42 minute read
AFCA Case Study
FULLY INFORMING A CLIENT ABOUT THEIR POLICY
AFCA noted that when considering if the broker arranged ‘adequate’ cover it is necessary to consider if the broker made the complainant aware of the level and scope of cover arranged, and if the complainant raised any issues, concerns or queries with the cover that were not appropriately addressed by the broker.
BY MARK RADFORD
Principal, Radford Lawyers
Facts
The complainant was a motor trades business owner who had arranged for two separate insurance policies with insurer A and insurer Q through the insurance broker. Cover was extended for “customers’ vehicles”. A customer’s vehicle suffered total loss damage while in the complainant’s care and the insurance broker lodged claims under both policies. Although both claims were accepted by the insurers, the policy with insurer A provided that the complainant was entitled to the sum insured less the salvage value of the payment, unless the insurer took ownership of the salvage. As the insurer did not retain salvage it paid the claim less the salvage value.
The complainant had however settled with the customer to its own detriment by paying the market value of the vehicle, as well as allowing the customer to retain the salvage, which it could then sell. This meant the complainant was short the salvage value which it sought from the insurance broker.
The complainant’s case
The complainant alleged the broker breached their duty of care as it had: • not provided a copy of the policy documents. The complainant provided evidence that insurer A’s system showed the broker had never downloaded the PDS on the complainant’s policy and so, could never have sent it to the complainant; • not explained the salvage terms of the policy to the complainant and should have drawn its attention to the specific salvage provision in policy A; • failed to arrange adequate insurance cover, essentially because the value of the vehicle involved was higher than the sum selected for cover; • provided incorrect advice about the claim with insurer A, essentially because the
complainant settled with the customer on a full market value payment and gave them salvage, which in turn allowed the insurer to deduct the salvage value to the complainant’s detriment; and • provided incorrect advice regarding the claim with insurer Q. No reason was stated in support of this.
The broker’s case
The broker submitted that it had not failed to discharge its duty to the complainant as: • it had provided copies of both policy documents to the complainant. The policy documents for insurer A were sent with a letter to the complainant detailing the proposed cover along with clear instructions for the complainant to review the sums and enclosed PDS.
The broker also explained it had not needed to download a copy of insurer A’s
PDS as it already had a copy on file. The policy documents for insurer Q were provided in a later meeting between the broker and complainant where all proposals were completed, at the complainant’s request. Copies of the letter, attachments and contemporaneous notes were submitted as evidence; and • it had arranged adequate insurance cover for the complainant after careful consideration of alternative policy providers and had fully informed the complainant about the cover arranged.
Copies of the ‘fact find’ results and evidence indicating the complainant had elected to take out a reduced sum to reduce the premiums were submitted to AFCA.
Contemporaneous file notes were also submitted to show the complainant and broker completed the proposals together.
It had not provided incorrect advice regarding either claim with insurer A or Q. It provided as evidence a copy of a statutory declaration outlining a meeting between the broker and the complainant containing records of discussions regarding: o the relevant salvage terms; and o the appointment of an independent assessor to determine if the truck was repairable or not.
The broker also submitted records of email correspondence setting out the steps the broker had taken on the claim.
The AFCA decision
ACFA found in favour of the broker because: • on balance of probabilities, it was satisfied that both policy documents were provided to the complainant based on the evidence provided by the insurance broker. In particular, AFCA considered the insurance broker’s contemporaneous notes from a meeting between it and the complainant that noted the complainant’s request for a copy of only the policy with Q and not A, suggested the complainant had already received a copy of A’s policy wording; • it was not reasonable or practical to expect the insurance broker to explain the salvage term of the policy to the complainant as the term was clear and not unusual for the type of policy in question. • on balance of probabilities, the insurance broker had arranged ‘adequate’ cover that was consistent with the complainant’s needs. The evidence showed it had completed a ‘fact find’ of the insurance needs of the complainant and had looked into alternative policy providers before proposing the cover with A. • it was not necessary to consider whether the broker provided incorrect information on lodging the claim with Q as the complainant had not suffered any loss in that regard.
MANAGING AGRICULTURAL RISK
The National Farmers’ Federation (NFF) has released a series of reports examining risk management solutions for the agriculture sector that will help farmers better understand and manage their risk.
BY ALLYSSA HEXTELL
Policy and Research Manager, NIBA
T he reports are the result of a twoyear long NSW government-funded project, exploring risk management tools available to Australian farmers.
The project focused on six key areas: 1. Commercial and government subsidised insurance options 2. Forward contracts, options and swap markets 3. Mutuals and co-operatives 4. Awareness and education of fi nancial risk management options 5. O -farm income and assets 6. Government policy and risk management measures
The reports are part of the NFF’s work to increase the use of risk management tools by Australian primary producers, with the NFF aiming to have 90 per cent of Australian farms employing these tools by 2030.
The synthesis report, which provides an overview of the fi ndings and recommendations of each of the six project sub-groups, made a number of recommendations, however noted that there was “unlikely to be one silver bullet to managing farm risk and the best results would be achieved by deploying a combination of tools and approaches.”
The report put various agricultural risks into fi ve categories, examining the ways farmers mitigate these risks and existing barriers to the adoption of further risk mitigation.
Production risk: Risks arising from the planting, development and harvest, and equivalents for livestock of agricultural products. These risks include weather, disease and a variety of operational matters which a ect both the quantity and quality of production;
Price risk: The uncertainty primary producers face in regards to the prices they will receive for their products as well as the prices they might pay for production inputs;
Financial risk: A farm’s ability to generate su cient cash fl ow to remain sustainable over the long term, including meeting ongoing fi nancial obligations. This also includes the ability of farms to access equity and debt fi nancing required to support ongoing investment in and development of the business.
Regulatory risk: Domestic and international laws and regulations that impact farm operations, import/export fl ows and associated supply chains. These risks include local and international taxes and tari s, as well as other restrictions related to the international trade in agricultural products; and
Operational risk: Various operational factors that impact profi tability and inherent riskiness of the business, including farm location, product mix and diversifi cation, position in the supply chain.
The report found signifi cant increases in land value and the ability for farmers to access equity within their property have shielded many farmers from needing tools to manage production and price risks. As a result, many farmers do not see a need for education on fi nancial risk management products.
A survey of farmers found most do not use insurance products to protect against losses incurred in the worst 10 per cent of years, with most preferring to take on debt, draw down on a loan facility or supplement their income with o -farm activities. Separately, farmers may either spend savings or borrow against the value of the farm in order to smooth earnings over a farming cycle – e ectively self-insuring.
However, the report noted if there were to be a correction in land values, many farmers could be exposed, and a knowledge of fi nancial risk management would become critical.
When asked the reasons for not obtaining insurance farmers provided a number of reasons including a lack of suitable insurance products, lack of trust in the insurance claims process, complexity of purchasing suitable insurance and failure of insurance products to e ectively mitigate risks.
The most common reason farmers gave for not obtaining insurance was cost with 85 per cent of respondents indicating insurance was too expensive or less cost-e ective when compared to other risk-fi nancing mechanisms.
The report also found the ability of farmers to utilise fi nancial risk management products varied signifi cantly by commodity type with some products being more accessible for some industries than others.
In many cases, the report noted the adoption of fi nancial risk management products has been driven by fi nancial institution lending requirements rather than behavioural change among farmers.
The report found lower base levels of fi nancial literacy among primary producers, with those who manage smaller properties having materially lower levels of awareness of risk mitigation products. A lack of fi nancial literacy was identifi ed as one of the barriers to the use and understanding of risk management products.
This fi nding highlights the need for advisers to combine expertise in risk management and relevant fi nancial products with a solid understanding of the Australian agricultural sector. When asked how they purchased risk management products responses were almost evenly split between intermediaries and the direct market, demonstrating that brokers have an important role to play in providing risk management advice to the agricultural sector, especially smaller operations that may not have the capital to hire dedicated risk management resources.
A copy of the synthesis report and full reports on the six sub-projects can be found on the NFF website: n .org.au/programs/ fi nancial-risk-management/
Local Presence, Global Strength
GET SET FOR #NIBA2021
Save the dates! NIBA is coming to a city near you…
On behalf of the National Insurance Brokers Association (NIBA) and the NIBA Divisional Committees, it is my pleasure to invite you to the 2021 NIBA Convention.
This year we hoped to bring the broking community together, but after much deliberation felt it unwise to pursue a national face-to-face Convention due to the continued uncertainty surrounding COVID-19 and border restrictions. Therefore, in 2021 NIBA will combine the virtual with faceto-face on a state-by-state basis.
Here’s how it’ll work…
NIBA will host a five-day hybrid convention over the course of five weeks. From Tuesday 28 September through to Thursday 28 October, NIBA will visit Perth, Adelaide, Melbourne, Brisbane, and Sydney.
Delegates will have the opportunity to interact face-to-face and attend a marketplace in their home state, while also accessing the entire national program virtually.
We know our members need to stay up to date on a wide range of issues, challenges and market developments, therefore we will offer sessions to: • benefit brokers and others across the industry; • give our business partners the opportunity to engage with delegates in a very effective and interactive manner; • give state delegates the ability to engage with each other, face-to-face at sessions and in the marketplace; and • offer social activity in the form of cocktails or dinner.
This year the theme is Professionalism + Resilience = Opportunity, because brokers have a chance to reinforce their role as valued partners to both insurers and clients in this dynamic landscape.
DATES FOR THE DIARY
Perth, Western Australia 28 September 2021
Adelaide, South Australia 5 October 2021
Melbourne, Victoria 12 October 2021
Brisbane, Queensland 19 October 2021
Sydney, New South Wales 28 October 2021
As with all our Conventions, the 2021 Convention will o er attendees a clear and unbiased view of the important topics of the day.
Whether you’re a principal member, senior broker or young professional, the 2021 NIBA Convention promises to equip delegates with the tools to overcome challenges and leverage opportunities.
Brokers can expect to hear from thought leaders within and beyond the insurance industry, attend practical workshops that will challenge and inspire, receive regulatory updates, and access a marketplace inclusive of insurers, underwriters, and industry partners.
In the marketplace, as per your feedback, we welcome the return of afternoon networking to provide brokers with a great opportunity to catch up with old friends and make new connections to benefi t their business.
The NIBA Convention is the only event on the insurance industry calendar that welcomes the entire insurance community, regardless of cluster group allegiances, brokerage size and reach, and age of delegates.
We meet to celebrate, to learn, to build relationships and to have a good time.
We do hope you’ll join us.
DALLAS BOOTH
Chief Executive Offi cer, NIBA
PROGRAM HIGHLIGHTS
#NIBA2021 is set to deliver yet another jam-packed program that will equip brokers with the skills and knowledge to thrive during a critical time for the insurance broking profession.
The regulators – AFCA, ASIC and the IBCCC – will return to the Convention stage for the ever popular “Meet the Regulators” session, while NIBA CEO Dallas Booth and the Association’s legal adviser, Mark Radford, will explain fi ve major areas of Royal Commission reform.
Delegates can also expect a “State of the Industry” panel, a discussion on the 2022 General Insurance Remuneration Review, and much much more.
SPONSOR OR EXHIBIT AT #NIBA2021
To discuss sponsorship and exhibition opportunities, please contact us:
Helen McGowan
Waldron Smith Management T: 03 9645 6311 E: helen@wsm.com.au
Tony May
NIBA National Advertising Sales Manager T: 02 9459 4320 M: 0401 485 188 E: tmay@niba.com.au
A CELEBRATION OF EXCELLENCE
The 2021 NIBA Convention is also set to celebrate the best in broking with the QBE-sponsored Stephen Ball Memorial Award for Insurance Broker of the Year, the Vero-sponsored Warren Tickle Memorial Award for Young Professional Broker of the Year, and the Lex McKeown Trophy for outstanding contribution to the industry.
A National Awards Ceremony will be held in Sydney, at which time, insurer performance will also be acknowledged, with the General Insurer of the Year and Underwriting Agency of the Year announced.
THANKS TO OUR PRINCIPAL PARTNERS
The age of emotionally intelligent mentorship
The participants of the 2021 NIBA Mentoring Program have listed selfawareness, empathy and highly tuned listening skills alongside technical knowledge as a must for getting the best out of a mentorship experience as well as the broking profession.
BY TANAYA DAS
T he insurance broking profession in Australia is facing challenges on several fronts, from the multitude of regulatory reforms to the hard market and the many natural catastrophes to the pandemic – it has been an eventful year and intermediaries have been in the thick of things.
During these tumultuous times a group of mentors and mentees came together as a part of the 2021 NIBA Mentoring Program to empower young professionals in the industry.
KNOW YOUR PRIORITIES AND NEEDS – AND KEEP AN OPEN MIND
Vanessa Hilton from Aon, who mentored Bianca Johns from Austcover, believes that to get the most out of a mentoring experience it is really important to have a plan. She says, “Set your schedule from the start and commit fully. We had agreed to meet weekly and sometimes we had to be fl exible because work or life got in the way – but there was a commitment from us both to make the mentoring journey a priority.”
Johns is in complete agreement, “As a mentee, I wanted to make sure that I was using my mentor’s time in the best manner. This required me to open up so that Vanessa could provide the best advice to me.”
Creating a successful mentoring relationship does not have a one-sizefi ts-all formula. Each of the participants had a clear idea of what worked for them, and they found partners whose values aligned with theirs.
Adrian Lyons from One Underwriting, who was mentored by Cameron Sheild from Lockton, says being open to all topics and acknowledging any feedback that one receives is key to harnessing the power of a mentoring arrangement, “No one is perfect or knows everything but keeping an open mind has proven to be a successful tool throughout history.”
Sheild acknowledges that the learning opportunities for him as a mentor have been surprising and great as well, “You learn a lot about yourself and from the younger generation on items that you would not typically be exposed to. I have truly enjoyed this aspect of the program.”
Each of our interviewees agree that mentoring requires e ort to be truly e ective – it is essentially an exercise in honesty and sharing plus opening oneself up to feedback that will eventually lead to professional growth.
Je Booth from GSK Insurance Brokers, who mentored Laura Morris from Attvest Finance, says, “You need to be open about your experiences – both successes and failures – in providing alternative approaches for situations.”
Morris echoes the sentiment saying, “It is important to be honest and aware about your mid-and longterm career or personal goals.”
She adds that having a mentor that you can fi nd some common ground with is also crucial, “I also found that giving feedback to communicate what worked for me or what I found di cult helped the conversation and we both knew we were on the right path.”
NIBA MENTORING PROGRAM
The NIBA Mentoring program is off ered in Sydney, Melbourne, Adelaide, Brisbane and Perth. With suffi cient demand, the program will also be off ered in Hobart and Darwin. If you wish to participate as a mentor or mentee, contact NIBA via email: mentoring@niba.com.au or phone: (02) 9964 9400 to express your interest.
NAVIGATING THE HARD MARKET
The participants of the 2021 NIBA Mentoring Program had their work cut out for them with the current hard market plus the concurrent natural disasters and the pandemic. But each of them agreed that their mentorship experience was augmented, not hindered, by the existing situation in the industry.
Hilton’s outlook is very simple, “I think that it helps us to be around others in the industry to understand we are not alone – from the mentor point of view I think it helps us convey safety and comfort to the mentees.”
For Johns there could not have been a better time to undertake this journey. She says, “For a mentee to be able to have close contact with an experienced mentor that has more than likely seen situations like these is priceless.”
Lyons believes that mentorship in harder times is absolutely crucial, especially in the property insurance segment he operates in, “I was having some di culties with certain accounts so being able to bounce ideas and methods on how to tackle them with Cameron was nothing short of invaluable.”
For more senior executives in the industry this is not the fi rst hard market they have seen and they have the wisdom
JEFF BOOTH, GSK INSURANCE BROKERS
from their previous experience to share. But Sheild stresses that being able to share his knowledge from the last hard market with Lyons was incredibly valuable for him too.
He says, “Working in London as a broker in the hard market post 9/11, the learning curve went vertical overnight. Being able to share that and work through practical examples with Adrian also allowed me the opportunity to revisit and remind myself of those experiences.”
IT IS ALL ABOUT THE RELATIONSHIPS ONE BUILDS
As the world around us advances further into the virtual realm, human connection has become more vital. Booth is keenly aware that even though many of the processes in the insurance broking profession have been automated, when the market hardens success relies more on relationships than ever before.
He says, “Talking about ways to build those relationships is often a key part of mentoring in both a soft and hard market but it can be even more valuable in a harder market.”
A lot of what risk professionals need to know is perfected on the job, which is why Morris believes mentorship is one of the best ways to build resilience in uncertain times. She says, “You are meeting with someone who has experience and knowledge and a skill set that you can’t get from a textbook.”
“While they might not have worked through a pandemic, they would have faced several challenges throughout their career and are able to use those lessons to evolve and adapt. We the next generation can pick their brains and improve upon their learnings for the next crisis.”
LAURA MORRIS, ATTVEST
EMOTIONALLY INTELLIGENT MENTORING IS THE WAY FORWARD
As fi nancial services entities look closely at the culture in their organisations, it is the age of self-aware professionals with the ability to refl ect constructively on feedback, who operate with empathy alongside a high standard of ethics.
Hilton says she is constantly amazed that there are still professionals who lack the ability to refl ect on themselves and learn from others, “If you cannot accept feedback you will never go far.”
Johns adds, “High emotional intelligence is key to e ectively put one’s skills to practice and to be able to use constructive feedback to grow both personally and professionally.”
As a part of their early interactions Sheild had Lyons undertake personality tests which Lyons believes has helped him improve from a self-awareness perspective. He says, “It is my belief that a mentor must be emotionally intelligent for the mentee to get something positive out of the relationship.”
Unconscious bias manifests in workplaces across every industry, the key is to identify and then correct it. It is not easy, but it is absolutely essential and that is exactly what Sheild helped Lyons pinpoint. He says, “Adrian and I spent a little time and undertook a personality test where examples of style, blind spots and strengths were evident.”
He adds, “Knowing yourself, playing to your strengths and acknowledging weaknesses is vital for growth, both personal and professional, hence why I think emotional intelligence is hugely important within the mentoring relationship.”
“Emotional intelligence plays a critical role in the insurance broking profession and its importance in being a trusted adviser cannot be overstated,” he adds.
Alongside tackling unconscious bias it is very important that risk professionals act with utmost care and empathy especially when dealing with vulnerable people, believes Booth.
He says, “Empathy is crucial for insurance brokers to understand what their client and in this case the mentee is going through and dealing with. Putting oneself in their place and balancing empathy with action is key to fi nding e ective solutions to professional conundrums.”
Morris adds, “One must be able to put one’s ego aside, accept feedback and di erences of opinions in the workplace and their day to day.”
The PI crossroads
Professional indemnity has been a tricky proposition for some professions – and unless it can become more profitable for insurers, it may be a bumpy road ahead.
BY MARTIN WANLESS
When it comes to insurance ‘problem children’, professional indemnity (PI) insurance is right up there at the moment. Sat just next to business interruption.
Combine a hard market with the increasingly apparent risks involved in all things related to construction and architecture, add in some class actions, throw a sprinkling of financial services on top, and you have got the recipe for a rather challenging environment. “There are two elements that are making this a particularly tough market,” says Jun Acance, Managing Director of underwriting agency Pacific Indemnity.
“First is the performance review that was undertaken by Lloyd’s in 2018 which showed that non-US PI, in which Australia, Canada and UK are the biggest players, is the second worst performing class at Lloyd’s. Second is the lack of profitability of class for the local insurers which according to reports the estimated combined operating ratio of PI in 2019 was 103 percent.”
And that’s had a major impact on the availability of insurance and increase in premiums too.
– Todd Woodard, Liberty Specialty Markets
“There are 440-plus professions in PI, and I’d estimate around 10 per cent of them have seen double-digit increases,” says Acance.
This has not been helped, of course, by insurers pulling out of the market in part or completely. Understandable to some extent, but merely serving to compound the problem.
“The market is stressed,” says Todd Woodard, PI Portfolio Manager, Liberty Specialty Markets.
“We’ve had 15 years of year-on-year rate reductions. Insurers that have underpriced the risks have pulled back or pulled out entirely, and those that remain are seeing a lot more submissions – we’re seeing probably three times the number than we would have seen just a couple of years ago.”
MIND THE (CYBER) GAP?
One of the emerging risks in PI is directly related to another area of insurance that’s almost changing by the hour – cyber.
“It’s very late into the piece with the hardening, but all of a sudden it’s gone bang on the Richter Scale, so now everyone’s looking at what the fl ow-on impact will be, what the cross-over is, what the cover is that can come from a cyber issue into a PI policy,” says MaryCatherine Thomas, National Financial Lines Placement Leader at Aon.
“In London, they have two di erent cyber exclusions that they’re applying to PI policies – an absolute exclusion and one that does bridge that gap somewhat, but when you drill down into it there are still elements that won’t be picked up by a cyber policy that a PI policy won’t cover, either.”
And that creates another challenge for brokers to consider when putting together coverage for clients.
“I know some insurers are desperate to exclude cyber,” says Acance. “But for claims arising from the breach of professional duty, cover should still be available under the policy – it gives us something to work with on behalf of our broker clients.”
DOES IT FIT IN THE BOX? IF NOT, THERE’S TROUBLE AHEAD
Professional indemnity is an absolute essential for clients, and that places a bit of pressure on brokers to be able to help.
“Unless you’ve got a risk that fi ts into a nice clean box it’s very hard to get an insurer to even open the front page of a proposal
PROPERTY MANAGEMENT IN FOCUS
While the ‘vanilla’ professions have tended to be more straightforward than the higher risk sectors when it comes to PI, one that is beginning to cause brokers problems is real estate property management.
“The emerging risk is all around condition reports,” says Anthony Ciancio, Director, ADC Insurance Brokers, Melbourne. “If a tenant ends up being injured due to damaged unsafe stairs or unrepaired property, for example, a professional indemnity claim could be likely, as a failure of the property manager to spot that risk during the property inspection.”
at the moment,” says Thomas. “The minute they see anything high-risk – if there is a bridge, it’s out, if there’s manufacturing, it’s out, if it’s too high a COVID-risk, it’s out.
“It’s a tough marketplace to get a deal done at the moment.
“In the schemes and a nity space there’s a portfolio play and you tend to be able to sweep up a little bit of higher risk with the nice-to-haves, but when you get into the pure open market and you are trying to break through an individual account, it’s at a point now where there are some clients you just can’t buy insurance for.”
The long and the short of it for brokers, however, is that if a solution is out there, they need to fi nd it. “Your submissions need to be more detailed, and any particular area that will draw the attention of the insurer or underwriter needs to be addressed by the broker,” says Anthony Ciancio, Director, ADC Insurance Brokers, Melbourne.
“Some of the renewal declarations coming through from insurers are a bit light on information, and it doesn’t help when sending on to other insurers to get a comparative quote.
“I’m having to use last year’s application form, send it to other insurers, and say, ‘This is what we’ve got coming up, what can you do?’”
As ever, working closely with underwriters and brokers is critically important. Woodard says its important brokers have a deep understanding of their clients’ businesses, and are happy to work hand in hand.
“We need to sit down, foster these long-term relationships and talk to our clients to identify the best solution going forward. Sometimes it might mean the price is going up, sometimes there might be an exclusion, sometimes it’s o ering more coverage that another company just isn’t willing to o er.”
CELEBRATING 25 YEARS
– Mary-Catherine Thomas, Aon
CRYSTAL BALL GAZING
The professional indemnity space is undoubtedly a di cult one right now, but what does the future hold?
We all know insurance is cyclical in its nature (although, says Ciancio, “this seems to be a longer cycle than usual.”), and Thomas says some shoots of recovery are there – albeit a while o .
“It’s our view that PI is probably about 18 months behind the D&O and property markets from a life cycle perspective,” she says. “We’re likely to see another tough year ahead of us – while we’re seeing signs of recovery in terms of additional capacity from Lloyd’s at present in D&O, we’re not seeing that in PI – we’re still right in the middle of the hard market.” The future, says Acance, depends on three things, with the onus falling on the shoulders of underwriters.
“I think about this a lot,” he says. “It relies on the underwriting profi tability of insurers, Lloyd’s capacity for Australian business, and the appetite of insurers to write this class of business.
“It is a capital-intensive line of business and unless we as underwriters can show the insurers that we can write this line of business more sustainably, there will be less and less capacity.”
FIVE THINGS BROKERS SHOULD BE AWARE OF
1PI is still a problem area of insurance, with a lack of profi tability a cause of increased premiums.
2Many professions have seen double-fi gure premium increases.
3While D&O may be seeing shoots of recovery, it is estimated PI is around 18 months behind.
4A cyber gap is emerging between PI and cyberspecifi c policies.
5More detailed submissions are needed and brokers, insurers, underwriters and clients must work closely together.
Weathering the storm
Moving goods can be one of the most treacherous tasks in the world; the process of transporting products by sea, road, rail and air is not for the faint-hearted. The companies underwriting the risk admit it is fraught with challenges.
BY NINA HENDY
A s if dealing with a global pandemic and subsequent shortages on everything from toilet paper to building supplies is not enough, around 2,000 shipping containers were lost by sea late last year.
The news made global headlines and made 2020 even more costly – particularly for the businesses that did not have insurance cover over the items on board.
One of the ships to make headlines was ONE Apus, a cargo vessel that lost around 1,900 shipping containers at sea before arriving in a Japanese port.
It is proof that marine and cargo is risky business for underwriters. Hastily completed paperwork and constant changes in routes, cargo and clients make the industry di cult to insure.
RedSky Insurance Partner, Jill Murphy says the biggest issue facing underwriters is the ability to obtain full and detailed information from clients, making it challenging to correctly assess the risks being covered.
“It all comes down to full and open communication so that risks can be assessed, and clients get the best pricing,” Murphy adds.
Due to the global nature of the sector, RedSky coverage is based on the internationally accepted Institute Clauses, and generally provides cover on all risks, or accidental damage, she explains.
“It is important for us to understand the clients’ overall operations, their trade relationships and experience, and their overall understanding of their trade terms and obligations,” Murphy says.
“Fundamentally, clients want a product that pays a claim in the event of a loss, which could be anywhere in the world. Having a claims team and global network who understand the technicalities of cargo and trade is important to our customers,” she says.
It is not always easy for insurers to explain to clients that their policy doesn’t cover delays, Murphy says.
“IT IS IMPORTANT FOR US TO UNDERSTAND THE CLIENTS’ OVERALL OPERATIONS, THEIR TRADE RELATIONSHIPS AND EXPERIENCE, AND THEIR OVERALL UNDERSTANDING OF THEIR TRADE TERMS AND OBLIGATIONS.” – JILL MURPHY, REDSKY INSURANCE
FIVE KEY INSIGHTS
Pricing: Steady increases, but fewer large fl uctuations or rate corrections.
Corrections: Accounts with good loss experience are seeing increases of up to 10 per cent.
Surging interest: Growth in
interest and appetite to underwrite marine cargo in Australia is increasing free capacity. Delays: Mounting pressure to move cargo is seeing major delays in shipping caused by heavy weather.
Scrutiny: Underwriters are applying more scrutiny to the underwriting information, with a focus on procuring accurate data for assessment.
Source: Aon Marine Cargo Insights 2021
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This means loss, damage or economic loss, loss of market etc following delays due to COVID-19restrictions or following incidents such as the recent blockage of the Suez Canal may not be covered by their policies, she says.
National Marine Director and Practice Group Leader at Aon, Lindsay Metcalf also weighed in, adding that the problems that arise in this sector are many and varied.
“Not long ago we witnessed the decimation of multiple insurers, syndicates and hundreds of millions in cargo capacity as a result of years of a soft market mentality. Our role as brokers is not only to support our clients, but also the health of the market machine. Being cognisant of its state and keeping our clients informed is key to setting expectations and stabilising the industry,” Metcalf says.
As with so many industry sectors these days, cyber is a huge risk too, he adds.
And while cyber attacks have to date been more commonly linked with delay in delivery, evidence is suggesting a more malicious trend is evolving, he says.
“The sheer logistics to move cargo from our current and future needs requires countless systems, methods and locations across the globe. From freight forwarders, ports, shippers, customs, warehouses, keepers and carriers, all are inter-dependent and play a role in the safe delivery of cargo.”
CURRENT RISKS
Seasonal risks are also common, adds Underwriter Ben Morgan of AM&T.
Right now, major renewable energy builders that are shovel ready on local soil remain a challenge. “They lead into large exposures to delayed start-up and some expensive replacements when critical items are damaged,” Morgan says.
“We are also seeing environmentally sensitive and reputational issues around items such as thermal coal and live export and these currently make up a
“THESE CLAIMS CAN BE REALLY DYNAMIC AND INVOLVE VARIOUS INTERESTING PARTIES AND THIRD PARTIES, NUMEROUS INSURERS AND COMPLEX CHAINS OF TRANSIT AND RESPONSIBILITY.” – BEN MORGAN, AM&T
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Insurance products are provided by National Transport Insurance, a joint venture of the insurers Insurance Australia Limited trading as CGU Insurance ABN 11 000 016 722 AFSL 227681 and AAI Limited trading as Vero Insurance ABN 48 005 297 807 AFSL 230859 each holding a 50% share. National Transport Insurance is administered on behalf of the insurers by its manager NTI Limited ABN 84 000 746 109 AFSL 237246.
signifi cant component of Australia’s export throughput,” he says.
In the local market, the unique component of the cargo market that impacts almost every broker is really still in carriers or logistics covers, where the company carrying or storing the goods takes on the responsibility for losses almost as if they were fi rst party losses, Morgan says.
“These claims can be really dynamic and involve various interesting parties and third parties, numerous insurers and complex chains of transit and responsibility.
“It’s really becoming a truckies’ fi nancial loss cover and local legislation allows that to proliferate so a lot of risk is transferred back to the road transport operators and their underwriters. Also, many owners of the goods choose not to insure them. If there is a poor loss history, it can potentially a ect the ongoing visibility of an entire operation,” Morgan explains.
And while COVID-19 has complicated matters and slowed cargo movement around the world, it hasn’t changed the sector quite as much as expected, Morgan says. “Our industry is always in fl ux,” he points out.
There have been some real issues testing the time-honoured exclusion of delay, which are more frustration issues for customers who can’t get products to market but don’t actually have a loss or any damaged items, he adds.
“Sendings are down overall for import/export but up on inland, our books and local prices are increasing as demand intensifi es. Since COVID-19 emerged, the quasi-trade war with China has escalated and presented some really unique challenges for producers and exporters across seafood, meat, coal, wool, ore, sugar, timber, wine, barley and grains. The search for alternative markets and supply chains have become a real priority,” Morgan adds.
