Local
Levy goes as Brumby accepts findings
The Victorian Government has agreed to replace the state’s fire services levy (FSL) with a “progressive property-based” levy.
The unexpected announcement by Premier John Brumby on Friday abolishing the FSL – reported in a Breaking News alert by insuranceNEWS.com.au – will bring the state’s fire services funding in line with the rest of Australia, with the notable exception of NSW and Tasmania.
Victoria’s new property-based system, which will include concessions for low-income earners, is scheduled to be in place by July 1 2012.
The exact model for the new levy will be determined in consultation, but will need to satisfy a set of policy principles released by the Government. It is expected to provide the same level of funding as the existing FSL and provide a 50% concession to low income-earners.
But with the Government accepting in full or in part 66 of the 67 recommendations of the 2009 Victorian Bushfires Royal Commission, the abolition of the FSL is not the only significant change that will take place.
Other commitments include new fire-mapping technology and community bushfire warnings, as well as funding for more than 800 new career and seasonal firefighters, and greater support for volunteers.
There will be an initial doubling of fuel reduction burns, tougher maintenance regimes for electricity businesses, high-visibility arson measures and greater funding for community education and preparation.
Some $28.5 million will be spent on better integrating building and planning in bushfire-risk areas, while $6.1 million will be used to reform the organisational structure of the state’s firefighting agencies.
This latest round of commitments, the Brumby Government’s final response to the royal commission’s recommendations, will cost $867.3 million, taking the total cost of new fire measures since the February 7 2009 Black Saturday bushfires to $1.4 billion.
Mr Brumby declined to endorse only one royal commission finding – the “retreat and resettlement” recommendation, which would involve the voluntary acquisition of land in bushfire-prone areas. He said this may isolate communities, put them at greater risk and decrease their economic viability.
[Also see ANALYSIS].
Industry welcomes scrapping of levy
The abolition of the fire services levy (FSL) by the Victorian Government has been given enthusiastic backing by the general insurance industry.
After campaigning for many years, insurers and brokers were surprised but delighted by the decision of Premier John Brumby to abide by the recommendation of the 2009 Bushfires Royal Commission and abolish the FSL.
Insurance Council of Australia (ICA) CEO Rob Whelan says a property-based system will provide “more equitable” funding when it comes into effect on July 1 2012.
“The FSL is an unfair and economically inefficient tax that lacks transparency,” he said. “We congratulate the Government for adopting this important reform.”
National Insurance brokers Association CEO Noel Pettersen says the Victorian Government has accepted what the industry has been saying for years.
“[The FSL] is inequitable because only those people prudent enough to buy insurance contribute to this cost,” he said.
Zurich Australia CEO David Smith told insuranceNEWS.com.au the abolition is a “positive action”.
“For too long insurers have been tax collectors for governments,” he said. “Taxes on insurance are up there along with the so-called ‘sin taxes’ of alcohol, gambling and tobacco.”
Insurance Group Australia (IAG) CEO Mike Wilkins says the reform will help communities recover from catastrophes.
“The funding of emergency services should be more fairly shared by all beneficiaries of those services,” he said.
Suncorp Personal Lines CEO Mark Milliner says NSW and Tasmania must now follow the example of Victoria. “The Victorian Government’s decision to do away with the FSL sends a strong signal to other state governments where similar unfair levies burden households,” he said.
Allianz MD and ICA President Terry Towell says the abolition is “a welcome social equity measure” as the FSL imposed on Victorians the “highest insurance taxes in the world when the cumulative impact of the FSL, GST and stamp duty were taken into account”.
“This combined tax-on-tax-on-tax effect saw Victorian households paying around 50% tax on top of their base insurance premium and many businesses paying up to 100% or more in property insurance tax,” he said.
Market stable, says Zurich chief
The Australian general insurance market is still flat “although it’s not in freefall”, says Zurich Australia CEO David Smith.
He says the property classes are proving the toughest areas to compete in, and there’s no sign of the situation changing yet.
“There’s so much capacity around it’ll take something big – on the scale of a catastrophe of the size of Hurricane Katrina – to really tip things over,” he told insuranceNEWS.com.au.
Mr Smith was commenting on Zurich Australia’s continuing development of a new general insurance structure more capable of thriving in a tough market.
As reported last week by our Instant News bulletin, GM General Insurance Shane Doyle has moved responsibility for all operations in the states – with the exception of claims – to state managers.
“We’re quite rapidly getting to where we want Zurich to be in Australia,” Mr Smith said.
The state managers, who will report to COO Daniel Fogarty, are: Sean Walker NSW; Chris O’Connor Victoria; Damien Gallagher Queensland; Mike Rumac WA; Paul Dorman SA; and Tony Maher Manager Regional Australia.
Mr Walker was previously National Underwriting Manager Accident & Health. He will be replaced in that role by Richard Parkinson, who is at present the Head of Distribution in Zurich’s NZ operation.
Claims staff will continue to report to the Sydney-based claims management team headed up by Stephen Brooks.
Associated Marine state managers will now have a local functional reporting line to Zurich state managers, with a reporting line to Associated Marine’s Head of Distribution, Tim Air.
Zurich is also changing the name of its automated business solutions managers. This area will now be called SME & Packages and will report to the state managers, with a reporting line to Head of SME & Packages Shaun Feely.
Mr Smith says Zurich’s general insurance staff have “accepted the changes well. They understand and support what we want to achieve.”
The Australian life insurance, superannuation and managed investments operations face “different issues”, he said.
“The sales team is punching well above its weight in a tough investment market. We want to be well set up for when confidence returns to the market.”
Real men see direct market opportunities
The Australian direct personal lines market isn’t as crowded as some others, says Real Insurance’s new CEO.
Clive Mendes told insuranceNEWS.com.au that “finding a community of customers and making a connection” is the key to success.
The international insurance veteran is a former CEO of Royal Insurance’s Italian direct insurance operation and was Group Strategy Director of Royal & Sun Alliance in the UK.
The Hollard-owned company’s outgoing CEO, Roger Grobler, now takes on the role of Chairman and COO. He agrees the market isn’t over-crowded.
“There’s a lot more players in the market than three years ago, but we’re still dealing with a market that’s uncompetitive,” he told insuranceNEWS.com.au.
Corporate
Ex-Aon chief ‘lining up to run QBE’
A UK media report says QBE is “lining up former Aon UK CEO Peter Harmer to succeed Frank O’Halloran as group CEO”.
The Insurance Insider newsletter does not name a source for its report, which was published on Friday. QBE told insuranceNEWS.com.au today that it “does not comment on market speculation”.
Mr Harmer resigned suddenly in June last year to return to Australia. He said at the time that progress in implementing the UK division’s restructuring “has allowed me to return home a little sooner than originally planned”.
An Aon source in Sydney told insuranceNEWS.com.au at the time that Mr Harmer would take up a “significant” role in Australia, but it’s understood he has since left the company.
The Insurance Insider report says Mr O’Halloran had been expected to choose his successor from inside the group, “with COO Vince McLenaghan, European head Steven Burns and US boss John Rumpler locked in a three-horse race”.
But it says headhunters also “combed the market for suitable external candidates”.
The report fails to note that earlier this month Mr McLenaghan gave up the COO position to become CEO of a newly expanded Australia-Asia-Pacific division.
Mr Harmer, 51, a Harvard Business School graduate and former soldier, ran Aon Australia from 2000-2007 before moving to the UK to turn around Aon’s struggling British operations.
He earned accolades from the London business media for negotiating a 30% reduction in a multi-million pound fine from the financial regulator. His leadership and communication skills, as well as his ability to make tough decisions, were also highly valued, and in April 2007 he was appointed to the high-profile chairmanship of the Lloyd’s Market Reform Group.
When Mr Harmer quit last year to return to Australia, Aon Corporation President Greg Case acknowledged Mr Harmer’s “extraordinary leadership and efforts both in the UK and as a key player on the global Aon stage”.
Disasters and UK hit IAG’s bottom line
IAG has reported a $493 million profit for the 2010 financial year despite a blowout in natural disaster claims in Australia and problems in its UK operations.
The March storms in Melbourne and Perth this year led to natural disaster claims exceeding forecasts by $113 million to $463 million. The Melbourne storm alone led to about 75,000 claims at a net cost to IAG of $210 million.
CEO Mike Wilkins told a briefing last week that despite the increase in claims, the Australian and NZ businesses delivered a strong performance in the 12 months ending June 30.
“There have been clear ongoing improvements,” he said.
Australian direct business delivered a $569 million profit, which resulted in an insurance margin of 16.9%.
Last year the direct business reported a $373 million profit and an insurance margin of 12%.
The Australian intermediated business (primarily CGU) turned in a $139 million profit compared to $48 million last year.
IAG NZ reported a profit of $131 million and a margin of 14.7% while the UK operation delivered a loss of $355 million and a negative margin of 65.5%.
Mr Wilkins says IAG has had to take a $367 million writedown in the UK following an increase in bodily injury motor claims.
“The UK results are disappointing due to the one-off charge, but we are well underway with remedial actions,” he said.
“The market remains challenging, but we are implementing rate increases of up to 20% across most classes of business, exiting unprofitable broker relationships and strengthening underwriting and actuarial resources.”
Despite problems with some areas of the business, gross written premium for the group was up 3.8% to $7.8 billion.
Mr Wilkins remains bullish about this financial year’s premium inflows which are tipped to grow by 3%-5% with the insurance margin target of 10.5%-12.5%.
The predictions assume natural disasters won’t exceed the $435 million budget allocated for this year.
“We are continuing to pursue growth opportunities in our chosen markets, particularly Asia. However, we are still expecting a small first-half loss in the UK.”
Suncorp more than doubles profit
Suncorp has recorded strong full-year results, more than doubling net profit after tax to $780 million, up from $348 million last year.
General insurance after-tax profit rose 34% from last year to $557 million.
Net claims for the period were stable at $4.6 billion, despite the allowance for natural hazard claims being exceeded by $165 million, due partially to the March Perth and Melbourne storms.
The general insurance trading result was $605 million, representing an insurance trading ratio of 9.6%. Gross written premium (GWP) increased 3.1% to $7 billion, with home and motor achieving growth of 13.6% and 6.4% to $1.73 billion and $2.45 billion respectively. Commercial lines GWP declined 0.1% to $1.709 billion.
The group’s NZ general insurance business recorded premium growth of 6.5% and an insurance trading result of $70 million.
Suncorp Life recorded an after-tax profit of $222 million, up from $117 million last year, and a 6.7% increase in underlying after-tax profit to $192 million. Inforce premium grew 7% to $784 million, while operating expenses fell 5% to $321 million.
The sale of the LJ Hooker subsidiary and Suncorp’s joint venture interests in RACQ Insurance and RAA Insurance contributed pre-tax profits of $215 million.
Group CEO Patrick Snowball told a briefing the group’s results affirm recent strategic changes and show the company is recovering well from the global financial crisis.
“Over the course of the financial year we stabilised the group, strengthened its balance sheet and capital position, appointed a new executive team and laid the foundations for sustainable growth and profits by clarifying our strategic direction and restructuring operations,” he said.
“The benefits of these initiatives can be seen in our solid headline result and the improved underlying performances of our businesses despite ongoing market volatility.”
CEO Commercial Insurance Anthony Day told insuranceNEWS.com.au underlying growth for commercial lines was 3.9% “and we achieved strong growth in our target market of SME packaged business”.
“Our portfolio management has been disciplined, and we’ve made tough decisions around exiting underperforming or non-core products – namely farm, home warranty and aviation insurance.
“That means we have a portfolio where every component is making a contribution to profitability.”
Mr Day says the commercial insurance division will mostly target growth in the intermediated SME segment. The company’s Vero brand will be a key part of the growth strategy, as will building partnerships with brokers.
“We’ve invested in technology to make it easier for brokers to do business with us and we’re seeing strong results,” he said. “Our online portal Vero Central allows brokers to request quotes on specialty products and view up-to-date information on several classes of claims, all with a single login.”
The market share growth target is 3% by 2011/2012.
Austbrokers increases profits 14.4%
Austbrokers Holdings has reported solid growth this year, with consolidated net profit after tax rising 14.4% to $18.2 million.
Net profit after tax but before profits on sale of equity interests and amortisation of intangibles rose 12.1% for the period to $20.2 million.
Revenue rose 8.8% from the previous year to $105.6 million, while profit before tax was $27.2 million.
Profit from broking operations rose 8.9% during the year to $58.8 million, while profit from underwriting agencies achieved a 21.7% increase to $3.15 million.
The Austbrokers network now places more than $1.3 billion in gross written premium.
CEO Lach McKeough says business growth initiatives and bolt-on acquisitions helped drive increased profits, although direct acquisitions only contributed 3.1% of growth.
“The results were excellent given the economic conditions during the period and considering that any premium rate rises were limited,” he said. “Also the decline in interest rates in the first half of the year reduced interest earnings significantly.
“In this context and without any major acquisitions during the year the results were all the more pleasing.”
Calliden posts $6.5 million profit
Mid-market insurer Calliden has posted a first-half net profit of $6.5 million on the back of a strong underwriting performance.
The profit compares to a figure of $2.4 million for the same time last year. Gross written premium grew to $109.4 million, up 4.8% on last year.
Investment income also grew from $2.2 million last year to $4.8 million, but the share of net profits from joint ventures was down from last year’s $1 million to $700,000.
Group Executive Marketing and Distribution Mike Hooton told insuranceNEWS.com.au the result was influenced by “both positive and negative factors”.
“The positive factors include the sale in June of our 50% equity position in Sports Underwriting Australia realising $1.1 million of profit,” he said.
On the down side Calliden incurred costs relating to the Melbourne and Perth storms of approximately $5.6 million.
The group has moved to centralise its commercial package underwriting team in Melbourne, with regional and rural business administration also moving there in the second half.
Mr Hooton told insuranceNEWS.com.au the decision to centralise is aimed at serving brokers.
“We have taken the next step to incorporate the farm business within the same location and infrastructure, albeit as a discreet farm underwriting centre,” he said
A physical presence across Australia will be maintained by business development managers.
In July the group sold its stake in Sports Underwriting Australia and closed four regional offices of ARGIS, but Mr Hooton told insuranceNEWS.com.au these events were not part of any long-term strategy.
“The sale of our shareholding in Sports Underwriting was an opportunity to realise our investment in this business and to focus our resources and attention on supporting Sports Underwriting as underwriter to their sports and leisure portfolios,” he said.
“The integration of the ARGIS business (commercial and farm) is not connected to the Sports Underwriting sale.”
Regulatory & Government
Data loss risks licence loss
Australian insurers losing client data come under scrutiny from both the prudential and corporate regulators, and risk losing their licences, insuranceNEWS.com.au has found.
Last week the UK Financial Services Authority fined Zurich Insurance UK £2.275 million ($3.97 million) for losing the personal details of 46,000 general insurance customers [see INTERNATIONAL].
But an Australian insurer in the same situation would lose more than money, because the loss of client data would breach its financial services licence conditions.
The company would be in breach of Section 912A of the Corporations Act 2001, which requires the licensee to “provide financial services covered by the licence and to carry out supervisory arrangement”.
The licensee is also required to have adequate risk management systems to cover situations such as the loss of data under the Act.
If client data was lost, the insurer would also be in breach of the Insurance Contracts Act 1984, which would require them to notify clients of any changes to their cover.
Earlier this year the Australian Prudential Regulation Authority (APRA) issued a “prudent practice” guide on the management of information, which addressed areas such as effective monitoring processes and robust security reporting.
It said APRA envisages that a regulated institution “would establish a clear allocation of responsibility for regular monitoring, with appropriate processes and tools in place to manage the volume of monitoring required, thereby reducing the risk of an incident going undetected”.
Industry sources told insuranceNEWS.com.au APRA and the Australian Securities and Investments Commission would work closely together on any data breaches and there are protocols to keep each regulatory authority informed of incidents as they occur.
ACCC regulation changes to impact industry
New mandatory product safety reporting requirements will be a “double-edged sword” for product liability insurers, according to a legal expert.
From January 1 next year businesses will have to notify the Australian Competition and Consumer Commission (ACCC) when a product they have supplied has caused, or may have caused, serious injury, illness or death.
Annette Hughes, a partner at law firm Allens Arthur Robinson, says the breadth of the new reporting requirements means the ACCC must be notified at a much earlier stage.
“People will be reporting out of an abundance of caution,” she told insuranceNEWS.com.au.
“There may be more insurance claims, and [product] recall claims might be triggered more frequently.”
Ms Hughes says the new regulations apply not just to manufacturers but also to everyone in the distribution chain, and compensation claims are another area likely to rise as more consumers are made aware of the issues.
The administrative burden insurance companies will have to bear will also be greater, but will be weighed against a likely increase in product-recall insurance business.
ACCC Deputy Chair Peter Kell warned Australian businesses to “engage in the consultation process and begin preparing for the implementation of the new laws now”.
APRA keeping an eye on insurance
The Australian Prudential Regulation Authority (APRA) will continue “stress-testing” the general insurance industry as part of its supervision of financial services.
APRA Chairman John Laker says the insurance industry survived the global financial crisis well due to conservative investment strategies and a stronger Australian economy.
“The industry remains profitable and well-capitalised, although the boost to profits over recent years from reserve releases is masking some underlying deterioration in profitability,” he told the American Chamber of Commerce in Melbourne.
“Our thematic focus currently includes stress-testing within the industry, where we have identified room for improvement in the breadth and severity of the tests applied.”
Dr Laker says the authority is also looking at reinsurance counterparty risk and potential exposures of insurers to recent corporate failures.
The regulator has also focused on the impact the global financial crisis has had on the life industry and the need for stress-testing.
“APRA’s supervisory focus has been on the capital strength of the industry and its capacity to withstand adverse financial market movements,” he said.
“That capacity has been subject to detailed stress-testing by APRA and the institutions alike.”
Dr Laker says although the profitability of life insurers has improved, the regulator will keep a watch on the sector.
“Renewed volatility will keep us on alert, but improvements in capital management and reporting have improved the industry’s ability to absorb further shocks,” he said.
“In addition to capital management, thematic issues in life insurance include the operational and pricing risks arising from increasing product complexity, the industry’s capacity to provide group risk insurance to the larger superannuation funds at sustainable prices and the rationalisation of legacy products.”
Financial Services
AFA group to examine reforms
The Association of Financial Advisers (AFA) has formed a group to look at the implications of the various proposed legislative reforms of the financial services industry.
The Future of Financial Advice Working Group will be jointly run by Aon Advice MD Pierre Kraft and Australian Financial Services MD Peter Daly.
Other members of the group are Christina Kalantzis of Alexis Compliance Risk Solutions; Sean Graham from Millennium 3; Maria Cheers of Pivotal; Stephen Knight from Knight Management; AFA President Jim Taggart; Mark Stubbings of PIS; Jennifer Brookhouse from Strategy Steps and Karen Davies of CommInsure.
AFA CEO Richard Klipin says the group will investigate the impact of the proposed reforms on the industry and take its findings to Canberra.
“It is our role to discuss with the industry issues that affect how our members operate in the future and deliver our collective view to Canberra,” he said.
“We believe the group will lead the way in informing the Government on the real impact of reform on consumers, advisers, the financial advice industry and on Australia as a whole.”
Mr Daly says the proposed regulatory changes could have a serious impact on the way advisers work as well as implications for clients.
“There is a lot at stake with these proposed reforms and it’s critical that Treasury understands the nuances of the market place,” he said.
Five sub-committees have also been formed to develop policy positions on remuneration, fiduciary duty, intra-fund advice, volume-related payments and insurance.
Commissions not the main problem: CommInsure
Governments need to understand commissions are more than just a payment, says CommInsure GM Retail Advice Tim Browne.
“To look deeper into commissions, the [Federal] Government has to understand there are two issues that need to be looked at,” he told insuranceNEWS.com.au. “They are the factual evidence of underinsurance in the life industry and the implications that has for the Australian economy and socially.”
Mr Browne says the life insurance industry probably hasn’t done a good job communicating these implications to both government and consumers.
“Life insurance is a complex business and the question is, would people be happy paying the associated administration costs and the insurance costs,” he said. “I don’t think people would.”
He says the amount of time taken to write an average life policy is usually measured in weeks rather than hours.
This has become evident with a new team created at CommInsure to look at suspended insurance proposals.
“We have created a team to deal with these applications and help clients through the process,” Mr Browne said. “Some applications have been running for months.”
He accepts commissions are not suitable for all clients and a fee is applicable in some cases, but for the majority of clients an up-front payment is the best solution.
“I think we have to look at whatever it takes to tackle the underinsurance problem and if commissions help achieve this, then keep the option.”
Platforms play increasing role in life cover
The imminent decision by the Australian Competition and Consumer Commission (ACCC) on the NAB/Axa merger plan will have implications on the distribution of life insurance.
The ACCC has been concerned about the role distribution platforms play in the financial services sector. While they have previously been used mainly by financial advisers to distribute investment products, platforms are now a growing sales channel for life insurance.
ING Head of Retail Product Gerard Kerr says platforms have become an important distribution vehicle for life insurance products.
“Life insurance can be written on a platform, although it does depend on the client’s needs,” he told insuranceNEWS.com.au. “We have seen an increase in retail life insurance being written on platforms during the past 12 to 18 months.”
Mr Kerr admits that could be due to the global financial crisis and how this has caused clients to reassess their insurance needs.
AIA Market Analysis and Solutions Manger Shannon Anderson says platforms present distribution opportunities for life insurers, and although AIA doesn’t own a platform, “we do see them as a growth opportunity to expand our market share”.
“We do see advisers wanting to give holistic advice which covers all areas of financial advice, and the platform is part of that solution,” he told insuranceNEWS.com.au.
There are opportunities to put AIA’s products on non-bank owned platforms, although Mr Anderson says the company has not ruled out trying institution-owned vehicles.
Mr Kerr says life insurers are increasingly recognising the benefits of using a platform. “It’s a way of increasing their presence and helping to deal with the underinsurance problem.”
But not everybody agrees. ClearView MD Simon Swanson told insuranceNEWS.com.au his company has no plans to put its products on platforms.
“I don’t think they are that important,” he said. “Life insurance needs to be dealt with through an intermediary rather than pushing a button.”
ClearView wants to grow life business
Second-tier life insurer ClearView Wealth has reported a net profit after tax of $8 million for the financial year ending June 30.
The life insurance business delivered a $688,000 profit for the 12 months on annual inforce premiums of $40 million.
Clearview MD Simon Swanson says the company is now focused on growing the profitable life business.
“We have a distribution strategy of approaching our health fund members which will provide access to 2.9 million potential customers,” he told insuranceNEWS.com.au.
“Our other distribution push will be through credit unions, which have a membership base of 800,000.”
Mr Swanson says the company plans to approach independent financial advisers later this year.
Costs in the old MMC Contrarian business, which changed its name to ClearView on acquisition of the Bupa life insurance and wealth management business last year, have been reviewed.
“We have identified some overlying efficiencies which we expect to deliver $6 million before tax in the next 12 months,” he said.
“We have identified ways to streamline the back office and distribution channels, but we don’t have to deal with any legacy issues like our established competitors.”
Another area the company is focusing on is referral management and Mr Swanson said with technology upgrades, this is expected to increase inflows to the life business.
The Professional
Bosses ‘should promote company codes’
Industry and company codes of practice will only work if they are promoted at the highest levels of organisations, according to a leading ethicist.
Philippa Foster Back, the Director of the UK-based Institute of Business Ethics, says individual British companies are more likely to have codes of practice than whole sectors or industries.
Addressing the Insurance Brokers Association of NZ conference in Auckland, she said all businesses need to foster ethical attitudes to build trust with their customers. Codes of practice are seen as a good way of building that trust, and many companies now recognise their importance.
“In the early 1990s only 18% of large UK companies had a code, but today it is about 95%,” she told insuranceNEWS.com.au.
“In conjunction with this we have seen the number of companies training their staff [in ethical behaviour] rise from 46% in 2004 to 71% in 2007.”
Having spent most of her career in senior management roles in the British financial services sector – she also chaired the UK Ministry of Defence audit committee for several years – Ms Foster Back isn’t surprised that some insurance companies have sought the institute’s advice.
She says they mainly want to discover ways to build mutual trust while guarding against fraudulent claims, and to establish customer care as a key service differentiator.
“If a company has a problem or sees another company in its sector/industry [in difficulties], then we see a tightening-up and greater emphasis put on training and disseminating codes,” she said.
“Sometimes it just takes a new CEO to give a code a new push and make sure it is embedded.”
Brian Schwartz takes chair at IAG
Insurance Australia Group (IAG) has appointed Brian Schwartz as its new chairman, replacing long-serving chairman James Strong.
Mr Schwartz has been a director with IAG since 2005 and Deputy Chairman since November last year.
Mr Strong, one of Australia’s best known and respected business leaders, has been a director or chairman of IAG since 2001, seeing the group through some significant challenges, including the attempted takeover by QBE in 2008.
Mr Schwartz was until last year the CEO of Investec Bank Australia and is a former CEO of Ernst & Young Australia. He is also a non-executive director of Brambles Limited and Westfield.
Aon takes IBANZ board seat
An Aon executive has been appointed to the Insurance Brokers Association of New Zealand (IBANZ) board nine months after the company returned to membership of the association.
Aon NZ Senior Executive Director Paul Weir was elected to the board at the recent IBANZ AGM. Aon returned as a member in November last year after an absence of about three-and-a-half years.
The four largest insurance brokerages are automatically entitled to a position on the IBANZ board.
Mike Henry Insurance Brokers CEO Graham Henry has returned as an IBANZ director. He is also a member of the IBANZ College board.
CEO Gary Young told insuranceNEWS.com.au Mr Weir and Mr Henry both bring “valuable experience” to the board.
Kaplan opens eBooks for students
The local arm of financial services training provider Kaplan Professional has unveiled a range of eBooks offering postgraduate students greater interactivity and accessibility.
The eBooks include digital versions of traditional subject notes, with the additional benefit of being able to search for words or phrases, review and mark up documents, and make comments.
A range of online resources including discussion forums, lectures and readings complement the notes and provide assistance and feedback.
Kaplan provides courses tailored to the financial services sector including financial planners.
International
Zurich UK fined over data loss
The UK Financial Services Authority (FSA) has fined Zurich Insurance UK £2.275 million ($3.98 million) for losing client data.
Zurich lost the personal details of 46,000 general insurance customers including their bank account and credit card information, insured assets and security arrangements.
The UK insurer had outsourced some data processing to its associated South African business, which subsequently lost an unencrypted back-up tape of client details.
And while Zurich was paying the fine, a spokesman confirmed to insuranceNEWS.com.au that it had a second problem with its UK data processing centre.
“The incident, which happened some months ago, involved an unfortunate mis-mailing of a very small number of renewal packs being sent to customers rather than to their broker,” a Zurich UK spokesman said.
“It was about 30 [packs] from a daily print run of 13,000 which are done hundreds of times a year.”
The spokesman says the packs went out without the broker covering letter and contained only basic customer details and no financial information.
“We’ve spoken to all the brokers and are communicating to those customers involved,” she said.
The fine for the South African incident is a record for a UK financial services company involved in losing data, a FSA spokesman told insuranceNEWS.com.au.
However, Zurich did get a 30% discount on the fine for co-operating with the authorities. Otherwise it would have had to pay £3.25 million ($5.69 million).
FSA Director of Enforcement and Financial Crime Margaret Cole says Zurich failed badly managing its customer data.
“It failed to oversee the outsourcing arrangement effectively and did not have full control over the data being processed by Zurich SA,” she said.
“To make matters worse, Zurich UK was oblivious to the data loss incident until a year later.”
Zurich Insurance UK CEO Stephen Lewis says the company has commissioned a review by KPMG of its data-handling and security procedures.
AIG repays $US4 billion
AIG has cut its debt to the US Federal Reserve by nearly $US4 billion ($3.5 billion), the single-largest payment the insurer has made since its bailout during the financial crisis.
International Lease Financing Corp, AIG’s aircraft-leasing arm, sold $US4.4 billion ($5 billion) in debt to institutional investors, transferring the proceeds to the repayment of its parent’s US Government loans.
AIG’s outstanding principal, excluding fees and interest, now stands at a little more than $US15 billion ($16.9 billion). By June 30 interest on its credit facility had hit $US6 billion ($6.7 billion).
CEO Robert Benmosche says the group is getting stronger every day.
“Our insurance businesses are profitable, client retention rates have stabilised and surrender rates have improved to normal levels,” he said. “We are starting to see light at the end of the tunnel.”
Ping An first-half net profit jumps 28%
Chinese insurer Ping An has achieved a net profit rise of 27.9% in the first half of the year to reach 9.87 billion yuan ($1.65 billion).
Steady growth in insurance and banking was behind the boost, Ping An said in a statement to the Shanghai Stock Exchange.
Gross written premium was 93.1 million yuan ($15.4 million) and accounted for about 15.8% of China’s total written premiums for the first six months of the year.
CEO Ma Mingzhe says robust growth in the Chinese economy is expected in the second half of the year, but the uncertainty of the international market is expected to create difficulties for Ping An.
US brokerages on solid ground
The US insurance brokerage sector remains “financially solid” despite difficult economic conditions and the soft commercial property and casualty insurance markets.
The annual insurance industry brokerage “scorecard” by New York-based ratings agency Moody’s says while many brokerages have seen little growth, most have been able to maintain profitability.
The report’s co-author, Benjamin Goldberg, says the economic downturn and lower pricing resulted in marginal or even negative growth for some insurance brokers last year.
“A valuable service offering, a high proportion of variable costs and lack of underwriting or investment risk helped the industry remain profitable, though revenues declined from 2008 levels.”
He says brokers coped with challenging market conditions by cutting costs, exiting non-core operations and slowing the pace of acquisitions.
As a result, operating margins remained fairly stable, while fixed-charge coverage and financial leverage metrics improved “modestly”.
Since February this year, top brokers have once again been allowed to accept contingent commissions from insurers, providing them with the opportunity to “reap incremental revenues” and making it easier for them to acquire smaller brokerages that already accept contingents.
“Mergers and acquisitions will remain a strategic focus for major insurance brokers given the fragmented nature of the industry, particularly in the US,” co-author Bruce Ballentine said.
Analysis
Why John Brumby dumped the FSL
Good politicians learn early in their careers how to turn a backflip into a display of leadership. And so it was on Friday morning when Victorian Premier John Brumby stunned everyone by announcing the abolition of the insurance-based fire services levy (FSL).
It’s a significant backdown by a man who has steadfastly resisted previous attempts to move the state’s fire services funding to a more realistic footing.
So while we all have every right to raise a glass and toast a rare victory for political common sense, we should consider exactly what drove Mr Brumby and his government to do an about-turn and concede that a better way to fund fire services really does exist.
The FSL issue has been a hot potato in regional Victoria for the past 10 years, and the ALP government has previously displayed considerable skill at finding a way past it.
Despite the soulful comments on Friday by State Treasurer John Lenders about “taking the squeeze off the cost of property insurance”, the politicians have been aware for many years that their FSL was the cause of the squeeze.
They’ve held the line against the recommendations of six high-level inquiries and reports – including the HIH Royal Commission in 2003 – which all called for the abolition of the FSL.
Mr Lenders says the existing state government inquiry and the royal commission’s findings “have provided the Government with enough evidence to move to a property levy” – which makes one wonder what they have discovered now that wasn’t obvious before. They’re also going to examine alternative funding systems…
Despite the power of the economic, social and equity arguments successive Victorian governments have had to withstand, political expediency is the main reason Mr Brumby has accepted Recommendation 64. Put simply, he needs the regional electorates to get his party re-elected on November 27, and the extraordinary cost of the FSL has become an important issue in the rural areas.
Popular Liberal premier Jeff Kennett was tipped out of office when the regional electorates turned against him in 1999. The strategist who recognised country voters’ unhappiness and built the ALP’s rural power base was John Brumby.
In 2002 then-Premier Steve Bracks headed off a well-funded and focused pre-election FSL campaign by a coalition of insurance, business and rural interests when he announced an inquiry into the FSL – with the results to be released a few months after the election.
It stopped the campaign dead, but the inquiry that resulted was concentrated within the state treasury, with insurers’ offers to supply detailed research declined. It came down solidly on the side of retaining the FSL, which made it a standout among official inquiries. The Treasurer at the time was John Brumby.
Then there’s the Victorian Opposition, which Mr Brumby must neutralise if he’s to retain the ALP’s popularity in rural areas in November. The Liberal/National coalition, in power and in opposition, has long shared the view that taxes on insurance premiums are a wonderful cash cow. But this time around Opposition Leader Ted Bailleau has sniffed the changing rural winds and embraced every one of the Bushfires Royal Commission’s findings – including, of course, Recommendation 64.
Mr Brumby, whose government has yet another inquiry into the FSL running at present – with the results coming out four months after the next election – has found himself caught between the Opposition rock and the hard place of regional voters paying world-record premium taxes.
As electors have proved at the federal level, they’ll take only so much. Mr Brumby would have found it very difficult to brazen his way through the next state election using the excuse of yet another FSL inquiry, especially now the Opposition isn’t playing the game.
Much better, then, to show leadership by throwing the Government’s full support behind the royal commission’s call for the abolition of the FSL.
July 1 2012 is the date set for the implementation of the new funding system, which we can confidently predict Mr Lenders will discover from all the submissions to successive government inquiries should be based around local government property taxes.
That date is a convenient two years out from the 2014 election. That will hopefully be long enough for all those who have been dodging the FSL by not insuring to have absorbed the financial pain and moved on.
While Tasmania has a limited form of FSL, it’s small enough not to cause the sort of policyholder angst the largest two mainland states feel. So the next area of concentration for the insurance industry’s anti-FSL efforts must logically be NSW, although it’s going to be tough to get that state’s coalition opposition to commit to such a reform.
With the ALP government of Kristina Keneally fractured, Opposition Leader and premier-in-waiting Barry O’Farrell has no political reason to abandon the emergency services levies cash cow. Not yet, anyway.
In the meantime, let’s toast the impending abolition of the Victorian FSL – no matter what brought it about – and congratulations to all who worked so hard for its downfall.
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