see an attack – and they happen quite regularly, every day – we have some management software that will isolate that IP range and stop it from accessing our system.

“Our servers reside in co-location sites and the only way to get to them is via a browser. People don’t get a direct-connect session to our servers.

“Up to this stage browsers haven’t been able to move viruses from one environment to another, and we have maintained that isolation.

“These crypto-locking pieces of software are a nightmare. There is no recovery. The recovery is to go to back-up, and we are backed up six ways to Sunday.”

Technology is a competitive place to play, but BAIS doesn’t feel overly threatened by insurtechs.

It’s not complacent, but believes its years of experience and finely tuned end-to-end system stands it in good stead.

Mr Armstrong says insurtechs are usually focused on one particular aspect of the insurance industry.

“We’ve written a product that carries everything, so we go from quotation through to accounting and everything that happens in the middle,” he tells Insurance News.

“Insurtechs don’t tend to do that, they look at part of the industry and attack part of the industry.

“It’s easy [for clients] to go out and find an internet developer who will create a product. It’s pretty straightforward, pretty cheap.”

The problem comes, he says, when the data from that product has to be integrated back into the core system, which can be “challenging”.

“If we write a product it’s integrated. There are no interfaces, no plug-ins.

“We have had clients that have gone off and done things themselves and got part way there, and then found that there is a problem, a gap in what they are doing. They come back to us and we write the product for them.”

In the past, companies have looked to build their own systems, Mr Armstrong says.

But this phase has passed, he believes, because it has become obvious to everyone that “building software is not easy”.

“There was a period of time where everyone wanted to build their own software because it brought them some competitive advantage, but it also brought them a lot of costs.

“If you build software and you build it narrowly it can be very difficult to enhance and make the next function work. If you are not looking broad enough the software will get to a point where it’s difficult to upgrade, and we’ve seen that happen.”

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“I defy anybody to tell you what will happen in 10 years with technology.”

Safe pair of hands: security and compliance is built in to BAIS products

Many insurers are stuck with legacy systems, and it can be hard convincing them to let go, Mr Armstrong says.

Moving on can be a major commitment, taking up huge amounts of time and money.

“Insurance companies have got so much investment in older systems. People have built mini-systems around them, with the new technology interfaced back into the legacy system. That has been a way that the industry has moved.

“It will work for a period of time. But then you’ve got all these pieces sitting out there that are feeding back to a legacy system and all of a sudden you’ve got something that is so overwhelming and so complex, that it’s difficult to do the next thing. That generally forces people to look at their legacy systems.”

Because BAIS has constantly updated its core system, it doesn’t have a legacy problem.

“We are a software development house and we have great capability to build software,” Mr Armstrong says.

“We build all the time, and our software just keeps growing all the time.

“Our system today is built on our legacy system but it is as modern as any system out there.”

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While BAIS has expanded into other countries, it still sees plenty of potential growth in Australia.

Aggregation of clients continues to be a trend, which can have positive and negative effects.

“We are on both sides of that coin. We lose clients, but we also gain clients through it.”

The growth of the underwriting agency sector also creates opportunity.

“There are a lot of underwriting agencies being created in Australia at the moment, and our software is particularly tailored to that group of people so we are seeing some really good growth in that area,” Mr Armstrong says.

“We don’t have a lot of engagement with the insurance companies themselves in Australia. They have not been our target market. But we can offer them something quite unique, so that is an area we are going to look at.”

Having been so far ahead on cloud-based systems, BAIS might be expected to already be across the Next Big Thing.

But Mr Armstrong is cautious of making bold predictions on how the next decade will pan out. “I defy anybody to tell you what will happen in 10 years with technology.”

He’s pretty sure it will be a case of evolution, not revolution, due to the complexities involved with insurance systems.

“It’s very difficult to see something coming along and changing the world. Systems have to still keep doing complex things.

“I can’t see something that is just going to come along and go flash, bang and everything changes.”

BAIS has seen a lot over its 25 years, but Mr Armstrong knows the journey is far from over, as technology continues to advance “day-in, day-out”.

“We’ve gone from green screens to browser-based software and everything in between,” he says.

“We have been in the industry a long, long time and we’ve probably seen everything.

“Everything up to now anyway. Tomorrow 0 will be different.”

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The sting in COVID-19’s liability tail Insurance law experts warn the coronavirus is likely to leave insurers with a nasty ‘tail dependency’ problem

By Miranda Maxwell

C

OVID-19 has impacted every industry and state in Australia, and as a result many business continuity plans have been activated.

There has been unprecedented government intervention – new legislation, emergency orders and directives – and the stock market has fallen sharply. Many industries have been hit hard, including transport, tourism, events, hospitality, sports, real estate, retail and education.

This extreme upheaval, resulting in employee redundancy or stand-downs and disruption to the manufacturing supply chain, will create unique developments across different insurance product classes in Australia.

The Insurance Council of Australia has published some general guidelines regarding the likelihood of COVID-19 triggering cover for Business Interruption and Travel in particular.

Law firms’ insurance specialists have set up teams to help their insurer clients respond to the virus.

“The scale of impact, and its consequences on supplementary business, should not be under-estimated,” Wotton + Kearney says.

“There may be a ‘tail dependency’ as seen following other catastrophic events, such as the terrorist attacks of 9/11.”

The significant falls on the sharemarket and potential declines in residential and commercial property prices may have implications for valuers and stockbrokers, fund managers and financial planners.

Wotton + Kearney gives a stark example of unforeseen exposure: the regulator warning all real estate agents across Australia in writing that they were not licensed to advise tenants about options to access superannuation under government relief schemes.

That “highlights the likelihood of new risks emerging for all service providers,” it says.

The firm says businesses, particularly those that open their doors to the general public, may find themselves targets of claims that their negligence led to the

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exposure and infection of clients.

Lawyers say this might include: • Exposure resulting in bodily injury or property damage • Negligence related to visitors to locations such as offices, day care centres, retail shops, hotels and places of worship • Product liability related to air filtration and recirculation (think aeroplanes and hospitals) • Personal injury involving occurrences such as wrongful eviction or imprisonment • Constitutional claims involving the quarantine or restriction of infected or exposed persons • Negligence or other liability suits against a company or organisation that fails to implement a pandemic contingency plan.

The target of such claims might not only be the business but also its general liability insurance and its coverage for bodily injury.

Policy exclusions may exist in many cases for claims arising from a pandemic, virus (particularly post-SARS) or bacteria.

And some claims are likely to see a reduction. Some insurers are providing credits to their motor insurance customers as a result of them not driving during lockdowns, and New Zealand’s Tower Insurance has reported lower motor claims are comfortably offsetting the cost of its car insurance premium refund program.

With empty shopping centres and many retail businesses closed and extra precautions taken around workplace health and safety, there is likely to be a reduction in claims involving “slip and trips”.

“The evidence will take time to appear given the longtail nature of the claims,” Wotton + Kearney says.

Insolvency will result in senior management conduct being heavily scrutinised by their directors, and it is possible there will be claims alleging a failure to adequately prepare a company for a major economic disruption, contingency planning or effective management of supply chain and labour force risks.

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D&O warning: Wotton + Kearney Partner Cain Jackson

This could result in higher Directors’ & Officers’ (D&O) insurance claims.

“Poor management practices and conduct before the coronavirus pandemic may be exposed by the financial strains now imposed on companies,” Cain Jackson, Partner and Financial Lines Practice Leader at Wotton + Kearney, said.

“There are a litany of issues which now have to be addressed by company boards which would have been difficult to envisage prior to COVID-19.”

Mr Jackson predicts a spike in insolvency-based D&O claims once government measures to prop up businesses run their course.

“It is hard to see corporations not being heavily impacted and corporate failures prompting a review of the conduct of directors and officers,” Mr Jackson says.

“That scrutiny will lead to claims. The level will be determined by the severity of the economic fallout from COVID-19.

“The risks associated with any statements to third parties, particularly in respect of future financial performance warrant extreme caution.”

Exclusions in D&O policies for absolute bodily injury may also be tested by claims arising out of the pandemic, though safe harbour provisions enacted as part of the Coronavirus Economic Response Package Omnibus Act 2020 will afford some protection from insolvent trading claims.

Workers’ compensation policies generally extend insurance benefits to employees for injuries “arising out of or in the course of employment”, and employees have been advised to keep stringent records revealing whether the claimed injury is truly work-related, the nature of the injury, the injured employee’s activity, and the time and location of the incident.

Errors and Omissions insurance, which covers bodily injury arising out of medical care, generally excludes exposure to a contagious disease, though claims that a healthcare professional acted or failed to act in a manner that led to a patient contracting a coronavirus bodily injury may be upheld.

Employment Practices Liability insurers are having to reassess the quantum exposures of existing claims.

Dismissal claim compensation usually centres on

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“future economic loss.” Due to the impact of coronavirus, the usual assumption of long-term employment can no longer be maintained, and so claims for future economic loss will need to be heavily discounted and reduced by applicants, the courts and the Fair Work Commission, Wotton + Kearney says.

It does not expect the increase in redundancies to lead to a large spike in unfair dismissal claims.

“Ironically, an Employment Practices insurer may be exposed to higher risks of claims from employees who continue to work or be employed,” it says. “Where an employer purports to unilaterally reduce hours or remuneration without the employee’s consent, they will be in breach of contract.”

The Fair Work Act is cause for debate about whether employers can rely on a “stand-down” to deal with a general economic downturn.

The terms of construction contracts will also require careful review to assess whether the parties are entitled to rely on any force majeure clause if they are unable to perform their contractual obligations as a result of the coronavirus stand-down.

“If such a clause is incorrectly relied on, contractors risk being found in breach of contract for non-performance, or perhaps for having repudiated the contract,” Wotton + Kearney says.

Other contractual issues are delay and liquidated damages stemming from the unavailability of materials from affected countries or of trades or consultants, which will put extension of time contracts under the magnifying glass.

While business interruption (BI) losses are typically only triggered by damage to property, the Contagious Disease Memorandum allows cover in the case of a closure order by a public authority following an outbreak of a contagious disease at the insured’s premises.

Policies that include a Contagious Disease Memorandum that is referenced to the amended Quarantine Act are likely to see coverage disputes.

More immediately, COVID-19 related cyber claims are poised to spike right away due to remote working, targeting of key organisations, and phishing scams.

It is, says Wotton + Kearney, “potentially the largest ever cyber-security threat to face businesses and 0 consumers”.

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Driving through the economic roadblock How brokers can help commercial motor clients navigate the downturn

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s the economy slowed dramatically in March when lockdown measures were imposed, with it went the demand for commercial and heavy motor vehicles.

For brokers handling commercial motor fleets, the indefinite economic slump has raised new challenges that will require them to draw on all their knowledge and experience to help clients navigate the downturn.

“Clients need, more than ever, sound advice from their brokers,” specialist motor underwriting agency Fleetsure General Manager for Client Services Steven Hamilton says. “The key approaches to broking in a hard market are even more relevant now, with many clients looking at containing all of their costs – including their motor insurance.

“Brokers should find ways to demonstrate to insurers that clients’ fleet exposure really has changed, and that consideration of a lessened renewal or new business premium is warranted.”

Mr Hamilton says many clients in the supply, hospitality and tourism industries are among the most affected by the slump. A number have been forced to close down, put their vehicles off the road or consider levels of “self-insurance” that haven’t been seen in a long time.

“More broadly with fleet operators, we are seeing a business-as-usual position,” he tells Insurance News. “However, as the effect of the recession rolls in over the next six to 12 months, we’re expecting to see contractions in fleet size and certainly a very limited upgrading of vehicles within fleets.”

Fleetsure has outlined a few areas brokers may need to focus on.

Increased theft: Vehicle theft is likely to increase during this economic downturn. Vehicles that are laid up for extended periods or stored away

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will be prime targets. It would be worthwhile to consider installing simple tracking devices that are readily available at reasonable prices.

Aggregation: With numerous vehicles located together when laid-up, there’s a risk of larger losses from hail, flood, fire and theft.

These exposures, which have been managed by industries such as motor dealers and car rental firms, will now be faced by many fleet operators.

Clients will seek guidance from risk advisers on physical risk protection as well as financial risk protection, such as a maximum per event excess or sum insured. For example, does a $1000 per unit excess apply to all 50 units hit by a hailstorm, making it a $50,000 excess?

Vehicle values: Over the next couple of years there will likely be a glut of second-hand vehicles on the market, which will see values fall. This may well be most noticeable in the medium and heavy refrigeration space, where the core hospitality client base has been hard hit by the business slump.

The value of lighter commercial vehicles may not be as affected, as demand for small parcel/home delivery services has increased sharply during the lockdown.

The basis of settlement, particularly the finance loss payout extension, will be seen as somewhat more important. It is vital now that the amount allowed above market value is maximised and that the cover does not contain exclusions of this benefit for fire or theft losses.

Laid-up cover: Most insurers will now be referring to a “laid-up” style offering. Brokers need to make sure that they aren’t accepting a reduction in coverage when the goal is to obtain a premium discount reflecting reduction in exposure when vehicles are laid-up or simply spending less time on the road.

Mr Hamilton says laid-up cover has been around for many years, and usually applies to businesses that use their fleets on a seasonal basis.

Laid-up cover is a way of securing some premium relief for clients who have reduced exposures because they are using their vehicles less.

Comprehensive v Third Party: Clients obtaining laid-up cover will still require third-party property damage to cover the occasional use of vehicles, but the premium should reflect this exposure and be minimal.

The now somewhat old-fashioned Third Party Fire and Theft product may not be the most appropriate cover, and most insurers should offer comprehensive cover for similar premium. Comprehensive cover will provide additional protection for risks such as impact, malicious damage, hail, flood and other water perils.

A move to anything less than a comprehensive cover is probably a breach of the client’s insurance obligations if the vehicles are still under finance.

Broking in a hard market and helping insurers measure exposures: Clients will no doubt be tightening their belts in these circumstances, and cutting back on motor insurance will be on the list.

Brokers could collect data from clients to make a case to insurers that since usage has declined, so has the fleet exposure. Many clients will already have such data available, which is very useful in gauging exposure variations.

Year-on-year quarterly comparisons of turnover from Business Activity Statement filings, driver wages payments from workers’ compensation declarations or fuel burn rates from fleet management systems would all be measures of exposure variations that 0 will be expected over the next year.

Join us in a (virtual) celebration of the best claims professionals.

July 23, 2020 (2:00pm - 2:30pm) To register, and for details on joining the live streaming of this year’s awards visit: mansfieldawards.com

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companyNEWS 0

On the up: Zurich’s Tim Plant at the new building topping-out ceremony

New abode: Zurich’s new home nears completion Zurich will move to its new home in North Sydney later this year as planned, after a topping-out ceremony was held to mark the structural completion of level 29, the highest floor of the building.

When completed, Zurich Tower at 118 Mount Street, the site of the old Zurich Building, will be the Australian headquarters of the Swiss insurance giant.

The ceremony in May was live streamed to Zurich’s head office in Switzerland. In attendance at the ceremony were Zurich’s Chief Executive for General Insurance Tim

Plant, Chief Distribution Officer Life and Investments Kristine Brooks, as well as the insurer’s real estate heads Steve McDonald and Reto Buehler.

Zurich is the anchor tenant, taking up about two-thirds of the 20,600 square metre space at the A Grade building, which offers views across Sydney Harbour. The insurer has a 10-year lease agreement for the headquarters.

The purpose-built headquarters includes a two-level podium, cafe, sky terrace, and three basement car parking levels. 0

‘Simple and straightforward’: 360Globalnet ramps up digital offering Claims specialist 360Globalnet has launched a new digital platform for brokers that streamlines workflows while raising efficiency.

The 360BrokerLink platform, designed by award-winning claims experts, comes with a suite of tools to help brokers create digital records of policy information, enabling their clients to provide claim evidence with minimal fuss and hassle.

“Digital expectation for clients and consumers has increased dramatically since COVID-19 and 360BrokerLink can make it a reality for brokers in days,” Business Development Director Asia Pacific Daniel Lukich said.

“We have built it to be simple and straightforward for brokers while giving clients and insurers leading edge digital experiences.

“We’re delighted to be working with some leading brokers in Australia to enable them to deliver digital experiences that will cut hassle and reduce costs while thrilling customers and streamlining workflows.”

360Globalnet says brokers using the platform can expect shorter handling times as real-time updating is supported through pushed links, eliminating the need for passwords and logins. The end result is faster claim life cycles and improved satisfaction for claimants.

The platform is built to accept digital

videos and images to explain losses and other information such as receipts and evidence that are required for claims processing.

It can be used on any mobile devices, tablets and desktops. When a claim needs to be lodged, the claimant first completes a simple incident-specific template form provided by his broker’s website, an app or through a link.

The details are then automatically directed to the relevant insurer.

Once a claim file is created, brokers and appointed representatives can track the pending claims.

The platform can also be integrated within a broker’s website or tailored to 0 specific requirements.

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New reality hits home The industry has been tested like never before, with the lockdown forcing us to adopt a different way of working

By John Deex (at home)

I

nsurance companies have led the way on flexible working. After all, happy workers make more efficient and effective employees.

But never did managers imagine they would have to be this flexible.

Coronavirus-related shutdowns hit hard and fast, with office closures complicated by the loss of overseas call centres.

Major insurers reported that at times up to 98% of staff have needed to work from home.

Nobody can claim that it’s been easy – the Insurance Council of Australia accepted early on that there would be a “dramatic impact” on operations, and “this is not business as usual; far from it”.

However, the industry has met the challenge. Some moved to home-working before it was a requirement.

Others have brought in hundreds of additional staff to cope with the loss of overseas customer service staff.

The wheels have kept turning. And it’s not over yet.

While restrictions are easing in some states, social distancing requirements and public transport issues may require a level of remote working for many months.

And consultants believe this could be a glimpse of the future, with the shift to more flexible workforces becoming permanent.

Vero Head of Commercial Intermediaries Anthony Pagano feared the worst when his entire team scattered around Australia was forced to move home. But he told Insurance News he’d “never seen a more collaborative approach”.

“It was all hands on deck and the end result was my team was virtually set up and trading as usual within days,” he says.

“We had very few service issues and this made our

role to focus on helping brokers and customers even easier.

“Like everyone, in the beginning there were a lot of unknowns and this caused stress to our people, brokers and clients.

“By maintaining regular contact we could focus on trying to answer as many questions as possible. Being able to speak to someone and make a decision was so important and a real point of difference.”

Mr Pagano says he has tried to look for positives in the change.

“For me personally, it’s been the reduction in travel and getting into a better routine,” he says. “I’ve also loved spending more time with my dog Sophia. I should have called her my shadow as she never leaves my side.”

He says there are challenges too – such as knowing when to “switch off” – but believes the experience will change the future of work.

“We have seen flexible working happen on a mass scale and it hasn’t impacted productivity. However, I’ve always said this is a relationship business, be it with brokers, clients, underwriters, claims, or back office employees.

“There is nothing better than talking face-to-face and building a connection. No Skype, email or mobile phone can replace that, so it will be about getting the right balance.”

Several companies have supplied Insurance News with images of their staff working from home, and we’ve published a selection in the pages that follow.

While there’s been very little in the way of networking during the past couple of months, we can still celebrate industry professionals rising to a very different challenge with smiles on their faces, and family and 0 (furry) friends at their side.

Rising to the challenge: Vero’s Anthony Pagano and his sidekick Sophia

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United Insurance Group (UIG) General Manager Trevor Howard, with Evie

IAG Sales & Service Consultant Juliana Jazevski

UIG authorised representative Dean Palandri

Senior Relationship Manager for Longitude Insurance Jonathan Reeve is assisted by his one-year-old son Bailey

Resilium Strategic Alliance Manager Linley Roe

UIG Broker Support Manager Michelle Campbell

UIG authorised representative Carly Morris

360BrokerLink Regional Manager Brenden Turner

Resilium Operations Specialist Megan Giunta

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peopleNEWS 0

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Free up cash for business growth Flexible payment options Interest charges can be tax deductible Spread the cost of insurance and enable the right level of cover Contact us today on 1300 555 068 or visit IQumulate.com

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BHSI Claims Manager Joe Hershewe, with daughter Lydia

BHSI Healthcare Underwriter Sarah Warden with son Callum

Hollard Commercial Insurance (HCi) Account Manager Jayden Hinshaw

QBE Senior Underwriter Commercial Lines Katrina Keilar, with her “office managers�

UIG Director Anthony Zambelli

UIG authorised representative Marcus Pappa

HCi Account Manager John Chigwidden

Resilium Business Development Manager NSW/ACT Wendy Finianos

Delaney Kelly Golding General Manager Agency and Sales Simon Donovan, with Nancy

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Information contained in this document is intended as a guide only. Acceptance is subject to our underwriting guidelines and the specific terms and conditions as outlined in our policy wordings. For more information about our products, please contact your SURA Motor Dealers representative.

peopleNEWS 0

Managing Director of UIG authorised representative Ascot Insurance Group, Nathan Ray

Resilium Regional Manager NSW and ACT Michael Speechley

Julie Downes, QBE’s NZ Strategic Program Delivery Manager, works from a farm on the outskirts of Auckland

Resilium Marketing Manager Annemarie Mayes

HCi Key Account Manager Melissa La Spina

HCi Key Account Manager Matt Ennis

IAG Sales & Service Consultant Deepti Uchil insuranceNEWS

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maglog >

By Terry McMullan Publisher

AMSA Insecure load: containers dangling from the APL England

S

ailing or fishing off the New South Wales central coast is more hazardous now than it was before May 24, when a ship sailing from the Chinese port of Ningbo to Melbourne lost about 50 containers overboard.

A few containers have already been recovered and others have drifted ashore.

How quickly a container will sink depends on what it’s carrying. But empty containers can drift a long way, floating just below the surface and representing a distinct risk to smaller vessels like fishing trawlers and yachts.

The ship involved in this latest spill is the APL England, which is registered in Singapore to APL, formerly known as American President Lines, which is now part of the French shipping giant CMA CGM. It was being operated by ANL, formerly the government-owned Australian National Line.

The ANL brand and operations were sold in 1998 to CMA CGM, which is in turn owned by Merit Corporation, a massive conglomerate based in Beirut, Lebanon.

The APL England lost power in the middle of a severe storm, and after losing the containers somewhere between Port Stephens and Wollongong turned north, presumably to run with the swell, and limped into Brisbane where it was promptly arrested by the Australian Maritime Safety Authority (AMSA).

The authority is demanding $22 million for the clean-up to be paid by the ship’s owner and its insurer, London-based Steamship

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Mutual, the largest protection & indemnity (P&I) insurer.

AMSA says the ship’s “lashing arrangements” were inadequate and some securing points for containers on the deck of the ship were allegedly corroded. Apart from arresting the ship, the authority has also hit the ship’s hapless captain with charges carrying fines of up to $300,000.

If that all sounds a bit heavy-handed, AMSA has another recent container spill to use as a yardstick as to how slippery the business of recovering money from ship operators and P&I insurers can be.

On May 15 insuranceNEWS.com.au reported AMSA accusing London-based marine P&I insurer Britannia of obfuscation and denial of the facts to avoid paying for the cost of cleaning up pollution caused by a ship it covers.

It has engaged in legal proceedings in the Federal Court against Britannia and the Taiwanese owner of the YM Efficiency, which lost what was at first thought to be “about 50” containers off Newcastle NSW in June 2018.

The cleanup operation involved the recovery and disposal of 63 containers and their contents, which was completed in May. The exercise cost AMSA about $17 million.

Chief Executive Mick Kinley didn’t hide his frustration when he said Yang Ming and Britannia “have tried every trick in the book to attempt to shirk their responsibilities to clean up their mess”.

Containers have been around now for 64 years, and losing them overboard is nothing

new. Each year around 130 million containers carrying goods with an estimated value of more than $4.5 trillion move between ports around the world on about 50,000 ships.

The World Shipping Council, which represents about 80% of the container shipping industry, says an average of 1582 containers are lost at sea each year. Some 64% of those are due to “catastrophic events” like a collision, running aground or sinking. Containers falling off while under way aren’t regarded as catastrophic.

Reports say the APL England suffered a stack collapse or collapses, which involve lashings and/or the “twistlocks” that secure the containers together failing, presumably due to the extreme torque generated on the top of outer stacks by the ship’s excessive rolling.

The insurer will undoubtedly be looking very closely at AMSA’s claim that the lashings and fastenings weren’t as good as they should have been. There are other possible causes, of course.

The fact that AMSA is saying the lashings were inadequate and the securing points on the APL England were corroded may well result in a lengthy exchange of correspondence between insurer and shipowner.

And that’s why having a valuable ship tied up in Brisbane provides AMSA with some hefty leverage that will presumably encourage APL and Britannia to focus on sorting this out with rather more urgency than the owner and the insurer of the 0 YM Efficiency.

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