NOVEMBER 2020
NIBA AWARDS
Acknowledging professional brilliance
MERGERS AND ACQUISITIONS
In the COVID-19 era
A WAVE OF INSOLVENCIES
#NIBA2020: PART ONE Coming together in the new normal
How brokers can help
WE ARE YOUR VOICE
THANK
Y U
We are honoured and proud to have received this prestigious award and be recognised amongst such esteemed company as previous recipients.
From our entire team here at Berkley Insurance Australia we would like to say a big thank you to our valued brokers for naming us 2020 General Insurer of the Year. We look forward to continue providing the high quality service you know and love!
Speak to a local Underwriter 1300 800 772
berkleyinaus.com.au
CONTENTS
November 2020
ACN 006 093 849 ABN 94 006 093 849
FEATURES
Insurance Adviser magazine is the monthly magazine of the National Insurance Brokers Association (NIBA). Insurance Adviser magazine is published by NIBA
Publisher
Dallas Booth, CEO, NIBA T: (02) 9964 9400 E: dbooth@niba.com.au W: niba.com.au
Communications Manager Tiffany Eastland
NIBA Editor Tanaya Das
Editorial enquiries
E: editor@niba.com.au
National Sales Manager Tony May E: tmay@niba.com.au
Design
Citrus Media www.citrusmedia.com.au NIBA gives no warranty and makes no representation that the information contained in this magazine is, and will remain, suitable for any purpose or free from error.
23
#NIBA2020 WRAP UP: PART ONE Where the industry came together
To the extent permitted by law, NIBA excludes responsibility and liability in respect of any loss arising in any way (including by way of negligence) from reliance on the information contained in this magazine or otherwise in connection with it. The contents of Insurance Adviser are protected by copyright and NIBA reserves its rights in this regard.
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CELEBRATING PROFESSIONAL BRILLIANCE All the winners of the 2020 NIBA Awards revealed
NIBA.COM.AU / 3
CONTENTS
November 2020
FEATURES
32 BUSINESS INSOLVENCY A dramatically changing landscape
40 MERGERS AND ACQUISITIONS Challenges in a new era
12 THE ECONOMIC VALUE OF INSURANCE BROKING A comprehensive analysis
IN EVERY ISSUE NIBA CEO welcome.................................... 6 Why be a NIBA member?.......................... 8 Representation........................................... 10
NEWS
Industry bulletin........................................ 16
PROFESSIONALISM
The importance of file notes ....................... 20 Legal analysis: ‘Testing’ for COVID-19..... 21
REFERENCE Community hub .........................................46 Insurer strength ratings ..........................56
58
INSURANCE JOURNEY
Get to know WA Young Broker of the Year finalist, Kristy Teh
4 / INSURANCE ADVISER NOVEMBER 2020
DISPLAY ADVERTISING INDEX – NOVEMBER 2020 Berkley Insurance .......................IFC Vero........................................................5 CGU....................................................... 7 QBE........................................................9 Insurance Advisernet.....................15 W&K advertorial............................. 19 QPIB....................................................22 Technosoft Solutions.....................27 Community Underwriting............31 McLardy McShane.........................35 Community Broker Network......37 UAC..................................................... 39 Brooklyn Underwriting................ 43 Ebix..................................................... 45 Allianz..................................................55 World Business Forum............. IBC NTI..................................................OBC
Reducing insurance could be costly Understandably, it’s been a tough year and many businesses are looking for ways to reduce costs. But as we head into one of the riskiest times of the year, it’s never been more important for businesses to be properly insured. That’s why we have one of the largest and most experienced risk engineering networks in Australia, who alongside our team of underwriting specialists, can help you and your customers recognise and reduce risk ahead of the upcoming natural disaster season. Now more than ever, we know we must do everything we can to support Australian businesses. That’s why at Vero, we offer insurance with insight.
vero.com.au/broker Insurer is AAI Limited (ABN 48 005 287 807) trading as Vero Insurance.
Insurer is AAI Limited (ABN 48 005 287 807) trading as Vero Insurance.
CEO / Welcome
I AM SO PROUD
B
y the time you read this column, the winners of the 2020 Broker of the Year and Young Professional Broker of the Year will have been announced. At the time of writing, I have just finished judging for the Broker of the Year, with support from NIBA Vice President Dianne Phelan and QBE Senior Executive Elliot Hill. I am so proud of the quality, integrity and professionalism of our insurance brokers. It is a great honour to do the work I do, representing the interests of insurance brokers in many areas, able to tell the stories of what brokers are doing each and every day to help and support their clients. The state/territory winners of Broker of the Year are a very impressive group, and it was a great pleasure to meet with them as part of the judging process. Unfortunately, it had to be done in a virtual environment, just like our 2020 NIBA Virtual Convention. One important message that has come from all the interviews has been the extent to which our leading insurance brokers are going to make sure they truly understand where their clients are up to, are they still in business, are they recovering or still in hibernation, and what the prospects are for the next six or 12 months. The brokers are having full and frank discussions with their clients about their ongoing risks and insurance needs and are taking their client’s positions to insurers to get the best possible outcome that can be achieved at the present time. And it is not just COVID-19 that gives insurance brokers the opportunity to shine. The hard market is particularly challenging for many clients, and it has been tremendous to hear the steps that our leading brokers have taken to work with their clients to identify and manage risk, and to make sure that the risks to be insured are very well managed indeed. Where this is being done, brokers are getting good responses from underwriters, a great outcome for the client, and equally a good outcome for the insurer as well, as they are less likely to get the unwanted and unexpected claim.
DELOITTE ACCESS ECONOMICS REPORT
The examples we heard during the interviews are further testament to the value propositions identified in the Deloitte Access Economics Report on the economic value of insurance broking. I am delighted the NIBA Board agreed to proceed with the Deloitte project, for two reasons. Brokers are very familiar with the role and value of insurance broking, and this is always mentioned in NIBA submissions to governments and others, but we have not had an independent analysis of the role and value of broking. The Deloitte report describes the roles played by insurance brokers very well, and this is now clearly described for anyone to read.
6 / INSURANCE ADVISER NOVEMBER 2020
More importantly, the Deloitte report not only describes the value provided to clients, but they also identify value provided to insurers, to government, to the economy and to society. We will now commence a communications strategy to bring the role and value of insurance broking to the attention of a wide range of audiences. In the meantime, every insurance broker in Australia can now proudly argue the benefits of what they do, not just for clients but for society as a whole. Get to it!
AN IMPORTANT MESSAGE
There is an important case study in this edition involving a broker dispute recently determined by AFCA [see page 20]. The NIBA Board of Directors recently met with the Chief Executive Officer of AFCA, David Locke, and the General Insurance Ombudsman, John Price. We are grateful David and John take the time to meet with NIBA. Two key messages came out of those discussions. Firstly, insurance brokers are not a major concern for AFCA. The number of broker related disputes are very small, and when formally decided by AFCA the majority of disputes are determined in favour of the broker. More important was the message from Ombudsman John Price: the best way a broker can represent themselves in disputes that go before AFCA is to have clear file notes of the client’s instructions, and to have confirmed those instructions to clients so that there is a clear record of what was agreed.
NIBA VIRTUAL CONVENTION
I do hope you had a chance to experience the NIBA Virtual Convention. I look forward to hearing your opinions of how it went.
DALLAS BOOTH Chief Executive Officer, NIBA
NIBA / Member benefits
WHY NIBA MATTERS TO ME Members share why NIBA is important to them and the broking industry.
“NIBA is a community that promotes integrity and support. Together we continue to evolve in response to feedback from inside and outside our industry while we advocate for the best way forward. Together we support one another to learn and deliver for our clients and each other.” KATE MARTIN Marsh 2020 Warren Tickle Memorial Award Recipient
WELCOME TO NIBA
NIBA is thrilled to have the following new principal members on board: • Fenchurch Insurance Brokers Pty Ltd from WA • Sheffield Insurance Pty Ltd from WA
ABOUT NIBA OUR MISSION
NIBA is the one voice for insurance brokers in Australia, representing their interests and promoting high standards of professionalism and competence.
OUR OBJECTIVES Representation
We represent the interests of members and their clients to governments, regulators, industry stakeholders, the media and the community in a manner that is respected and relevant. We have forged strong relationships at state and national level to ensure that your interests are represented.
8 / INSURANCE ADVISER NOVEMBER 2020
Professionalism
We set and promote high standards of professional practice for insurance brokers for the benefit of their clients and the community through the development of professional standards, QPIB, CPD accreditation and the Insurance Brokers Code of Practice.
Community
We provide members with opportunities to meet, share, grow and prosper and build professional networks with the wider intermediated insurance community that will last throughout whole careers.
GET IN TOUCH!
Whatever your age, or level of experience, NIBA ha s brokers’ best interests at the core of everything we do. Fin d out what we can do to help be nefit your business and your tea m at niba.com.au/membe rship
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NEWS / Representation
WE ARE YOUR VOICE! Lots still happening…
COVID-19
The Insurance Council of Australia, in consultation with AFCA and ASIC, has commenced proceedings in the Supreme Court of NSW seeking clarification of issues relating to the interpretation of certain pandemic exclusion clauses which refer to the now repealed Quarantine Act. The proceedings have been heard by the court, and at the time of writing the court’s decision was pending. The financial services regulator in the United Kingdom had commenced a test case in the UK courts seeking clarification of the pandemic exclusion clauses in a number of London market policies. An initial decision has been handed down by the court, but it is understood appeals will delay the final resolution of the areas of uncertainty. NIBA continues to provide information to members in relation to government support for business, and the continuation of restrictions on community activity for health protection reasons.
FEDERAL
Royal Commission Reforms
At the time of writing (mid October 2020) the series of bills implementing the Royal Commission recommendations affecting general insurance have not been introduced into the Federal Parliament. NIBA is waiting to see the outcome of submissions lodged with the government earlier this year, and our discussions with treasury and others since that time.
Senate Bushfire Inquiry
The Senate Committee inquiring into the summer bushfires has released its report. The important role of insurance was noted by the committee, which indicated the performance of the insurance industry had been “exemplary”. The committee urged state and territory governments to review insurance
10 / INSURANCE ADVISER NOVEMBER 2020
taxes and levies in order to keep insurance affordable for as many people as possible.
Small Business Ombudsman Insurance Inquiry
As recently advised, the Australian Small Business and Family Enterprise Ombudsman has commenced an inquiry into the availability and affordability of general insurance cover for SME businesses. Included in the inquiry is the role of brokers in getting the right coverage. NIBA provided a detailed submission to the inquiry and has met with the Small Business Ombudsman and her officials to discuss the role of insurance brokers, and current market conditions in relation to the supply and cost of general insurance cover. It was pleasing to hear the Ombudsman has a good understanding of the role of insurance brokers (as a previous small business owner herself ). NIBA continues to liaise with the Ombudsman’s office in relation to this inquiry. A report is due before the end of 2020. More information about the Insurance Inquiry is available at: https://www.asbfeo. gov.au/current-inquiries/insurance-inquiry
Unfair Contracts Terms Legislation
As previously advised, legislation which will apply existing unfair contracts terms legislation to insurance contracts has been approved by the Federal Parliament. These reforms were recommended by the Royal Commission and by the ACCC Interim Report on Insurance Issues in Northern Australia. It is important to note that implementation of this legislation has NOT been deferred by the Federal Government. The reforms will take effect in early April 2021. By that time all retail policies will need to be reviewed to identify and remove any
potential unfair terms. Where brokers have policies with their own wordings and cover, they will need to review the terms of cover and the wording of the policies to determine whether the policies might be caught by the Unfair Contract Terms legislation. This should be done in collaboration with the relevant underwriter. We also note that these are technical legal questions, and we strongly urge brokers to get legal support for this purpose.
Anti-hawking Reforms
One of the Royal Commission recommendations was to prohibit the hawking of financial products. The government has released draft legislation to implement this proposal. NIBA is concerned that the recommendation as drafted is likely to seriously impair the ability of insurance brokers to properly advise their clients on their business or other risks, and their insurance needs and cover more broadly. This is because the proposed legislation restricts the broker to discussing the topic raised by the client, and only that topic. NIBA has made a strong submission to the government to urge further consideration of this matter. Our position is that the insurance broker must be able to discuss any risk or insurance needs of the client at any time, in order to properly perform their function as the trusted adviser on risk and insurance matters.
Last Resort Compensation Scheme
The Federal Government has published a consultation paper on the Royal Commission recommendation to establish a last resort compensation scheme. This scheme is designed to respond to circumstances where AFCA makes an award against a financial services provider, but the provider
NEWS / Representation
has gone out of business and is unable to satisfy the award in favour of the client. The government is committed to proceeding with this reform, and the NIBA Board has discussed the matter at length. NIBA has provided a submission to the government indicating our preferred approach for the funding of the scheme. We will provide further information when it comes to hand.
ASIC
Product Intervention Powers
ASIC has released an updated Regulatory Guide relating to the proposed exercise of its Product Intervention Powers in relation to add-on insurance products sold by motor dealers. NIBA continues to have discussions with ASIC in relation to a number of aspects of the product intervention powers.
Internal Complaints and Disputes
ASIC recently issued Regulatory Guide 271 – Internal Dispute Resolution. It is a condition of every AFS licence that the licence holder have a system for managing and resolving complaints and disputes, preferably before they are elevated to AFCA. RG 271 reviews and updates ASIC’s requirements in this area. The new requirements take effect on 5 October 2021. NIBA has provided a detailed overview of the new Regulatory Guide to members, and we strongly recommend all members review their internal complaints and disputes handling policies in order to ensure the new requirements will be implemented.
APRA
We again remind members that the person in every insurance broking firm responsible for providing data to APRA must review the new procedures set out on their website: https://www.apra.gov.au/apra-replacing-d2a Every insurance broking firm should by now have made arrangements for a key manager to have myGovID credentials and to appoint a Relationhship Authorisation Manager, in order to be able to continue to provide relevant reports to APRA. Information about myGovID is available at: https://www.ato.gov.au/General/Gen/myGovID/ Please note that the existing AUSkey arrangements were due to expire on 31 March 2020. New arrangements should have been in place prior to that date. We again strongly urge all members to become familiar with the new requirements and start to develop procedures to implement the new system.
NEW SOUTH WALES
NIBA has launched an ESL Hub on the main NIBA website to provide information and resources to members with clients in New South Wales and Tasmania, where emergency services levies remain and add considerably to the cost of property insurance in those states. We urge all insurance brokers with clients in these states to discuss the matter with their clients, using the ESL fact sheet available at the ESL Hub. More broadly, our goal has been to point out the unfair and inequitable impact of the emergency services levy on insurance premiums, and the resulting impact on underinsurance and non-insurance. It has been reported that 27 per cent of the houses totally destroyed by the summer fires did not have insurance cover. This constitutes a massive loss for the people involved, and for their communities. NIBA gave evidence to a senate inquiry into the handling of the bushfires in July 2020.
Major Review of Workers Compensation
The NSW Government has launched a major review of workers compensation, including the operation and management of icare and the operation of the NSW workers compensation scheme more broadly.
Review of NSW Home Warranty Insurance NIBA has provided a submission to the Independent Pricing and Regulatory Tribunal inquiry into the NSW home warranty insurance scheme.
General Insurance Code of Practice
The Insurance Council of Australia has released the new 2020 General Insurance Code of Practice, which is available at: http://codeofpractice.com.au/ The new General Insurance Code was formally launched in February 2020. Code subscribers were required to implement a family violence policy by 1 July 2020 and the Insurance Council of Australia has announced that insurers will aim to implement vulnerable persons and distressed client provisions from 1 July 2020. The remainder of the new code will formally take effect on 1 July 2021.
Any insurance broker operating under a binder on behalf of insurers will need to undertake training on the new Code of Practice and to implement procedures to adopt the General Insurance Code in respect of those operations. This is particularly important for the new code provisions relating to vulnerable persons and clients in distress. NIBA also believes that any insurance broker acting on behalf of their clients should have a good general knowledge of the insurer Code of Practice, especially the provisions regarding family violence and vulnerable customers. The new General Insurance Code also contains new provisions dealing with insurance and mental health, disclosure of information and the sale of insurance products through motor dealers. A summary of key features of the new General Insurance Code of Practice is available at: http://insurancecouncil.com.au/assets/ media_release/2019/311019%20Key%20 features%20of%20the%20new%20General%20 Insurance%20Code%20of%20Practice.pdf
Insurance Brokers Code of Practice
The review of the Insurance Brokers Code of Practice is continuing. The NIBA Board of Directors has largely completed detailed discussions in relation to the content of a new Code of Practice for insurance brokers. NIBA will shortly seek the views of members on the operation of the Code of Practice, and the future development of the code, taking account of what is happening in other areas of financial services, the recommendations of the Royal Commission, and the work being done by the Insurance Council of Australia in its review of the General Insurance Code of Practice.
AFCA Datacube
AFCA is now publishing quite detailed information about the complaints and disputes it receives, including information regarding complaints to specific companies. It is important to note that any financial services provider with four or more disputes lodged with AFCA will be named in the Datacube reports. Last year’s complaints data has now been released. The AFCA Datacube is available at: https://data.afca.org.au/at-a-glance
CONTACT NIBA As always, brokers who have questions about these or any other government or regulatory matters should feel free to contact NIBA CEO Dallas Booth at: dbooth@niba.com.au
NIBA.COM.AU / 11
REPRESENTATION
THE ECONOMIC VALUE OF INSURANCE BROKING
Early last year NIBA commissioned Deloitte Access Economics to prepare a report into the economic value of insurance brokers. Last month NIBA launched the report during an intimate Q&A session with regulators and industry stakeholders.
T
he study represents the most comprehensive analysis of the insurance broking industry ever undertaken in Australia. Examining the value brokers provide to clients and insurers, as well as the industry’s impact on the economy and broader society. Not surprisingly, the report found that brokers provide immense value to their clients at every stage of the insurance cycle. The report estimates that it would take clients on average, 11 hours to complete a risk assessment of their business, compare insurer offerings and apply for cover. Based on a conservative estimate, this equates to $300 per annum in lost time or a combined $230 million across all business clients. Brokers also support clients in accessing a greater range of policies and insurers – in 2019, the average NIBA broker placed
12 / INSURANCE ADVISER NOVEMBER 2020
policies with more than 10 different insurance providers. The report was also able to quantify the role of brokers in reducing the incidence of underinsurance and non-insurance, with 40 per cent of clients not having appropriate insurance prior to engaging a broker. This increase in cover was not always accompanied by an increase in premiums. While only 1 per cent of clients were over insured before engaging a broker, 33 per cent of new clients were previously paying more for their insurance prior to engaging a broker. The report highlighted the important role brokers play as advocates for their clients during the claims process, saving clients time, simplifying the claims process and ensuring a more favourable outcome for the client. The report found that clients who
were assisted by a broker during the claims process were less likely to feel their claim was complicated compared to those who completed the process themselves. Brokers also support insurers to distribute products more efficiently and effectively, the report estimating that brokers save insurers the equivalent of 1,380 full-time equivalent (FTE) staff a year. Brokers also supported product distribution and client reach with almost 40 per cent of broker gross written premium, issued for clients outside of Australia’s capital cities, this includes clients in both regional areas and international jurisdictions. Brokers are also able to place risks with approved international insurers, giving these insurers access to markets they may not be able to reach otherwise. In addition to detailing the extensive
REPRESENTATION
benefits brokers provide to both clients and insurers the report also went deeper, investigating the value the intermediated insurance industry provides to the economy, government, and broader society. In the 2018-19 financial year, the insurance broking industry supported over 15,000 FTE staff and directly contributed almost $2.6 billion in gross value added (GVA) to the Australian economy. Further indirect contributions supported another 5,000 FTE staff and $0.9 billion in GVA. Brokers also help facilitate a more efficient insurance market and risk management through reducing information asymmetry, facilitating competition, reducing customer inertia, providing risk education matching clients with appropriate products. The report also highlighted the value brokers provide to government and the broader society, especially their role in helping clients recover
In the 2018-19 financial year, the insurance broking industry supported over 15,000 FTE staff and directly contributed almost $2.6 billion in gross value added (GVA) to the Australian economy. from natural disasters. Brokers play a key role in finding solutions for clients with difficult-to-insure risks, particularly in markets where there is limited access to insurance products. By working with clients and insurers to reduce the incidence of noninsurance and underinsurance in these markets the burden on government and society post-disaster is diminished. In addition to arranging appropriate cover for their clients, should an insurable event occur, brokers also support clients during the damage assessment and claims
preparation process, supporting economic recovery and reducing costs that may otherwise fall on government. The extensive research done by Deloitte provides NIBA with a strong platform to advocate against further regulation of brokers and or the removal of commissions. Over the next 12 months, NIBA will be engaging with federal and state governments, regulatory bodies, consumer and business groups, and other industry and stakeholders to promote the role of brokers and ensure that the debate on broker commissions is an informed one.
Insurance Adviser was able to sit down with Deloitte Partner, John O’Mahony before his presentation at the NIBA Convention to discuss how he and the rest of the team at Deloitte pulled together such a comprehensive report. Insurance Adviser: This is an extremely thorough report. How did you go about pulling together so much data from so many different sources? Deloitte: The information gathering for this project was the most important part. We wanted to build a robust evidence base about the role of the insurance broking sector. We analysed information provided by 421 individual brokers, 78 brokerage businesses, and the six largest insurance broking businesses. We consulted senior staff at three insurance companies, two small business clients and representatives from the LMIGroup, to help understand the stories behind the statistics. All up, we consulted almost 100 different articles, reports and data sources about the sector. IA: You have worked on a number of reports across a broad range of areas, what was the most interesting aspect of this report for you?
Deloitte: The most interesting part was unpacking how the industry works – both the insurance ecosystem as a whole, and the client journey when using a broker. It is not as simple or transactional as walking into a store and buying a good. It is a relationship-based business that creates many sources of value. IA: The insurance landscape can be quite a confusing place, how did you overcome this heading into the report? Deloitte: The project was very successful and, we hope, worthwhile for NIBA. Looking back, it could have been hard, understanding the diversity of brokers’ work, or failing to capture all the benefits of the sector. But we knew it would be complex, so we structured the project with NIBA to (i) begin with a scoping study to make sure we were all confident it could be done and (ii) held a workshop with several NIBA members
to collectively build a robust framework for understanding the sector. I think that was the key to getting this right. IA: How does this report compare to other work you have done? Deloitte: At one level, all economics project can feel familiar because of the key aspects around data and modelling. The economic value of insurance broking was memorable mostly because of the people and sense of purpose. Dallas Booth always had a clear sense of the purpose and key questions he wanted answers. NIBA board members and members were vocal about wanting to know not just about GDP or FTE statistics, but also how the sector had a broader social impact in Australia. Having said all that, what’s most important is that the report is widely read and does its job of informing the conversation about the role of insurance brokers in the economy.
NIBA.COM.AU / 13
THOUGHT LEADERSHIP / The role of the insurance broker
BRIDGING THE KNOWLEDGE GAP BY DALLAS BOOTH
Chief Executive Officer, National Insurance Brokers Association
R
elationships are the lifeblood of the insurance broking industry. The trust clients place in brokers to guide them through the complexity of insurance, and help them determine the right solution for their needs, is something brokers take very seriously. The relationship between brokers and their clients goes well beyond the transactional; insurance brokers are invested in their clients’ outcomes. The service brokers provide to their clients and the broader community is incredibly valuable and one that deserves to be appropriately compensated. It should be noted that while the Royal Commission into the financial services industry found that some types of commissions drove poor outcomes for clients, these commissions do not form part of the remuneration structure for general insurance brokers. The financial services industry has rightly faced significant public scrutiny. As professionals placed in a position of trust, brokers accept that their activities and industry business models should be evaluated and tested to ensure they continue to meet the highest professional and ethical standards. As this scrutiny turns to the intermediated general insurance market, the industry must demonstrate the value it provides and explain why the current business model
should remain. Last month NIBA released a Deloitte Access Economics report into the economic value of insurance broking. Although commissioned by NIBA, the report is not simply a regurgitation of the NIBA position but rather an exhaustive exploration of the role brokers play in supporting their clients, insurers, governments and the broader community. We are humbled by the findings of the report, most notably that brokers are among the most trusted professionals in the financial services sector, maintaining higher levels of trust than financial institutions and general insurers. While it is undeniable that brokers provide value to their clients the scale of the benefits brokers provide to their clients would surely be a surprise to those who do not currently engage the services of a broker. Clients recognised brokers as trusted advisors, capable of providing tailored, independent advice. This advice is the number one reason clients gave for choosing to use a broker. Clients also highlighted examples of brokers going above and beyond to advocate on their behalf following an insured event, with the majority of clients believing that the claims process would have been much harder without their broker in their corner.
This report confirms what NIBA and its members have known all along, that the service brokers provide has enormous value not just to their clients but to the general insurance industry more broadly, and that brokers deserve fair compensation for this service. 14 / INSURANCE ADVISER NOVEMBER 2020
Less obvious is the role of brokers in facilitating economic stability reducing the financial burden on governments and the broader society. Product matching by brokers ensures that household and business clients are matched with the appropriate cover to support their operations and improve their resiliency, resulting in minimal disruptions to the economy. Brokers are risk experts, as such businesses and individuals with hard to place risks often turn to brokers for assistance. In markets where there is limited access to insurance products, brokers are able to reduce the incidence of underinsurance or non-insurance and reduce the burden on government disaster relief. While the value brokers provide is as varied as the clients they serve, the role of the insurance broker is not widely understood. Our members are humble, quietly going about their work to support businesses and individuals all around Australia. It is my sincerest hope that this report goes some way to bridging that knowledge gap and educating government, regulators and the broader community on the role of brokers and the immense value our members provide. This report shows the value in taking time to properly examine the role you play, not only are insurance brokers as relevant as ever, one could argue that as markets harden, businesses look to focus on resiliency and extreme weather events occur more frequently the role of insurance brokers becomes more critical. This report is simply the first step for NIBA, I look forward to updating you all on our next. 
2018 & 2019 WINNER Authorised Representative Group of the Year
NEWS / Industry bulletin
DIVING INTO THE DATACUBE
A
nother year, another round of AFCA complaint data and another opportunity for brokers and the broader industry to reflect on ways to better improve their complaints handling and internal dispute resolution processes. While complaints relating to broker conduct remain low, this year saw a considerable increase in the number of complaints received by AFCA. This year marks the first full 12-month period for the AFCA comparative reporting tool, therefore the Datacube comparison of the previous equivalent period, won’t be entirely accurate. To make comparisons easier, figures from the previous period have been adjusted by 30 per cent. During the twelve months from 1st July 2019 – 30th June 2020 AFCA received a total of 76,880 complaints an increase of 14 per cent from the previous reporting period when adjusted.
Complaints involving general insurance brokers increased by over 50 per cent from the previous reporting period with AFCA receiving 205 complaints compared to 135 last year. Despite the increase, complaints against brokers still only accounted for just over 2 per cent of all AFCA complaints. Small business/farm insurance, home building insurance, motor vehicle, home contents and personal and domestic property insurance all recorded the greatest number of complaints. Professional indemnity insurance, which last year received a large number of complaints fell from its top five spot. Of the 208 complaints received, 13 per cent did not receive a response from the financial firm at the registration and referral stage. This figure is slightly higher than the average across all AFCA jurisdictions and significantly higher than the non-response rate among general insurance brokers last year. Brokers were also less likely to resolve
complaints at the referral stage with only 41 per cent of cases involving brokers resolved at this phase, compared to an average of 47 per cent. This figure, however, is a slight increase on last year. The increase in complaints is largely lead by smaller broker firms, many of whom do not have staff dedicated to complaints handling and may not have as robust internal dispute resolution frameworks. The figures released by AFCA show the need for all brokers to strengthen these processes. AFCA investigations are often a time consuming and costly process with financial firms required to pay fees when complaints progress to each stage of the AFCA complaints handling model as well as fees for firms who frequently have complaints lodged against them. Brokers may find that strengthening their internal dispute resolution processes may result in costsavings down the track.
ASIC WRITES TO INSURERS, LLOYD’S AND BROKERS IN RELATION TO HANDLING BUSINESS INTERRUPTION CLAIMS The Australian Securities and Investment Commission (ASIC) has recently written to insurers, Lloyd’s cover holders and a number of insurance brokers in relation to the handling of business interruption claims. The National Insurance Brokers Association (NIBA) CEO, Dallas Booth said, “This is an important letter that all insurance brokers should consider very carefully.” NIBA legal adviser, Mark Radford, has prepared a note, which also includes a copy of the ASIC letter. “We recommend all insurance brokers familiarise themselves with this material,” Booth added. You can download the letter on the NIBA website: niba.com.au/
html/website-downloads.cfm (it is the first item under resources). Any questions or comments should be submitted to Dallas Booth at dbooth@niba.com.au.
For breaking news and updates curated specially for insurance brokers please visit: insuranceandrisk.com.au/category/news/
16 / INSURANCE ADVISER NOVEMBER 2020
NEWS / Industry bulletin
SUPPORT FOR APRA’S CALL ON DISASTER MITIGATION FUNDING
T
he Insurance Council of Australia (ICA) has responded enthusiastically to a call by the Australian Prudential Regulation Authority (APRA) for significant funding for investments in natural disaster mitigation. ICA CEO Andrew Hall said the industry supported APRA’s view that substantial investments in mitigation were required to protect high-risk communities from the impact of extreme weather events such as cyclones, floods and bushfires, and thereby reduce pressures on insurance premiums. In a speech delivered to the Australian Business Roundtable for Disaster Resilience and Safer Communities this afternoon, Australian Prudential Regulation Authority (APRA) executive board member Geoff Summerhayes said the “high, rising and volatile costs” of natural disasters was leading to declining insurance affordability and accessibility.
He said tackling the root cause “through greater investment in mitigation to protect homes, businesses and infrastructure from damage” was the most effective way of meaningfully and sustainably addressing the issue. Hall said, “The clear and urgent message to all levels of government from APRA, and from many other organisations including the Productivity Commission and from numerous inquiries, is that investments in mitigation that reduce the physical risk to properties is the only sustainable way to reduce insurance premiums.” “Without mitigation, the damage bill in vulnerable communities – northern Australia in particular – will continue to soar. The cost of inaction will ultimately cost governments and communities much more than sensible, timely and effective investments in prioritised mitigation programs.”
PREMIUMS INVOICED THROUGH AUSTRALIAN GENERAL INSURANCE INTERMEDIARIES CONTINUE TO INCREASE
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he total volume of general insurance premiums invoiced through general insurance intermediaries has continued to increase, according to APRA Intermediated General Insurance Statistics as at June 2020. APRA data shows that the total premium invoiced through intermediaries for the 12 months to 30 June 2020 was $25,122 million, up from $23,257 million the previous financial year. Premium invoiced in the first six months of 2020 was slightly down on premium invoiced in the first six months of 2019 in relation to business placed with Australian authorised insurers, but business placed with Lloyd’s and with unauthorised foreign insurers continued to grow. The intermediated general insurance
statistics report premium invoiced. This means that the business placed as at 30 June is likely to be invoiced in July, and therefore included in the statistics for the second half of each calendar year. There is a seasonal variation between the premium collected in the June half year and the December half year. The December half year is traditionally larger than the June half year, presumably because of the impact of the invoicing of the June renewals. The APRA data also shows that the proportion of premium received by APRA authorised insurers from intermediaries has grown from around 45 per cent to 49 per cent in the six months to December 2019. The APRA intermediated general insurance statistics report is available on their website: apra.gov.au/intermediatedgeneral-insurance-statistics.
COMMUNITY SCHEMES – NEW TO WESTERN AUSTRALIA IN 2021 A new form of land tenure is coming soon to Western Australia, with the introduction of community schemes expected in 2021. Community schemes will provide an important new option in the State for the subdivision of land and creation of mixed-use developments. They will be introduced to Western Australia through the Community Titles Act 2018 (CTA), which was passed by the WA Parliament in November 2018. As community titles are a new form of land tenure, they will be of greatest interest to property industry professionals. Landgate and the Department of Planning, Lands and Heritage are working on the regulations to support the CTA. The proposed regulations will be made available for public consultation in the coming months, before being finalised and delivered to parliament. To learn more about community schemes please visit the WA’s strata reform website: strata.wa.gov.au.
For breaking news and updates curated specially for insurance brokers please visit: insuranceandrisk.com.au/category/news/
NIBA.COM.AU / 17
NEWS / Industry bulletin
INSURANCE BROKERS CODE OF PRACTICE ANNUAL REVIEW
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he Insurance Brokers Code Compliance Committee has now published its Annual Review for 2019-2020. “Who, in their wildest imagination, could have created a ‘risk model’ equivalent to this reality?” noted Michael Gill, the Chair of the Committee which oversees the Insurance Brokers Code of Practice (the Code). With a raft of new laws and regulations stemming from the Financial Services Royal Commission, another bushfire season looming and economic uncertainty, Gill said that the Code has never been more relevant in guiding decision-making. “Australia needs an insurance broking industry in which it can have confidence, which is able to reinstate and indemnify, which acts fairly … and which is strong in every sense.” NIBA CEO Dallas Booth urged all members to have a good look at the Annual
Review, and to note the suggestions and recommendations on areas where improvements in implementation of the Code of Practice need to be considered. Booth said, “We also note the comments from the Code Committee regarding the time being taken to complete the review of the Code.” “NIBA meets regularly with the Code Compliance Committee, and the Board meets formally with the Committee at least once each year. The Committee has been provided with regular updates regarding the progress of the Code of Practice review.” NIBA has acknowledged the Code review is taking longer than anticipated. There are a number of key factors that have led to this position, including the fact that the Royal Commission took place at the time the Code review commenced. He added, “NIBA always wanted to take
account of the Royal Commission findings and recommendations in any revised Code. Also, NIBA has always wanted to ensure the NIBA Code operates in a manner that is consistent and complementary with the General Insurance Code of Practice. The GI Code was formally issued earlier this year, and we are now able to take that Code into account.” In recent months, the NIBA Board has given extensive consideration to the current Code, and to the areas where change is needed. The Board has also taken account of initial rounds of consultation by NIBA’s independent Code reviewer, and developments in codes of practice across the financial services sector more broadly. Having completed the majority of this work, the Code review will now progress, and NIBA remains committed to full external consultation with all interested parties as this occurs.
FEDERAL BUDGET 2020:
HERE’S WHAT MATTERS TO BROKERS The 2020-21 Budget includes $98 billion in response and recovery support, including $25 billion under the COVID-19 Response Package and $74 billion under the JobMaker Plan. The National Insurance Brokers Association (NIBA), CEO, Dallas Booth said, “So far the most relevant information for insurance brokers as business owners – and their clients – are the business tax initiatives that are predicted to help businesses grow and assist in our overall economic recovery.” The budget introduces temporary full expensing of eligible depreciable assets for businesses with turnover up to $5 billion from 7:30pm (AEDT) on 6 October 2020 until 30 June 2022. The measure will be available to around 3.5 million businesses (over 99 per cent of businesses) that employ around 11.5 million workers. Insurance Council of Australia, CEO, Andrew Hall welcomed the Federal
Budget as a strong step towards Australia’s recovery from the COVID-19 pandemic and devastating summer bushfires. He said, “The industry is encouraged by Treasurer Josh Frydenberg’s statement that further announcements in relation to natural disaster mitigation will be made in response to the Royal Commission into National Natural Disaster Arrangements.” Companies with turnover up to $5 billion will also be able to temporarily, up to June 2022, offset tax losses against previous profits and tax paid in or after 2018‑19. This will help companies that were profitable and tax paying but now find themselves in a loss position due to the COVID-19 pandemic. By allowing them to access their losses earlier, by way of a cash refund, it will provide a needed cash flow boost to keep their business running, retain their workers and invest with confidence in the future.
Temporary loss carry‑back will be available to around 1 million companies that employ up to 8.8 million workers. Temporary full expensing creates a strong incentive for businesses to bring forward investment to access the tax benefit before it expires. Temporary loss carry‑back further assists companies that would experience a loss to take advantage of the temporary full expensing measure. Combined, the two measures are estimated to deliver $31.6 billion in tax relief to businesses over the forward estimates period, supporting around $200 billion worth of investment. Treasury estimates that these budget measures will boost GDP by around $2.5 billion over 2020-21 and $10 billion over 2021-22 and create an additional 50,000 jobs by the end of 2021-22. You can read more about the business initiatives in the Federal Budget on the NIBA website: niba.com.au/resource/280X1011.pdf.
For breaking news and updates curated specially for insurance brokers please visit: insuranceandrisk.com.au/category/news/
18 / INSURANCE ADVISER NOVEMBER 2020
ADVERTORIAL / NSW building reform agenda
NEW RATING SYSTEM FOR NSW BUILDING PRACTITIONERS AND BUILDINGS COMING NEXT YEAR The NSW Government is implementing a building reform agenda with the aim of changing the culture and capability of the NSW building industry. The deep, wide-ranging reforms are being implemented in stages from 1 July 2020. David Chandler, NSW Building Commissioner, says that the planned digitised compliance regime and ratings system will be “game changers” for the NSW building industry. In a construction industry where he estimates 20 per cent of players account for 80 per cent of the problems, these digital tools will flag the riskier projects and allow the regulator to keep an eye on them as they progress. Addressing the issues with design One of the significant developments under the new regime is that design and ‘as built’ drawings must match, creating clear accountability for deviations. The Building Commissioner said it took just three seconds to digitally compare 200 declared designs with 200 as built drawings in a trial of the system. This enforced compliance should reduce the number of future disputes caused by ‘final’ authoritative design documents and as built constructions departing from the design documents. Digital twins The reform is being driven by the capabilities within the NSW’s new digital platform. It will create “digital twins” of both buildings and practitioners that the Building Commissioner says will “follow [them] forever”.
The NSW Government’s digital platform, which will leverage existing data from the Department of Planning Industry and Environment’s e-planning portal, is comprised of: • Strata portal – a single source of information for strata schemes • Single View of Buildings – which will merge data from different inspectors and regulators • Multi-Party Risk Rating Tools – which will rate builders, certifiers and developers based on the quality of their previous projects, and • Building Assurance Solution – a multijurisdictional, risk mitigation tool that will calculate a trustworthy index for individual buildings. Rating system The rating system, which is being built by data company Equifax, will cover builders, developers, engineers, designers, certifiers and manufacturers. The system awards them an overall score based on a range of metrics, including: • their financial history • their record on workplace safety • handling of customer complaints • financial credibility • the age of the business, and • whether there are any suspicions of phoenixing. Those with lower scores will be flagged on a database and their projects will be scrutinised by the Building Commissioner. They run the risk of the Building Commissioner blocking the building’s occupation certificate if he thinks
“The planned digitised compliance regime and ratings system will be “game changers” for the NSW building industry.”
BY CHARU STEVENSON AND ROBERT FINNIGAN
Partners, Wotton + Kearney
that the project is non-compliant or potentially dangerous. Without an occupation certificate, buyers are not required to settle on a purchase, a building cannot be occupied and a developer could be forced to refund buyer deposits. The Building Commissioner describes this system as joining up ‘data silos’ that have never been connected before. He said: “The days of opaque, un-regulated, multiple data sources that do not feed to single sources of truth are rapidly coming to an end.” For the insurance industry, the ratings system is likely to be a very useful resource in identifying good and bad risks, and pricing them accordingly. Mr Chandler has stated: “Insurers [will] be able to price building insurance risk based on these ratings. From this, we hope to help facilitate a 10-year first resort insurance product to be available to the most trustworthy building makers. Not a legislated requirement but, market-led.” The good news for brokers These digital initiatives will give insurers a transparent and accessible way to rate buildings, and the design and building professionals who work on them. This information, combined with other reform initiatives, should result in the building and construction industry being a much better insurance risk in the long run. While the digital platform and rating system are only being implemented in NSW, there is the potential for this technology to be rolled out nationally. This is welcome news for the insurance sector, especially given the projected increase in high rise residential development over the next few decades. For more W+K commentary on the reforms, visit: www.wottonkearney.com.au/legislativereform-of-the-building-and-constructionindustry-in-nsw
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PROFESSIONALISM / AFCA case study
THE IMPORTANCE OF FILE NOTES
Maintaining comprehensive file notes of client instructions and confirming them with the client are of tremendous significance when a complaint is filed.
Lessons
The key lessons from this Determination are: • Contemporaneous insurance broker files notes and emails on a customer’s decision not to take a cover option will be extremely important in convincing AFCA to believe a broker; and • AFCA takes a conservative approach to awarding compensation for non-financial loss and expects complainants to be moderately robust and to bear the normal degree of inconvenience experienced when a problem occurs and to take reasonable steps to manage the situation.
Facts
The complainant’s association/club (the insured) was broken into and cash was stolen. The complainant said he required a hernia operation and counselling due to the burglary which should have been covered by voluntary workers insurance cover. This cover option was not included on the policy. After the complaint came to AFCA, the insurer accepted the complainant’s personal injury claim on a cover extension, which had previously been added to the policy. The complainant proceeded with its complaint against the broker in any case.
The complainant’s case against the broker
The complainant submitted that: • the broker failed to purchase insurance to include protection against volunteers being injured despite being asked to do so; • the broker did not provide the policy documents, including the Product Disclosure Statement (PDS), and that the wording of the PDS changed every year; and • the broker should pay compensation for non-financial loss due to a long
20 / INSURANCE ADVISER NOVEMBER 2020
period of uncertainty regarding the claim which enhanced his anxiety.
The broker’s case
The broker submitted that: • the broker sent the PDS to the complainant on first acquisition of the policy and was provided with renewal documents in each subsequent policy year upon renewal. The renewal documents set out the extent of cover as described in the limited advice warnings and schedules. • the broker originally discussed voluntary workers cover with the complainant and the complainant said there was no need for the cover as most parties were retired. The broker had a file note in support of this as well as an email confirming this discussion; • the broker had a subsequent renewal meeting with the complainant and discussed voluntary workers cover and theft but the complainant confirmed he already had this cover elsewhere. The file note also evidenced that the complainant acknowledged previous correspondence and discussion; that he had a sound understanding of the covers; and that he did not wish to insure for cover over and above what was already provided due to the budget constraints; • in the renewal relevant to the year in which the claim event occurred, the broker had a meeting with the complainant where he confirmed that no change was required and this was again recorded in a file note. • no loss was suffered, as the complainant was not a voluntary worker that would have been covered had the cover been arranged. • the broker’s conduct did not justify
BY MARK RADFORD
Principal, Radford Lawyers
any award of compensation for nonfinancial loss.
The AFCA decision
AFCA was satisfied, that: • the broker sent the PDS and renewal information to the complainant and that it was aware of the cover provided; • the broker did not breach its professional duty to the insured or the complainant and that voluntary workers insurance was offered to the insured and complainant but was not taken up. This was principally due to the good file notes taken by the broker at the time of engaging with the complainant; • even if there was a finding that the broker failed to put voluntary workers cover in place, it was unlikely the complainant suffered a loss as a result, because at the time of the claimed injury he was not engaged in voluntary work and was not earning income elsewhere; • even if the cover was in place, the policy would probably not respond to the claim as at the time of the burglary, the complainant was probably at the insured premises as a guest and he was not earning income at the insured premises or elsewhere; and • in relation to compensation for nonfinancial loss whilst the burglary and ensuing claims experience is stressful, based on the evidence presented, it was not satisfied the complainant incurred excessive stress or inconvenience during the claim process. AFCA noted that it will only award compensation (capped at $5,000) if there has been an unusual degree or extent of physical inconvenience, time taken to resolve a complaint or interference with the complainant’s expectation of enjoyment or peace of mind.
ANALYSIS / Legal
‘TESTING’ FOR COVID-19: THE RESULTS SO FAR
As businesses globally continue to struggle with the challenges produced by COVID-19, test cases have emerged as an efficient way to determine, in principle and based on assumed facts and sample wordings, whether business interruption losses in this context are covered by insurance.
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o date, the most significant test case determined is that brought by the UK Financial Conduct Authority (FCA) on behalf of policyholders who sustained loss due to the pandemic and associated Government action. The decision, delivered by the High Court of Justice in London on 15 September 2020, is extensive and runs for over 160 pages – perhaps unsurprising considering the test case relates to eight different insurers and 21 different wordings. The decision is not a complete victory for either party, with the Court finding in favour of policyholders on certain issues and for insurers on others. Whilst the sheer number of contested issues make summarising the decision a difficult task, the following are five aspects which have attracted interest. 1. The Court was tasked with interpreting clauses which cover business interruption losses arising from disease occurring within a particular vicinity (say, a 25 mile radius) of insured premises. Insurers argued that cover was limited only to loss arising from the particular occurrence(s) of disease within the specified vicinity and not loss resulting from the broader pandemic. The Court disagreed with the insurers’ argument on this point, determining that cover was available for loss flowing from the pandemic and associated Government action, provided at least one infection had occurred in the specified vicinity. 2. The Court also considered the proper approach to assessing loss in the context of clauses covering loss resulting from an inability to use insured premises due to restrictions imposed. The insurers argued that
the relevant ‘counterfactual’ was the position an insured would have been in, but for the relevant Government action, as opposed to the position the insured would have been in but for the pandemic. The difference between the two competing approaches is significant in circumstances where many businesses would still have sustained loss as a result of the pandemic, without the Government restrictions being implemented. Ultimately, the Court sided with policyholders, observing that the insurers’ argument “involve[d] an unrealistic and artificial exercise, and one which fails to recognise that the occurrence of the disease is an essential element of the insured peril, and of what the insured has covered itself against”. 3. When considering the phrase, “prevention of access” the Court determined that it must mean something more than a mere “hindrance”. Taking the example of a restaurant which can no longer serve food and drink for consumption on the premises, yet can serve takeaway food, the Court found that, if the takeaway component of the business was a pre-existing and substantial component of the insured’s business, then there was no “prevention of access”. Having said that, a restaurant which started a takeaway service due to the restrictions (but which did not offer one previously) may still be able to establish “prevention of access”. 4. Where cover is enlivened by “restrictions imposed by a public authority”, the Court found that this pre-requisite could only be satisfied
BY CLANCY O’DONOVAN
Senior Associate, DLA Piper Australia
by restrictions implemented by way of statutory instrument and, importantly, Government advice does not constitute “restrictions imposed”. The result is the same where cover is dependent upon an “order” of a competent authority. 5. Finally, the Court analysed certain clauses covering loss arising from an “incident” which results in a denial of access to insured premises. The FCA contended that the general “emergency” or “danger” constituted by the pandemic as a whole was an “incident” for the purpose of such clauses, however, the Court rejected this argument and determined that “incident” means “something which happens at a particular time, at a particular place, in a particular way”. The implications of the High Court’s decision are significant in the context of the UK insurance market. The FCA estimates that approximately 700 wordings issued by 60 different insurers and, in turn, 370,000 policyholders may be affected by the outcome. Having said that, the test case is not yet over – the FCA and six of the eight insurers involved have sought leave to appeal to the UK Supreme Court. In the meantime, the test case filed jointly by the Insurance Council of Australia and the Australian Financial Complaints Authority was heard by the NSW Court of Appeal on 2 October 2020. The Court is tasked with determining whether COVID-19 is a quarantinable disease “under the Quarantine Act 1908 and subsequent amendments”. The Court’s decision will inform whether loss sustained by many Australian businesses is excluded from cover and is eagerly awaited by insurers and the wider business community alike.
NIBA.COM.AU / 21
“QPIB represents competence and the will to strive for excellence.”
ING IS
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QPIB
S
Apply online at niba.com.au or email NIBA Memberships Manager Audi Witsen – awitsen@niba.com.au
D PRAC IE T F I
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QPIB – A STATEMENT OF PROFESSIONALISM
• QUA L
– CAITLIN CARSON, 2019 YOUNG PROFESSIONAL BROKER OF THE YEAR
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COMMUNITY / #NIBA2020
#NIBA2020 WRAP UP: PART 1
BRAVE NEW WORLD
NAVIGATING THE WINDS OF CHANGE The 2020 NIBA Convention was, for the first time, held virtually from 26-30 October. Over 600 brokers attended sessions with industry leaders, regulators and thoughtprovoking speakers, and connected with insurers and underwriters in a custom-built virtual marketplace. #NIBA2020 was a fantastic opportunity for the entire industry to come together, be it virtually, and was only possible due to the generous support of our sponsors. THANKS TO OUR PRINCIPAL PARTNERS
TECHNOLOGY SPONSOR
OPENING KEYNOTE SPONSOR
CLOSING KEYNOTE SPEAKER
SESSION SPONSOR
NIBA.COM.AU / 23
COMMUNITY / #NIBA2020
THE PROGRAM
Harris also spoke about the review of the Insurance Brokers Code of Practice, which was discussed in greater detail by NIBA legal adviser, Mark Radford (see below), and the Deloitte Access Economics report, commissioned by NIBA, on the role and value of insurance brokers. John O’Mahony, Partner at Deloitte Access Economics, talked delegates through the findings of the report on the Friday of Convention. Finally, Harris announced that a Strategic Industry Review was about to get underway, which will identify what the industry wants insurance broking to look like in 3 – 5 years. “The NIBA Board will spend considerable time on this issue during November, and I am looking forward to those discussions.”
Acknowledgement to Country by the KARI Singers
#NIBA2020 delegates were captivated by the unique sound and talent of the KARI Singers, in a stunning Acknowledgement to Country at the commencement of the 2020 NIBA Virtual Convention. Emcee Andrew Klein opened the formalities and handed to NIBA President Eric Harris for his opening address. Harris took the opportunity to reflect on what has been a challenging year, “We started 2020 in severe drought, and with severe fires burning from the NSW Queensland border, right down and into Victoria, with significant fires in South Australia as well. “That was followed by a nasty hailstorm in Canberra and Melbourne, and other major storm activity along the east coast of Australia,” he added. “The events have again shown the critical importance of insurance for people, communities and the nation all over. And the importance of advice.” Harris then turned his attention to COVID-19, and paid tribute to members of the insurance industry for their contribution to the ongoing function of insurance in Australia, and for the ongoing support of clients at this challenging time. Harris continued that NIBA remains committed to professionalism in insurance broking. “After discussing the matter at length and consulting widely across our membership, NIBA has lodged a submission with ASIC seeking the raising of industry qualifications from Tier 1 to a full Diploma of Insurance Broking. “NIBA has long held the view that a professional insurance broker should hold appropriate qualifications for the work they do on behalf of clients, and the NIBA Board was very pleased to sign off on the ASIC submission to raise standards in this area.”
Emcee Andrew Klein
24 / INSURANCE ADVISER NOVEMBER 2020
The #NIBA2020 Convention lobby
BROKER CODE OF PRACTICE: WHAT IT MEANS FOR YOU Mark Radford
On the Wednesday of Convention, NIBA legal advisor, Mark Radford of Radford Lawyers, talked delegates through the proposed changes (subject to further discussion) to the NIBA Code of Practice, as a result of the review that is being conducted. Radford said they’re proposing to extend scope of service to standalone risk management-type services, where there may not be insurance connected with it. “It’s really just going to cover what people would provide by way of other risk management services that aren’t purely insurance linked or related,” he explained. Furthermore, Radford said that in terms of the standards that apply under the code, there are a number of refinements they’re proposing to make. “Conflict of interest requirements in the code are being refined, and they’ll be made more detailed, providing better guidance to members on what’s expected,” he said. There will also be changes to clarify and improve how brokers are required to describe who they are acting for, and in relation to what services. “We all know brokers can act in a number of capacities, so it’s crucial that we’re clear to customers about that.” Radford said they’re also looking to improve the clarity around the types of services brokers are offering, for example, a personal advice service versus a general or no advice service. He said it will give client’s a better understanding of the advice they’re receiving. In terms of the most significant changes, remuneration is the big one according to Radford. The proposed changes to remuneration are all focused on brokers putting in place practices to deal with the issues relating to proper
COMMUNITY / #NIBA2020
disclosure of remuneration, clear disclosure of roles and proper management of conflicts of interest. There will also be an entirely new section on vulnerable clients and the protection of vulnerable clients, along with a number of new complaints and disputes processes. “Anyone will be able to report a breach of the code, and you’ll have to have a framework in place, dealing with how you will comply with the code, given the significance of the code.” Radford said the proposed changes shouldn’t come as a shock. “Whist brokers performed well in the Royal Commission, generally, and weren’t a specific target, it would be crazy to not take the lessons and issues into account in any code review.”
BUILDING TRUST AS A TRUSTED ADVISER Jenny Haddad
Jenny Haddad of Spring Business Consulting presented on Building Trust as a Trusted Adviser, identifying that the fundamental element of trust is doing what we say we’re going to do. “For brokers, it’s about delivering what we promise,” she added. Haddad introduced delegates to the ABC of building trust, and encourage them to ask themselves the following questions: • Add value to our clients o Can we send our clients some information that is particularly relevant or helpful to them? o Is there someone that needs to be tactfully challenged to think differently about their business in some way? o Could you offer suggestions, based on your understanding of their needs, that would help your client that they may not have thought about before? • Be focused on clients and their needs o Is there a client where you have put your interest ahead of theirs? o Is there a client you need to collaborate with more in order to understand them better? o Is there a client whose situation has changed? o How can we make our interactions with clients “other” focused? • Care and consideration for our clients and their businesses o How can you show that you are truly interested, truly care (in them and their business) and are sincerely trying to help?
Heald said: “Those who navigate the winds of change, that is, accept, adapt and move forward, will thrive, and those who don’t, will simply remain stagnant.” Heald explained that a resilient leadership style demonstrates the ability to perform under stress or pressure, and cope with any disruptive change. She said it gives a sense of purpose and keeps people on track with goals achievement. Furthermore, “It allows us to be in touch with our own feelings and those of other people,” she said. “Resilience also improves our ability to solve problems, make informed decisions and also maintain respectful relationships with others.” Heald concluded her presentation with several ways in which one can personally increase their leadership resilience, including: managing expectations, keeping it real, practising gratitude, fostering a robust network, practising self-care and accepting adversity.
NAVIGATING RISK IN A TIME OF CHANGE Steve Hamill
In his session on Navigating Risk in a Time of Change, Steve Hamill, Managing Director of Comsure, examined the intersection of climate change, the pandemic and global supply chain hazards, and the processes required to help clients through the risks. Hamill said, “It has never been so crucial for Australian businesses to understand our exposure and reliance on international markets when examining business continuity planning.” During his presentation, Hamill compared the main business hazards, risks and perils pre-2020, to what they are today, and highlighted the importance of asking open-ended questions to establish context and determine whether there is an exposure. “As brokers, we’re good at dictating to clients on what we think they should have, without engaging them.” Hamill suggested using a basic heat map, to ensure the client feels a part of the process. “Unless we engage in dialogue with the client, we won’t be able to ascertain their exposure and achieve client buy in.”
Look out for more session highlights in the December/ January issue of Insurance Adviser magazine.
THE FUTURE OF THE WORKPLACE: BUILDING RESILIENT LEADERS Nikki Heald
On the Wednesday afternoon, Nikki Heald of Corptraining spoke in her session about the demand for resilient leaders created by the global pandemic. “No business is immune to unpredictability or crises, however, it’s not so much the result, but the way that we react and get back on our feet that really matters,” said Heald. In her presentation, Heald referred to studies that found leaders with high levels of resilience are perceived as being more effective by their peers and also by their direct reports.
The #NIBA2020 Auditorium
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COMMUNITY / #NIBA2020
The virtual marketplace
THE VIRTUAL MARKETPLACE
The virtual marketplace was a hive of activity throughout the five days of #NIBA2020. Delegates were able to chat to exhibitors virtually, download brochures to add to their virtual “tote bag”, and view video content. Furthermore, delegates earned points for their interactions with exhibitors, and those that racked up 8800 points or more, went into the draw to win a $2000 cash card. The lucky winner was announced on the final day of #NIBA2020.
THE NETWORKING LOUNGE
The NIBA Networking Lounge was made up of six breakout rooms – five were designated to the Principal Partners, and the sixth was a networking and Q&A space for NIBA. Throughout #NIBA2020, delegates were able to participate in roundtable discussions and interact with sponsors and speakers inside the Networking Lounge.
THE ENTERTAINMENT Plenty of laughs were had throughout the five days of Convention, especially during the CGU & NIBA Comedy Fest, and Drag Bingo Extravaganza.
CGU & NIBA COMEDY FEST CGU, together with NIBA, served up an hour of hilarious entertainment in a comedy fest on the Tuesday afternoon. Headline acts included Dave O’Neil, Cal Wilson and Dave Thornton. NIBA would like to thank CGU, for making the Comedy Fest possible.
DRAG BINGO EXTRAVAGANZA Delegates were treated to some “fierce” but friendly competition during a Drag Bingo Extravaganza with the one and only Prada Clutch – one of Australia’s most sought after live-singing drag queens. Brokers battled it out in two rounds of bingo and were treated to a special Prada performance.
PART TWO The CGU & NIBA Comedy Fest featured a number of entertaining circus acts.
26 / INSURANCE ADVISER NOVEMBER 2020
Look out for part two of our Convention wrap up, including coverage of the keynotes, in the December/January issue of Insurance Adviser magazine.
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COMMUNITY / NIBA Awards
28 / INSURANCE ADVISER NOVEMBER 2020
COMMUNITY / NIBA Awards
NIBA AWARDS CELEBRATE PROFESSIONAL BRILLIANCE This year’s winners of the National Insurance Brokers Association (NIBA) awards were revealed on day two of the spectacular 2020 NIBA Virtual Convention.
S
helley Hymas of Phoenix Insurance Brokers in Western Australia was named the winner of this year’s QBEsponsored Stephen Ball Memorial Award for Insurance Broker of the Year. Elliot Hill - General Manager, Sales and Relationship Management, Commercial Lines, QBE Australia Pacific, congratulated her: “Shelley’s extraordinary commitment to client advocacy, professional excellence, customer service and her community, saw her stand out amongst this year’s truly impressive group of finalists. “At QBE, it’s never been more important for us to continue to strive to be the insurer that builds the strongest relationships with our partners, which is why we’re proud to partner with NIBA to recognise the best in the business through this important award each year. Significantly, it not only allows finalists to showcase their achievements, but also help raise the bar across the industry by showing what’s possible.” In addition to the acknowledgement, Shelley has won prize money to further her professional development. Kate Martin of Marsh in Queensland was awarded the Vero-sponsored Warren Tickle Memorial Award for Young Professional Broker of the Year. In commending Kate on her win, Anthony Pagano, Head of Commercial Intermediaries,
Vero said, “Kate represents the best of the insurance broking profession. She is a true advocate for her clients and has built a reputation for high standards and excellence. In these uncertain times, it is great to see Kate’s genuine and personalised approach shine through when offering risk advice to clients and other broking professionals, in what has been a challenging year.” “Congratulations Kate, on an impressive achievement as the 2020 Warren Tickle Memorial Award winner.” NIBA CEO Dallas Booth said all Insurance Broker of the Year and Young Professional Broker of the Year finalists were exceptional brokers, and the awards recognise and celebrate their hard work: “They set a benchmark for the rest of the profession.” “Shelley is a great example of excellence in insurance broking. She uses innovative approaches to get great outcomes for her clients, and supports her fellow brokers, mentoring those in and outside her firm,” said Booth. “And Kate has achieved a tremendous amount in her career to date and is certainly a well deserving recipient of the Warren Tickle Memorial Award for Young Professional Broker of the Year,” he added. “NIBA would also like to sincerely thank QBE and Vero for their sponsorship of the two awards.”
NIBA RECOGNISES INSURERS More than 500 NIBA insurance brokers rated insurers’ products and services in a range of categories as part of the annual NIBA Broker Market Survey. It is the combined results of the questions in this survey, that ultimately determines the General Insurance Company of the Year. Having looked long and hard at the results of the Nielsen survey, NIBA decided to acknowledge the fact that brokers deal with a number of underwriting agencies, or managing general agents, as well as dealing with APRA authorised insurance companies operating in the Australian market. NIBA President Eric Harris said: “The underwriting agencies are often specialist operations, offering cover in a specific area of risk, with specialist expertise to offer in that area of insurance.” “Insurance companies mostly offer a broader range of cover, and in some cases offer cover in most areas of general insurance,” he explained. NIBA therefore decided to award an Underwriting Agency of the Year and General Insurance Company of the Year, which must be an APRA authorised insurance company operating in the Australian market. At the NIBA National Awards Ceremony, Harris announced GT Insurance as the 2020 Underwriting Agency of the Year, and Berkley Insurance Australia as the 2020 General Insurance Company of the Year. Harris also noted that the winners were in fact the two strongest performers in this year’s Broker Market Survey. In congratulating the winners, Harris said: “Congratulations to GT Insurance and to Berkley Insurance Australia for providing quality products, service and support to insurance brokers and their clients over the past 12 months.”
NIBA.COM.AU / 29
COMMUNITY / NIBA Awards
NIBA ACKNOWLEDGES INDUSTRY STALWART WITH LEX McKEOWN TROPHY
T
his year’s Lex McKeown Trophy for lifetime achievement was awarded to Graham Stevens from Edgewise Insurance Brokers in Victoria. The namesake of this award, Edward Alexander McKeown (known as Lex) started his career as a clerk with Goodyear Tyre & Rubber and then decided to join the insurance industry. He initially was an insurance agent until he established his own insurance broking firm – Motor, Life & General Insurance Brokers – in 1964 based in Hawthorn, Victoria. He formed IBA in 1971 by convincing four other brokers that the insurance industry needed regulation and within a couple of years, IBA had 300 members throughout Australia. NIBA was formed in 1982, McKeown joined the new association in 1986 and already had the Lex McKeown Trophy in perpetuity named after him. The trophy recognises a NIBA member who had made an outstanding contribution to the Association. Like McKeown Stevens started his career as a clerk, albeit in the insurance broking
30 / INSURANCE ADVISER NOVEMBER 2020
profession. He began his innings at Guardian Royal Exchange (GRE) in 1970, where he quickly moved through the ranks to the role of ‘inspector’. In the early 1980s GRE offered him his own portfolio of clients to set up his own Professional Agency. Not long after this, Stevens combined forces with a close friend, and over 25 years, they grew the business to be one of the largest privately owned broking businesses, and became a part of Steadfast before the firm was sold to Willis. NIBA President Eric Harris congratulated Stevens adding: “He is a fantastic contributor to our profession and advocate of his clients over a lifetime.” “Our winner has served on local NIBA committees, been a member of the National Board for over 13 years, including serving a term as President,” said Harris. “He has also been the Australian representative on the World Federation of Insurance Intermediaries (WFII), also serving a term as chairman of that body.” NIBA CEO Dallas Booth said Steven has been fantastically influential: “I take my hat
off to everything you’ve contributed to NIBA and to broking more broadly.” Accepting the award, Stevens said: “I never expected to win this award, given the people that have gone before me. It is very humbling to be honoured in this way for doing something I love to do.” “I’d really like to thank the NIBA Board for giving me this prestigious award.” After leaving Willis, Stevens started another small broking firm with another close friend and his lifelong partner and wife. He is still a part of the business today. In the past few decades as his profile as a prominent business leader has grown, Stevens has his core values of kindness and empathy as his guiding light. He views the teams he has nurtured as valuable assets who he shares a common vision with, “It is extremely important to believe in people and there is no greater compliment to my team than my trust. Broking is a people profession and the best way to learn is to get out there, interact with clients as well as underwriters to truly understand risks and policies.” “The most important takeaway for many of us during these trying times has been the realisation that nurturing profound relationships is the best way to operate as risk advisers. It is all about collaboration and community.” On his deep involvement with NIBA he said, “It is simple, I believe in NIBA as an industry body. I am of the opinion that if you want to truly belong to a profession, you have got to put in the effort to ensure its growth.” His stint at the WFII was memorable and solidified his belief that at the heart of it, brokers across the world are facing similar challenges, “Sitting at the WFII roundtables I realised that we may come from different places, operate in different landscapes but there are many common areas that affect us all, especially when it comes to overzealous regulations.” “It was a fascinating experience to ensure that the interests of Australian brokers were represented at the highest level.” Representation is something that Stevens values deeply, “Insurance broking has and continues to face many challenges following proposals put forward by governments and regulators. We at NIBA lobby tirelessly to carve out niches for our profession and to negotiate outcomes for the benefit of all brokers. I am quite sure that many intermediaries are unaware of just how much NIBA has done to avoid huge operational and financial consequences for us as brokers.”
Insuring Not for Profits it’s all we do
By the end of 2020 we will have donated more than $4.8m back to the Not for Profit sector.
Association Liability Motor Vehicle
General Liability Business Package
Event Liability Industrial Special Risks
Voluntary Workers
FEATURE / Business Insolvency
32 / INSURANCE ADVISER NOVEMBER 2020
Watching brief With Government stimulus packages and temporary insolvency relief due to be turned off over the coming months, the future of an increasing number of businesses will be under threat. And, with a dramatically changing regulatory environment, it’s vital brokers keep up to date. BY MARTIN WANLESS
NIBA.COM.AU / 33
FEATURE / Business Insolvency
T
rading can be challenging at the best of times, but COVID-19 has placed significant pressure on businesses across the world. In Australia, the Federal Government introduced temporary insolvency relief in March to help companies continue to trade. These included increasing the minimum threshold of debt required for a creditor to issue a statutory demand from $2,000 to $20,000; increasing the time limit the company must respond within 21 days to six months and providing relief for directors from personal liability for trading while insolvent in terms of new debts incurred in the ordinary course of business. Those provisions were due to expire in September, but have since been extended to 31 December 2020, and have reportedly saved over 2,000 businesses. And, with new proposed changes to insolvency laws announced by Josh Frydenberg, it is an ever-changing area.
“The immediate future may see an extremely dynamic and fluid regulatory landscape as Australia emerges in a postCOVID world,” says Peter Bowden, Partner at Gilbert + Tobin. “It is important that brokers keep their fingers on the pulse on the regulation and development of the corporate insolvency industry, as constant evolution in regulation and the marketplace may pose a risk that brokers get left behind.”
THE CHALLENGE THAT LIES AHEAD
While the proposed legislation is designed to help more businesses stay in business, some will inevitably face incredibly challenging times. “Businesses need to lay the groundwork now for what action they’ll take after those measures are gone,” says Bradd Morelli, National Managing Partner at insolvency and business restructure firm Jirsch Sutherland.
“With more challenging and uncertain times ahead, it’s never been more important for directors to understand how Australia’s insolvency procedures work so they can prepare their company.” There’s huge variation in the levels of impact COVID-19 has had on businesses around the world. For some, particularly those in retail or hospitality, it’s been devastating. For others, including professional services, it’s been businessas-almost-usual. “We’ve seen some decreases in turnover which result in a decrease in premium,” says Christian Garing, Managing Director of FTA Insurance, “but it hasn’t been as widespread or as material as we thought it might be. Some insureds have gone up in turnover – accountants and labour-hire companies, for example.” There are, of course, businesses that are already deeply affected by the impact of COVID-19 – and the time bomb is ticking.
“With more challenging and uncertain times ahead, it’s never been more important for directors to understand how Australia’s insolvency procedures work so they can prepare their company.” BRADD MORELLI, NATIONAL MANAGING PARTNER, JIRSCH SUTHERLAND
Legislative update At the end of September, Treasurer Josh Frydenberg announced changes to Australia’s insolvency laws that are planned to take effect from 1 January 2021. These new procedures are targeted at streamlining the restructuring and liquidation process for small businesses that have liabilities of less than $1 million. It also introduces a debtor in possession model,
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allowing businesses to restructure existing debts while remaining under the control of the company’s directors. During this restructuring period, a Small Business Restructuring Practitioner – who must be a registered liquidator – works with the company over a 20 business day period to develop a plan for restructuring the company’s debt.
FEATURE / Business Insolvency
Graham Stevens, Director of Edgewise Insurance Brokers in Melbourne, says, “We have several clients in a situation where their six-month premium moratorium has come to an end, and they can’t pay their 12-month premium. “As brokers, all we can do – and what we will continue to do – is do whatever is necessary to assist them to have the covers to allow them to continue to operate.” Garling says that while, during COVID, financial lines and professional indemnity books haven’t been affected too much, it’s a different story with directors and officers and management liability policies – and this could spell trouble further down the track. “It’s something that people are going to have to be a lot more aware of,” he says. “Particularly as a lot of D&O and management liability have insolvency exclusions. “If a claim results due to insolvency it may not be covered by the D&O or management liability policy, which exposes the directors’ personal assets.”
“As brokers, all we can do – and what we will continue to do – is do whatever is necessary to assist them to have the covers to allow them to continue to operate.” GRAHAM STEVENS, DIRECTOR, EDGEWISE INSURANCE BROKERS
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Case study: Holding on by their fingernails Graham Stevens, Director of Edgewise Insurance Brokers, Melbourne, shares a story of a client that couldn’t keep its insurance going after its six-month premium moratorium expired. “One of our clients owns and has operated a very successful upmarket restaurant in the CBD of Melbourne and, in March, decided to take the six months’ premium moratorium on offer. He thought it would buy time to get through the lockdown with some breathing space at the end to rebuild the business and meet the premium payments. “The moratorium period has now come and gone for him. He could not pay the premium and, following our notification to the underwriter, the insurance was cancelled. I in no way blame the underwriter for this – they were not in a position to do anything further. “The lead-up to our clients’ current situation was that little over two years ago he took over the upper floor in addition to the existing ground floor lease and did a $4m renovation. “Once the restaurant was open, it went from strength to strength — enter COVID-19. Trade completely stopped. After a while, he started to offer delivery of partially cooked meals, which was OK but was not paying the bills.
“About two weeks before the moratorium was to expire, we had a video meeting with our client to discuss his options. He advised that he had explored every scenario, simply could not find the $40,000 premium, and the most likely was Voluntary Administration. “This would have meant that he would lose his home, all his assets, and as often happens, his family. Being in his late 50s, this would have finished him and left him penniless. “Following the underwriter’s cancellation, we had no alternative but to place cover elsewhere to ensure our client had the covers required under his Lease and Loan Agreement to continue to trade, and at least give him a chance to come out the other end. If we had not taken this action, it was only a matter of time until he was asked for proof of insurance for his loan and lease agreements. “He became genuinely emotional and so grateful that we could remove, if only temporarily, an issue that weighed heavily on his mind. “It is during these times that we have to stand behind our clients and show them what brokers do best – look after our clients.”
FEATURE / Business Insolvency
“The most important factor from a broker’s perspective is to understand the industry and economic conditions in which the insured business is operating,” PETER BOWDEN, PARTNER, GILBERT + TOBIN
HELPING CLIENTS PLAN FOR THE FUTURE
For those clients who are focusing on getting through the next month if not the next week, there’s a significant role for brokers to play in helping them understand the impending shifts that will happen, too. “The most important factor from a broker’s perspective is to understand the industry and economic conditions in which the insured business is operating,” says Bowden. “It is difficult to predict how a business
may fare in the long term, but a keen awareness of industry trends, market conditions and potential risk factors is essential to adequately and effectively allocate risk. “Brokers should, for example, review and seek advice regarding the types of insurance that fall within the definition of financial products in the Corporations Act and the current wording of their policies to consider the terms surrounding insolvency exclusions, and whether they are restricted from relying on ipso facto
clauses in certain types of policies.” Bowden also advises brokers to prepare for an increase in claims once the temporary insolvency relief measures expire at the end of the year. “Brokers should also proactively review their claims management procedures and policies to ascertain the extent of possible future liabilities and limitation periods,” he says. One thing’s for certain – this is a topic that’s going to dominate conversations with clients for months and months.
Insolvency exclusion clauses in insurance policies Peter Bowden, Partner at Gilbert + Tobin, explains why the wording of insolvency exclusion clauses in insurance policies and the timing of insolvency announcements are critically important. “One of the most significant interactions between insurance and insolvency is in the application of directors’ and officers’ liability insurance (D&O). “Ordinarily, D&O covers directors and officers for defence costs, damages, compensation and costs awarded against a director as well as interest up to the agreed monetary limit on the cover. “Of particular relevance in this regard is the scope and effect of any insolvency exclusion clause in a D&O insurance policy.
38 / INSURANCE ADVISER NOVEMBER 2020
“Insolvency exclusion clauses typically exclude liability for insurers where the loss in question arises out of the insolvency of the director’s company. However, Courts have been cautious not to construe insolvency exclusion clauses in a manner that would be contrary to the commercial purpose of D&O insurance and the objectives of parties entering into these policies. “On this basis, the precise wording and timing of the company’s insolvency are of critical importance. “An exclusion clause will not necessarily have effect simply because a company goes into insolvency, and (depending on the wording of the policy), Courts charged with interpreting a policy may only give effect to exclusions if there is a direct causal connection between the claim made against the directors and the company’s insolvency.”
FEATURE / Mergers and Acquisitions
MERGERS AND ACQUISITIONS
IN THE COVID-ERA
40 / INSURANCE ADVISER NOVEMBER 2020
FEATURE / Mergers and Acquisitions
Even a global pandemic can’t stop the business world from spinning, but mergers and acquisitions took a nosedive due to COVID-19. However, there is expected to be light at the end of the tunnel. BY NINA HENDY
NIBA.COM.AU / 41
FEATURE / Mergers and Acquisitions
A
s companies dust themselves off after the whirlwind of a global pandemic and contemplate what their next move should be in a bid to survive the economic turmoil faced by so many, mergers and acquisitions (M&A) are emerging as a key guide to survival. M&A insurers have spent recent months reviewing the coverage provided as governments introduce new laws related to COVID-19 that will directly and indirectly impact risk and insurance. It’s fair to say it’s been a bumpy ride. According to the latest data from data and intelligence provider Mergermarket, Australian M&A activity generated $US20.7 billion across 292 deals in the first nine months of 2020, plunging 51.6 per cent in deal value, and 31 per cent in deal count year-on-year. Deal-making failed to gain momentum in the third quarter of this year ($US7.4 billion across 94 deals); the lowest third quarter deal value since 2003, down 67.8 per cent compared to the same time the previous year. And the pandemic and curbs on Chinese investment are expected to continue to impact Australian M&A deal-making in the near term, Mergermarket predicts. But insurers are readying for a market recovery in the coming months as M&As bounce back.
A BODY BLOW
COVID-19 was a big blow for speciality underwriting firm offering M&A insurance, Fusion, admits Principal, David Rogers. M&A activity dropped across the APAC region by around 80 per cent as companies halted business activities to steady the corporate ship once COVID-19 hit, he says. “We saw numbers drop by 60 per cent in the Pacific, and that stayed down by 40 to 60 per cent before bouncing back a little in August. It was back down a little in September, but holding relatively steady given the pandemic,” he says. The coming year or so will be a mixed bag, with some players cashed up and
42 / INSURANCE ADVISER NOVEMBER 2020
THE CONSEQUENCES OF COVID-19 WILL SEE MANY COMPANIES FACE DISTRESS AND INSOLVENCY, WHILE OTHERS WITH CASH AND LIQUIDITY WILL SEE OPPORTUNITIES EMERGE, ACCORDING TO A MARKET EXPLAINER ON THE TOPIC PRODUCED BY WILLIS TOWERS WATSON. looking to expand market share, while others will be wanting to separate companies in this new world, Rogers says. “Retailers and hospitality players aren’t performing well this year, while technology companies are doing quite well in the short to medium term, as companies try and figure out how to manage in this new world.”
BRAVE NEW WORLD
The consequences of COVID-19 will see many companies face distress and insolvency, while others with cash and liquidity will see opportunities emerge, according to a market explainer on the topic produced by WillisTowersWatson. Some transactions are still moving forward because they are either in the later stages of negotiation of sector driven, such as FMCG, healthcare, infrastructure, technology and manufacturing. But most deals are being paused completely as attention turns to preserving value in portfolio companies and focusing on cash flow management, it explains. The company has been working with M&A insurers to offer flexible risk transfer solutions to facilitate special situations by distressed deals by providing buyer recourse secured against top-rated insurance capital. “At some point there will be a robust recovery of M&A activity, although it is impossible to predict exactly when. What is certain is that the 2020 vintage deals will be different to prior years and even with the promise of extensive governmental support, some businesses will inevitably face distress,” the explainer reads.
DEEP DIVE
WillisTowersWatson also reveals that insureds for new M&A transactions should expect detailed questioning regarding the likely direct and indirect impacts the target business may face as a result of COVID-19, or related government or non-government business actions.
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FEATURE / Mergers and Acquisitions
This will include: • The potential impact of COVID-19 on the business and broader industry it operates in • Effects on customers, suppliers and employees • Mitigation steps taken by the target business in relation to COVID-19 • Supply chain issues • Ability to replace existing suppliers and likely cost/time impact • Impact on lead time sensitivities
MITIGATING RISKS
But a prominent feature in the M&A context is the use of commercial risk transfer solutions such as warranties and indemnities (W&I) and tax liability insurance, explains Head of Tax – Pacific, Marsh JLT Specialty, Kane Sim. W&I insurance is a well-established deal facilitator in Australia, but tax insurance is still in its infancy, he says. “It is, however, gaining traction very quickly and emerging as another key risk migration tool being relied upon by parties to clear material deal hurdles. Tax insurance is essentially used to take
WE HAVE SEEN A LOT MORE DOMESTIC DEALS DUE TO COVID. AND WE EXPECT TO SEE A FLURRY OF ACTIVITY ONCE TRAVEL RESUMES. identified tax risks off the negotiating table, enabling parties to proceed with financial certainty and without the need to resort to alternatives which commonly cause a negotiation impasse such as purchase price adjustments,” Sim says. In light of the economic climate, buyers may have concern over the credit worthiness of sellers in the event of a future claim, and sellers on the other hand want to be able to achieve a ‘clean exit’ to ensure they are not exposed to potential future liabilities post sale, Sim says. M&A insurance solutions are being used to protect buyers and sellers in these circumstances. In a similar vein, distressed transactions may increase in frequency in the months ahead, he says. “In response, W&I insurance has evolved in order to facilitate such transactions even when sellers aren’t in a position to provide usual commercial protections to a buyer (in the event of
FIVE KEY TRENDS ABOUT THE M&A SECTOR
1. Less activity M&A activity dropped due to the pandemic, and the return to pre-COVID 19 activity is difficult to predict. 2. Questions More detailed questioning around how COVID-19 has impacted targets are occurring.
4. Longer waits Deals are taking longer to close due to a protracted process in some cases.
3. Due diligence The due diligence process has been held up by travel being grounded, and new processes are emerging.
5. Tax insurance Is emerging as another key risk migration tool being relied upon by parties to clear deal hurdles.
44 / INSURANCE ADVISER NOVEMBER 2020
an administrator-led process where customary warranties aren’t given. This product innovation is colloquially known as a ‘synthetic’ warranty solution, whereby the insured would negotiate warranties directly with the insurer,” Sim says. “In our experience, and based on a limited sample size to date, claims under a W&I policy typically stem from certain commonly breached warranties, including financial statements, tax, compliance with laws, material contracts and employment matters,” Sim adds.
DUE DILIGENCE
Where M&A deals do go ahead, grounded travel is preventing the usual due diligence processes from taking place and as such, deals are taking longer as companies try and make sure they’ve mitigated the risks in the longer term during a pandemic, Rogers says. “We expect that markets will continue to rebound next year, particularly in areas where transactions have been hit hard as markets try and recover from the pandemic. We have seen a lot more domestic deals due to Covid. And we expect to see a flurry of activity once travel resumes,” Rogers says. Meanwhile, Fusion is also on the cusp of releasing a product for the SME sector that offers M&A cover for companies under $10 million. It will semi-automate elements of the transaction and is expected to be released in the coming months.
COMMUNITY HUB
COMMUNITY HUB NOVEMBER 2020
The COMMUNITY HUB is your space to showcase your products and services to a specialist audience.
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54 / INSURANCE ADVISER NOVEMBER 2020
INSURER STRENGTH RATINGS
S&P GLOBAL
INSURER FINANCIAL STRENGTH RATINGS
The following list of S&P Global Ratings insurer financial strength ratings assigned to insurance companies in Australia and New Zealand. Ratings at 1 October, 2020. Contact: Craig Bennett, S&P Global Ratings Telephone: 03 9631 2197
NEW ZEALAND
RATING
NON-LIFE INSURERS
AUSTRALIA
RATING
NON-LIFE INSURERS AAI Ltd.
A+/POSITIVE
AIG Australia Limited
A/STABLE
Allianz Australia Insurance Ltd.
AA-/STABLE
BHP Billiton Marine & General Insurances Pty Ltd. A/STABLE Chubb Insurance Australia Ltd.
AA-/STABLE
Great Lakes Insurance S.E (Australia Branch)
AA-/STABLE
Hallmark General Insurance Co. Ltd.
BBB+/STABLE
Insurance Australia Ltd.
AA-/STABLE
Society of Lloyd's
A+/STABLE
Medical Insurance Australia Pty Ltd.
A-/STABLE
QBE Insurance (Australia) Ltd.
A+/STABLE
QBE Insurance (International) Ltd.
A+/STABLE
Zurich Australian Insurance Ltd.
A+/POSITIVE
AA Insurance Ltd.
A+/POSITIVE
AIG Insurance New Zealand Ltd.
A/STABLE
Chubb Insurance New Zealand Ltd.
AA-/STABLE
Hallmark General Insurance Co. Ltd. (NZ Branch)
BBB+/STABLE
IAG New Zealand Ltd.
AA-/STABLE
Society of Lloyd's
A+/STABLE
Medical Insurance Society Ltd.
A-/POSITIVE
Southern Cross Benefits Ltd.
A/STABLE
Southern Cross Pet Insurance Ltd.
A/STABLE
LIFE INSURERS
Teleco Insurance (NZ) Ltd.
BBB+/STABLE
AIA Australia Ltd.
A+/STABLE
Vero Insurance New Zealand Ltd.
A+/POSITIVE
AMP Life Ltd.
A-/NEGATIVE
Vero Liability Insurance Ltd.
A+/POSITIVE
Challenger Life Company Ltd.
A/STABLE
Colonial Mutual Life Assurance Society Ltd. (The)
A+/STABLE
Hallmark Life Insurance Co. Ltd.
BBB+/STABLE
MetLife Insurance Ltd.
A+/STABLE
Westpac Life Insurance Services Ltd.
A+/STABLE
HEALTH INSURERS Southern Cross Medical Care Society
A+/STABLE
NIB NZ Ltd.
A-/STABLE
LENDERS MORTGAGE INSURERS Genworth Financial Mortgage Insurance Pty Ltd. (NZ Branch)
A/NEGATIVE
LIFE INSURERS
LENDERS MORTGAGE INSURERS Genworth Financial Mortgage Insurance Pty Ltd.
A/NEGATIVE
QBE Lenders' Mortgage Insurance Ltd.
A/STABLE
Westpac Lenders Mortgage Insurance Ltd.
AA-/NEGATIVE
REINSURERS General Reinsurance Australia Ltd.
AA+/STABLE
General Reinsurance Life Australia Ltd.
AA+/STABLE
Asteron Life Ltd.
A+/POSITIVE
Hannover Life Re of Australasia Ltd.
AA-/STABLE
Hallmark Life Insurance Co. Ltd. (NZ Branch)
BBB+/STABLE
Munich Reinsurance Co. of Australasia Ltd.
AA-/STABLE
Medical Life Assurance Society Ltd.
A-/POSITIVE
RGA Reinsurance Co. of Australia Ltd.
AA-/STABLE
Westpac Life-NZ-Ltd.
A+/NEGATIVE
SCOR Global Life Australia Pty Ltd.
AA-/STABLE
Resolution Life New Zealand Ltd.
A-/NEGATIVE
Swiss Re Life & Health Australia Ltd.
AA-/NEGATIVE
*For the S&P Global Insurer Financial Strength Ratings Definitions visit: https://www.niba.com.au/resource/standardandpoors.pdf Copyright © 2020 S&P. This material is reproduced with the permission of S&P. Reproduction of this the S&P Information in any form is prohibited without S&P’s prior written permission. Neither S&P, its affiliates nor any of their thirdparty licensors: (a) guarantee the accuracy, completeness or availability of the S&P information, or (b) make any warranty, express or implied, as to the results to be obtained by Insurer Financial Strength Ratings or any other person from the use of the S&P information or any other data or information included therein or derived therefrom, or (c) make any express or implied warranties, including any warranty of merchantability or fitness for a particular purpose or use, or (d) shall in any way be liable to Insurer Financial Strength Ratings or any recipient of the S&P information for any inaccuracies, errors, or omissions, regardless of
56 / INSURANCE ADVISER NOVEMBER 2020
cause, in the S&P information or for any damages, whether direct or indirect or consequential, punitive or exemplary resulting therefrom. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. S&P Global (Australia) Pty. Ltd. holds Australian financial services licence number 337565 under the Corporations Act 2001. S&P Global credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act). Ratings are based on information received by Ratings Services. Other divisions of S&P Global may have information that is not available to Ratings Services.
INSURER STRENGTH RATINGS
BEST’S
NEW ZEALAND
FINANCIAL STRENGTH RATINGS
The following list of AM Best Financial Strength Ratings (FSRs) assigned to insurance companies in Australia and New Zealand. Ratings as at 2 October, 2020. Contact: Scott Ryrie, Co-CEO A. M. Best Asia-Pacific (Singapore) Pte Ltd. Board Member and Commercial Director for Asia Pacific Tel: +65 6303 5007 Email: scott.ryrie@ambest.com
AUSTRALIA
RATING
LIFE, ANNUITY AND ACCIDENT General Reinsurance Life Australia Ltd.
A++/STABLE
PROPERTY/CASUALTY
RATING
COMPOSITE Quest Insurance Group Limited
B/STABLE
LIFE, ANNUITY AND ACCIDENT American Income Life Insurance Company (New Zealand Branch)
A/ STABLE
BNZ Life Insurance Limited
A/STABLE
CIGNA Life Insurance New Zealand Limited
A/STABLE
Co-operative Life Limited
B++/STABLE
DPL Insurance Limited
B++/STABLE
Fidelity Life Assurance Company Limited
A-/STABLE
Foundation Life (NZ) Limited
A-/STABLE
General Reinsurance Life Australia Limited (New Zealand Branch)
A++/STABLE
Kiwi Insurance Limited
A-/STABLE
Lifetime Income Limited
B/STABLE
Momentum Life Limited
B++/STABLE
Partners Life Limited
A-/STABLE
Pinnacle Life Limited
B/STABLE
Ansvar Insurance Limited
A-/NEGATIVE
First American Title Insurance Company of Australia Pty Limited
A/STABLE
General Reinsurance Australia Ltd
A++/STABLE
Guild Insurance Limited
A-/STABLE
Aioi Nissay Dowa Insurance Company, Limited (New Zealand Branch)
A+/STABLE
Pacific International Insurance Pty Limited
B++/STABLE
Beneficial Insurance Limited
B++/STABLE
The Hollard Insurance Company Pty Ltd
A-/STABLE
Brightsideco Insurance Limited
B/STABLE
B++/STABLE
Consumer Insurance Services Limited
B+/STABLE
The New India Assurance Company Limited (Australia Branch)
Rating Disclosure: Use and Limitations: A Best’s Credit Rating (BCR) is a forward-looking independent and objective opinion regarding an insurer’s, issuer’s, or financial obligation’s relative creditworthiness. The opinion represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance and business profile or, where appropriate, the specific nature and details of a security. Because a BCR is a forward-looking opinion as of the date it is released, it cannot be considered as a fact or guarantee of future credit quality and therefore cannot be described as accurate or inaccurate. A BCR is a relative measure of risk that implies credit quality and is assigned using a scale with a defined population of categories and notches. Entities or obligations assigned the same BCR symbol developed using the same scale, should not be viewed as completely identical in terms of credit quality. Alternatively, they are alike in category (or notches within a category), but given there is a prescribed progression of categories (and notches) used in assigning the ratings of a much larger population of entities or obligations, the categories (notches) cannot mirror the precise subtleties of risk that are inherent within similarly rated entities or obligations. While a BCR reflects the opinion of A.M. Best Rating Services, Inc. (AMBRS) of relative creditworthiness, it is not an indicator or predictor of defined impairment or default probability with respect to any specific insurer, issuer, or financial obligation. A BCR is not investment advice, nor should it be construed as a consulting or advisory service, as such; it is not intended to be utilised as a recommendation to purchase, hold or terminate any insurance policy, contract, security, or any other financial obligation, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. Users of a BCR should not rely on it in making any investment decision; however, if used, the BCR must be considered as only one factor. Users must make their own evaluation of each investment decision. A BCR opinion is provided on an “as is” basis without any expressed or implied warranty. In addition, a BCR may be changed, suspended, or withdrawn at any time for any reason at the sole discretion of AMBRS.
PROPERTY/CASUALTY
First American Title Insurance Company of Australia A/STABLE Pty Limited (New Zealand Branch) FMG Insurance Limited
A/STABLE
General Reinsurance Australia Ltd (New Zealand Branch)
A++/STABLE
Health Services Welfare Society Limited
B+/STABLE
The Hollard Insurance Company Pty Ltd (New Zealand Branch)
A-/STABLE
Mitsui Sumitomo Insurance Company Limited (New Zealand Branch)
A+/STABLE
The New India Assurance Company Limited (New Zealand Branch)
B++/STABLE
New Zealand Medical Professionals Limited
B+/STABLE
Pacific International Insurance Pty Ltd (New Zealand Branch)
B++/STABLE
Police Health Plan Limited
A-/STABLE
Provident Insurance Corporation Limited
B /STABLE
Tokio Marine & Nichido Fire Insurance Company Limited (New Zealand Branch)
A++/STABLE
Tower Insurance Limited
A-/STABLE
Union Medical Benefits Society Limited
A/STABLE
Virginia Surety Company, Inc. (New Zealand Branch)
A/STABLE
NIBA.COM.AU / 57
INSURANCE JOURNEY / Kristy Teh
STEPPING UP
WA Young Broker of the Year finalist, Kristy Teh of Unicorn Risk Solutions talks about finding her calling in insurance broking and ensuring that professionally she is seen and heard.
“L
ike many others, I fell into insurance when looking for a job at 18 and ended up as a receptionist for an insurance broker. I didn’t even know what an insurance broker was at that point, but was soon provided an opportunity obtain my Tier 2 and began looking after their domestic portfolio. And I was hooked! I loved dealing with clients and insurers alike and soon realised this was something I could see myself progressing in. As a child I never thought ‘I want to be an insurance broker when I grow up’ but once I was in the industry, I realised it had a lot to offer from both a career and lifestyle perspective. To earn good money in a Monday to Friday job and have opportunities to socialise and learn more and more along the way seemed too good to be true. I was a cosmetician at Priceline when I was at school (which I loved), but career progression and good lifestyle opportunities offered by our industry don’t even compare. I believe that mentorship plays an important part in a broker’s professional development, especially in this day and age. I think mentorship can add huge value to both parties involved. As someone who has had great mentors along my career journey, it has given me confidence and drive to keep progressing and develop my skills plus build great relationships along the way. I hope to have the opportunity to be a mentor and inspire others in the same way. All of this isn’t to say that I haven’t had to struggle at all, I have faced some challenging moments in the course of my career and have done my best to overcome them. Not being seen is one of them. As a young woman I was often overlooked in meetings or dismissed in a room even though I was the one obtaining quotes, making decisions, dealing with products and clients. This didn’t make sense to me but gave me a reason to push harder and make myself known to people, so I just put myself out there and it has certainly paid off.
PROUDLY SUPPORTING
58 / INSURANCE ADVISER NOVEMBER 2020
Whilst COVID-19 has been difficult in many aspects, I believe it has also been a blessing in disguise as it has opened people’s eyes on different ways of communicating, building more personal relationships seeing people in their own homes with families and pets and so on. It has also given business’ the confidence that their staff can still be productive in their own environment and in particular if staff are at home with sick children, they are still able to be committed to the business without having to choose between work and family. What makes insurance interesting is that every day is different and there is always something new to learn. Every challenge presents an opportunity to learn and problem solve to get a result and keep our clients happy. I think the biggest lesson I have learnt in my career so far is to get the basics right. This is where we see so many clients frustrated over simple things like attention to detail or not being responded to in a timely manner. Having
a sense of urgency and getting the simple things right is a basic part of what we do and if it cannot be done well, why should a client give trust or confidence to us when it comes to the difficult and challenging parts of what we do. And also to never hide from the truth – sometimes client needs to hear brutal honesty, but to then be able to work with them on a solution and drive a great result is so rewarding. I would like to encourage others into the insurance industry by telling my story. If you like dealing with people and are looking for a career that has many facets and opportunities to progress or sidestep but still be social, fun and rewarding then give it a try. I would change absolutely nothing about my career journey - I believe everything happens for a reason and opportunities arise that you make an informed decision the best you can at that time. I am exactly where I should be today, but more importantly have loved every step along the way.”
QUICK QUESTIONS Secret ambition? To have enough money to buy a big property for my dogs. Favourite film? Baz Luhrmann’s Australia. Favourite tipple? Cider. Favourite past-time? Adrenaline filled activities like boating, camping and four-wheel driving. Favourite food? Roast potatoes.
Share your insurance journey. Email editor@niba.com.au
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