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Ambitious SMEs offer broking opportunities: Vero survey

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SME owners with long-term ambitions to build their businesses present a key opportunity for brokers, according to a Vero survey.

The second tranche of results from this year’s SME Insurance Index focuses on business-owners’ motivations, with respondents asked to name their main reasons for being in business.

About 18% are classified as “business builders”, who want to achieve a long-term goal such as creating a business empire, leaving a legacy or creating saleable assets.

These respondents tend to be younger, have the highest average revenue and demonstrate a degree of forward planning.

But the survey results, released today, show only 27% of business builders exclusively use a broker.

“These business builders appear to be the most attractive target for brokers,” Vero Head of Commercial Intermediaries Anthony Pagano says. “Their size and ambition suggests they may be more likely to place importance on protecting their business and seek expert insurance advice.”

About 45% of respondents, including many at the micro end of the size range, are in business for the flexibility, while 19% say it offers an alternative to full-time employment.

People pursuing a passion represent about 18% of the total and tend to operate younger, higher-revenue businesses.

More than 1500 small business owners nationwide were surveyed.

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Local business unusually upbeat on economy, says Lambrou

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Australian businesses are more optimistic about the economy than their counterparts worldwide, while brand reputation, regulation and innovation pose the biggest threats, according to this year’s Aon Global Risk Management Survey.

Aon Risk Solutions Australia CEO Lambros Lambrou told insuranceNEWS.com.au he is surprised economic slowdown ranks eighth in Australia’s risk top 10 but second globally.

“Despite levels of economic uncertainty across the globe, businesses perceive Australia to be in a financially stable position and are more optimistic about the future,” he said.

“Another result of significance is the shift in the ranking of regulatory and legislative change, which is the No.1 risk in Australia and ranks fourth globally.

“Businesses feel concerned about these changes and what the potential knock-on impact could be for their business.”

Damage to brand and reputation remains a top-three risk, with 45% of respondents naming it a leading concern. About 10% worldwide say they have lost income due to this in the past year.

Mr Lambrou says organisations must be aware of changing perceptions around their brands and be ready to respond to unpredictable, and often unavoidable, crises.

“We have seen many recent cases in the media where scandals, poor customer experience or product recalls have impacted a company’s share price and performance in the short term – and in some cases caused longer-term financial difficulties,” he said.

However, a crisis need not destroy a business’ reputation.

“When handled well, a crisis can actually be a chance to improve brand perception,” Mr Lambrou told insuranceNEWS.com.au. “The increasing influence of social media and activist sites mean that risk and reputational issues can escalate very quickly.”

He says only 51% of global clients have a plan or have reviewed their brand and reputation, compared with two-thirds of Australian respondents.

The top 10 business risks according to Australian respondents are: regulatory and legislative change; damage to brand and reputation; increasing competition; failure to innovate and meet customer needs; cyber crime; major project failure; failure to attract or retain top talent; economic slowdown or slow recovery; business interruption; lack of technology infrastructure.

Most insurance customers ‘open to robo-advice’

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Consumers’ embrace of robot-driven advice will herald a shift in the way insurance is sold, according to consultant Accenture’s latest industry report.

It says insurers must adapt and plan for a distribution model that meets customer expectations, or they may end up as fringe players.

“Incumbents should be thinking what their future business is based on,” Accenture’s MD Insurance Strategy Practice Asia-Pacific Ravi Malhotra told insuranceNEWS.com.au.

“What I can tell you is it will not be the same as it is today. Australian insurers recognise these changes. The question still remains… are they going to move quickly enough?

“And it remains to be seen how the industry responds to the change in customer expectations.”

About 64% of Australians want to interact with machines over humans when it comes to obtaining advice about insurance policies, data from the Accenture Financial Services Global Distribution & Marketing Consumer Survey shows.

Almost one-quarter are willing to buy cover from the likes of Amazon, Google and other online service providers, and 32% would turn to a supermarket or retailer for insurance.

Worldwide, 74% are willing to receive computer-generated advice about insurance needs, 29% would consider online service providers and 30% would use retailers. About 38% would consider peer-to-peer motor insurance and 32% are receptive to peer-to-peer cover.

“If you look at the trends, you would expect increased receptivity,” Mr Malhotra said.

“You would expect the technology to get better and people to get more comfortable and more willing.”

The survey interviewed 32,175 insurance customers in 18 markets.

Data legislation ‘will transform business landscape’

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Mandatory reporting of data breaches will transform the Australian business landscape and push cyber insurance to the fore, QBE has warned.

Legislation passed in the Senate earlier this year requires reporting of any breaches to the privacy regulator and affected customers.

In a new paper on cyber insurance, QBE says businesses should ensure stringent data management and cyber security is in place, or risk severe consequences.

Notification costs can be crippling, with US research indicating the average cost per lost or stolen record at $US221 ($297.89).

QBE Cyber and Technology Specialist Ben Richardson says the new legislation emphasises the need for cyber-security practices to be escalated and reviewed.

“It means, certainly as far as ASX-listed companies go, that if the data breach is serious enough to affect the share price or a specific class of individuals, such as employees, then legal and regulatory action against directors and officers will move into scope,” he said.

“This clearly illustrates the need for cyber security to shift from the IT desk to the boardroom.

“In future, company boards will need to ensure they are well across their organisation’s security practices and encourage a strong security culture to avoid being placed in the firing line.”

Mr Richardson says while the turnover threshold for mandatory reporting is $3 million, SMEs should still be vigilant.

“We’re starting to see criminals move away from attacking larger organisations that present more complex defence mechanisms and instead target SMEs that are often unable to invest in high levels of IT security or risk management and are more susceptible to automated, lower-cost threats, such as phishing and ransomware,” he said.

Mandatory notification is expected to produce a maturing cyber-insurance market, as has been the case in the US.

“Cyber insurance is designed to complement strong internal security practices to ensure that a business will stay afloat to cover the costs of a cyber event,” Mr Richardson said.

“When assessing risk, underwriters will require information on the security practices currently in place and will look favourably on those taking an active approach to security across all levels of the business.”

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IAG’s risk management model earns global praise

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IAG’s risk management model, where the CRO reports directly to the CEO and the board’s risk subcommittee, is a “best practice example” of how companies should handle risks, according to Deloitte Global’s latest report.

The Australian insurer’s model reflects the views of the 54% of respondents surveyed by Deloitte who want their CROs to spend significantly more time playing the role of strategist and having a say in setting the company’s strategic direction.

“In order for organisations to build closer alignment between value creation and risk, organisations agreed the role of the CRO should be elevated to increase synergy between boards, C-suite executives and CROs,” Deloitte says.

“The IAG model…  was called out as a best practice example of a business and risk management interaction that is scalable to any size organisation.”

IAG MD and CEO Peter Harmer, who was one of the CEOs interviewed, says in the report that “business is all about risk and reward, so strategy and risk are two sides of the same coin. Strategy discussions in the firm very quickly turn into conversations about risk.”

Deloitte surveyed more than 300 stakeholders from the C-level or board level, excluding CROs, globally for the report.

Almost nine out of 10 companies recognise that risk management should focus on value creation but less than one in five are taking sufficient action to address this.

About 82% believe they are taking the right amount of risks and 82% are either extremely confident or confident their risk management activities are optimising outcomes across the company.

“Given nearly nine in 10 survey respondents across all sectors think value creation should be a key focus of risk management, it is of concern that only one in five are actually implementing the necessary improvements,” Deloitte Risk Advisory Australia Managing Partner Dave Kennedy said.

“Historically, risk management has been a reactive or tick-the-box exercise.

“But as companies begin to link the risk conversations to business strategy and superior performance, senior executives are becoming aware that customer loyalty, increasing operational resilience, improving cost effectiveness, and identifying and exploiting new business opportunities are inextricably linked to how they manage risk.”

New modelling improves cyclone forecasts

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The Bureau of Meteorology can more accurately forecast tropical cyclones near offshore gas and oil facilities following a two-year research program jointly funded by energy companies.

Its new modelling can produce longer-range and more detailed forecasts, and also predict the threat of destructive cyclone waves off the coasts of WA and the NT.

“This new research allows us to paint a much clearer picture of the threat from a tropical cyclone at a particular location, three to seven days ahead of the event,” Resource Sector Manager Andrew Burton said.

“For the first time, offshore operators can receive an objective analysis of the risk at their location at timescales that match their operational response planning. The research team worked very closely with the industry to understand their particular needs, and to design and develop a system that specifically addressed the problems they face.”

The research was funded by Shell, Woodside, Chevron and Japanese oil company Inpex, which all operate offshore exploration and production rigs and platforms.

They expect the research to improve safety and reduce their facilities’ exposure to damaging cyclones.

“It takes time to prepare an offshore facility for a tropical cyclone, incurring additional exposure for our personnel, and in the past we’ve seen facilities shut down and de-manned unnecessarily due to the uncertainty in the forecast,” Shell Australia Lead Metocean Manager Jan Flynn said.

“The exciting new capability from this partnership will allow oil and gas operators to make better-informed decisions much earlier and on a more objective basis than previously possible, reducing the number of events where we respond unnecessarily.”

Updated CoastAdapt site helps manage climate risks

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The CoastAdapt online risk management tool has been released in a final version to help local governments and other groups assess climate change effects.

It follows development of a beta version by the National Climate Change Adaptation Research Facility (NCCARF).

CoastAdapt includes data on present and future coastal conditions, including sea level projections and inundation maps, plus information on the risk of erosion at various locations.

Background information and case studies are also included, as are impact sheets related to various landscapes and industries.

The NCCARF this month won the Australian Coastal Councils Association research award for CoastAdapt.

The Federal Government says it has committed $550,00 to a new “adaptation partnership” between the Department of the Environment and Energy, the NCCARF and CSIRO following CoastAdapt.

Environment and Energy Minister Josh Frydenberg says the partnership will build on existing tools, including CoastAdapt, and make data and information on climate and adaption accessible and useable.

Clarification:

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In last week’s article on the latest Australian Prudential Regulation Authority general insurance institution-level statistics, insuranceNEWS.com.au reported the results for WR Berkley, which the company says has not written any significant business in Australia since 2014.

Instead the company concentrates its local business through Berkley Insurance Company, which had gross earned premium of $150 million, gross incurred claims of $104 million and $3 million net profit for the year to December 31.

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Corporate

Suncorp rewards 31,000 customers for cyclone mitigation

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Suncorp has cut the premiums of 31,000 customers in northern Australia after they made their homes more cyclone-resilient under the insurer’s Protecting the North initiative.

Customers who upgraded roofs, covered windows, strengthened doors, and undertook cyclone-season maintenance and preparation received the Cyclone Resilience Benefit, which in some cases has taken hundreds of dollars off their premiums.

The initiative was introduced a year ago after Suncorp commissioned research on cyclone-proofing homes.

“What we found was that some simple, low-cost upgrades can pay for themselves after just one major Yasi-like cyclone,” CEO Insurance Anthony Day said.

“Homeowners should be rewarded for putting effective safeguards in place to fend off the impacts of a cyclone. The benefit is the best example of the industry playing its role. This helps build safer communities, fosters economic development and improves insurance affordability.”

Beneficiaries include 7000 customers from Mackay and 6000 from Cairns.

Mr Day says Suncorp will continue to advocate for a government-sponsored retrofit scheme to improve resilience and address insurance affordability in north Queensland.

Broker calls in the administrators

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Perth-based National Franchise Insurance Brokers (NFIB), a Steadfast member, has entered administration.

Administrator Cor Cordis is seeking urgent expressions of interest for the recapitalisation or outright purchase of the business.

The assets include “the business as a going concern, client base and relevant infrastructure including software, intellectual property and trademarks in operating the business”, according to an advertisement in the Australian Financial Review.

NFIB was established as an insurance solution for the Australian franchising sector.

QBE to improve smash repair network

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After a review of its motor claims division, QBE has released a “request for proposal” for smash repairers to join its network in metropolitan Sydney, Melbourne, Brisbane and Canberra.

EGM Claims Jon Fox says repairers will be chosen for their commitment to “exceptional customer service” and high-quality, cost-effective repairs of passenger and light commercial vehicles, plus their ability to support QBE’s distribution partners.

“With technology constantly evolving and ever-increasing customer expectations, QBE is seeking a sustainable and innovative repair supply chain that we know can deliver outstanding customer experiences,” he said.

Registrations of interest closed last Monday, and request for proposal submissions close on May 31. The new panel is expected to be in place by September 1.

For more information, click here.

Ruralco’s stake in Ausure pays off

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Agribusiness Ruralco, which owns a 50% interest in joint venture Ausure Consolidated Brokers (ACB), grew its net profit by 15% to $12.4 million in the half-year to March 31.

Revenue increased 4% to $841.43 million compared with the previous corresponding period.

The ACB joint venture contributed $100,000 – calculated on an earnings before interest, tax, depreciation and amortisation basis – to Ruralco’s financial services business.

Ruralco Insurance merged its assets into ACB under the deal announced last November.

“The merger of the Ruralco Insurance business and staff into the Ausure Consolidated Brokers joint venture has been completed and the operating cost profile of the division has been right-sized for improved financial performance,” Ruralco says.

“This step change in Ruralco’s financial services division transforms a sub-scale insurance offering into a leading insurance offering for Ruralco’s customers and a positive forward earnings profile is anticipated for the division.”

Stream reports $14 million loss

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Troubled claims services company Stream Group has reported a net loss of $14.25 million for the 12 months to June 30 last year.

The figures feature in a preliminary final report provided to the Australian Securities Exchange last week.

Chairman Larry Case told insuranceNEWS.com.au the report was delayed by the sale of the listed group’s New Zealand business, and the figures are “completely irrelevant” due to the scale of change in recent months.

In December 2015 the Australian business was put into administration and subsequently liquidated, and in May last year its UK business was sold. In April this year its New Zealand subsidiary, rebranded as Symetri, was acquired by Gallagher Bassett.

Stream continues to provide software services to the New Zealand and UK businesses.

The $14.25 million loss compares with a $12.82 million loss the previous year.

QBE shifts to ‘Brexit-friendly’ structure

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QBE European Operations has made a series of changes in preparation for the post-Brexit business landscape.

The insurer will combine its European underwriting divisions to form a single underwriting entity led by MD Insurance Sam Harrison from July 1.

Global Director of Sales Excellence David Hall will oversee the new global sales excellence practice, which will focus on delivering customer-led multiline programs across QBE Insurance Group’s specialty and corporate lines.

Mr Hall will also chair the new European Client Advisory Group, to shape risk transfer solutions and enhance customer experience in key sectors including construction, financial institutions and transportation.

The insurer says an added benefit of the changes is that it “provides a ‘Brexit-friendly’ structure”.

QBE will soon announce the European Union country from which it will implement its plans to ensure continuity of service in continental Europe.

Ensurance products debut on comparator

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Ensurance’s home and contents products are now available on comparison website Comparethemarket.com.au.

The underwriting agency and IT developer says about 500,000 consumers use the comparator every month seeking general insurance policies.

“This is a major milestone for Ensurance,” MD Stefan Hicks said.

The group aims to sell more than 2000 policies a year via the website.

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Regulatory & Government

New accounting standard shapes as major challenge

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After 13 years, a new global accounting standard for insurance contracts has been issued by the International Accounting Standards Board (IASB).

IFRS 17 will replace IFRS 4, which was an interim measure that resulted in insurers using different accounting standards.

“As a consequence, it is difficult for investors to compare and contrast the financial performance of otherwise similar companies,” IASB Chairman Hans Hoogervorst said.

“IFRS 17 replaces the current myriad of accounting approaches with a single approach that will provide investors and others with comparable and updated information.”

The standard will take effect on January 1 2021, and will affect 450 listed insurers using IFRS standards.

“IFRS 17 solves the comparison problems created by IFRS 4, by requiring all insurance contracts to be accounted for in a consistent manner,” Mr Hoogervorst said.

“Insurance obligations will be accounted for using current values, instead of historical cost.”

The standard will mean insurers use consistent accounting in insurance contracts, rather than different standards depending on the countries in which they operate.

This will mean significant changes for multinational insurers.

Currently, some insurers treat cash or deposits as revenue, but under IFRS 17 revenue will reflect the insurance coverage provided, excluding any deposits.

The new standard will also require insurers to measure contracts at current value.

Insurers will have to measure contracts based on the obligations created by policies.

They will also be required to provide consistent information about components of current and future profits from contracts.

Some observers warn implementing the new standard will not be easy.

“While IFRS 17 doesn’t come into effect for another few years, insurers are likely to start feeling its impact much sooner,” EY Oceania Insurance Leader Grant Peters said.

“The new requirements will make understanding reported profit, and how it has moved between reporting periods, more challenging,” Mr Peters said. “Decisions made by insurers at the date of transition to the new standard will have a significant impact on future profitability.”

He says insurers will have to examine and understand the standard’s implementation and how this will apply to contracts.

“A process that will take significant time and effort,” he said. “Understanding the commercial impact of IFRS 17 will be important, as will reconciling reported results and equity with the equivalent numbers computed under other regulatory and reporting frameworks.”

Willis Towers Watson Senior Consultant John Nicholls says IFRS 17 is more than just an accounting change.

“It will have a wide and significant impact on insurers’ operations,” he said. “The new standard will impact profit, equity and volatility, as well as reserving and financial reporting processes, actuarial models, IT systems and potentially executive remuneration.”

“Insurance companies should not underestimate the work required.”

NSW emergency services levies drop as removal looms

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Emergency services levy (ESL) rates on NSW property insurance policies have fallen to about 7% this month from 20% in January, as the market transitions to removal of the charge.

“The benefits of the ESL reform are already being experienced in advance of July 1 for people who are renewing their policies or taking out a new policy,” ESL Insurance Monitor Allan Fels said.

Insurers are under pressure to ensure savings are fully passed on when the levy is instead collected alongside council rates from July.

Professor Fels told a public inquiry last week that insurers will be required to include the previous year’s premium on renewal notices – a move favoured by consumer groups and already introduced by IAG.

“It is now time the whole industry did the same,” Professor Fels said.

IAG, Suncorp, QBE, Allianz and CommInsure gave evidence to the inquiry last week. The Insurance Council of Australia (ICA) provided a submission.

“The imminent removal of the ESL from premiums will help improve the affordability of insurance and lower the levels of underinsurance in NSW,” ICA CEO Rob Whelan said. “All savings attributable to ESL removal will be passed on.

“Normal commercial factors remain that may affect final premium prices next financial year.”

NSW home and contents premiums grew an average of 5.5% a year from 2004 to last year, but in the past three years increased only 1.4% a year, insurers told the inquiry. Annual claims increased an average of 7.1% between 2004 and last year, while the average sum insured gained 4.5%.

Insurers said the industry is highly competitive and prudentially sound, but has experienced a deterioration in financial performance in recent years.

Total net profit last year was down 29% on the longer-term average, ICA says.

Views sought on complaints authority compo caps

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Treasury is calling for feedback on possibly raising the compensation cap for insurance product disputes to $1 million when the Australian Financial Complaints Authority (AFCA) starts operations in July next year.

The new authority, announced in the federal budget, will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

The Government has now released the dispute resolution framework for four weeks of public consultation, and has published a paper seeking feedback on issues such as higher compensation caps for some financial products.

The Ramsay review, which recommended the one-stop shop, found small businesses are often unable to access external complaint resolution schemes because of a limit of $500,000 on the value of the claim under dispute.

The review suggested the claims limit for the new body should be initially set at $1 million, and the compensation cap set at $500,000.

But it also suggested further consultation on whether immediately lifting the compensation cap to $1 million would have a significant impact on the availability or price of professional indemnity insurance, and whether sub-limits for different insurance products are still required.

Treasury has also called for comment on any other issues that should be considered for an effective transition to the new scheme.

All Australian financial services licensees must be members of AFCA and its decisions will be binding on all companies.

Submissions on the consultation paper are due by June 14.

Ex-ASIC manager to oversee ICA code review

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Former Australian Securities and Investments Commission GM Phil Khoury has been appointed to provide independent oversight for the General Insurance Code of Practice review.

Mr Khoury recently reviewed the Australian Bankers’ Association code and is a highly experienced independent reviewer in the financial sector, the Insurance Council of Australia (ICA) says.

He also reviewed submissions related to the Insurance Ombudsman Service’s new terms of reference in 2009.

The general insurance code has undergone several updates since it was introduced in 1994. The current, plain-English version took effect in 2014.

The previous review resulted in a revised code in 2014, although ICA declined to act on many of the 60 recommendations made by reviewer Ian Enright.

“ICA is delighted Mr Khoury has agreed to bring his vast experience working with industry bodies and self-regulatory codes to this important process,” spokesman Campbell Fuller said.

“His appointment as independent overseer underlines the integrity of ICA’s code review.”

ICA started the review in February and said an interim report would be released within six months. The deadline for submissions closed on April 28.

“An effective, collaborative code review is a constructive way to confirm the standards insurers set for themselves remain aligned with their policyholders’ expectations, and strengthen trust in this critical part of the financial services sector,” Mr Khoury said.

IMF flags NZ insurance regulation gaps

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An International Monetary Fund (IMF) assessment of New Zealand’s financial system has highlighted “significant gaps” in insurance regulation.

The IMF report takes account of the “major overhaul” in regulation in recent years, including establishment of the Financial Markets Authority (FMA), but it makes a number of recommendations for improvement.

It says that for the Reserve Bank of New Zealand, which is the industry’s prudential regulator, “improving supervisory data collection from insurers is a particular need”.

While supervision of licenses’ conduct has been enhanced through broadening the scope of the FMA to include insurance products, “there are significant gaps in the framework for insurance conduct regulation”.

FMA CEO Rob Everett says the assessment reflects work put in over the past decade.

“The IMF has, as expected, put forward some recommendations for further enhancement of the regulatory regime for consideration,” he said. “These recommendations touch on a number of areas including… issues around conduct in the insurance industry.

“The FMA is considering these proposals alongside its fellow regulators.”

The IMF’s Financial System Stability Assessment can be viewed here.

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Life Insurance

TAL profit soars despite group life struggles

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TAL recorded 11% growth in ordinary revenue to $3.5 billion in the year to March 31, according to results issued by parent Dai-ichi Life Holdings.

The Australian life insurer’s premium for the year grew 8% to $3.2 billion.

Individual new business annual premium was up 4% to $148 million. But group life sales plummeted to $5 million from $332 million the previous year.

Revenue was also lifted by a 684% rise in investment income to $243 million.

Claims were up 14% to $2.2 billion for the year.

Dai-ichi Executive Officer Toshiaki Sumino says income protection claims remained unfavourable in light of the economic environment.

“However, there was a reasonable improvement in profitability of retail life insurance products towards the end of the fiscal year,” he said.

TAL’s total liabilities at March 31 were $4.88 billion, compared with the previous year’s $4.89 billion.

Reinsurance revenue declined to $131 million from $148 million.

The cost of reinsurance for TAL fell to $290 million from $332 million the previous year.

The insurer recorded a 38% rise in ordinary profit to $211 million for the year.

Its total assets were up 134% to $7.1 billion at March 31.

Dai-ichi forecasts a 185% rise in TAL’s ordinary revenue to $3.7 billion for the 2018 financial year, offset by a 31% decline in forecast ordinary profit to $180 million.

Mr Sumino gave no reason for this decline.

Advisers ‘deliver cheaper life cover’

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Direct life insurance premiums are more expensive than those on cover obtained through an adviser, according to a new report.

“The gap between advised and direct has continued to increase,” the Strategic Insights report says.

Figures supplied to insuranceNEWS.com.au show the average direct premium for a non-smoker with term life cover is $408, compared with $306 for an adviser-sourced product.

Last year the premium difference between direct and advised was 14%. In the past five years it has varied between 13.6% in 2013 and 17% in 2015.

The premium difference for trauma cover was about 9% last year. In income protection it was 30%, but it has been higher. The report attributes this to the small income protection book in direct and the difficulty of writing the cover profitably with so many unknowns.

Income protection accounts for only 12% of direct life premium inflow.

Direct life insurance inflows totalled $1.4 billion last year, according to the report.

Most inflows were for term life products, at $562 million, followed by funeral insurance at $334 million.

The report says direct inflows have remained steady during the past three years, despite a significant spend on marketing by insurers.

The channel accounts for about 30% of the total life insurance market.

“This is despite a significant amount of activity in the sector by insurers creating and innovating new products both under their own brand and affinity brands,” the report says.

“While inforce business has continued to grow very slowly, a very large part of new premiums are being offset by lapses and policy closures.”

TAL dominates the direct market with a 22% share, followed by CommInsure on 15%.

Greenstone and Hannover Re hold an 8% share, equal with OnePath, and MLC follows on 7%.

Standardise definitions to ease complexity, Gen Re says

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Adopting common definitions for all policies can help simplify complex life insurance products, Gen Re says.

“There is a groundswell of opinion in support of requiring the minimum standards industry-wide to comply with the definitions,” Life/Health Account Executive Viviane Murphy said.

“A move to standard definitions is not just window dressing; the serious underlying intention is to reduce the number of trauma claims that are declined.”

A recent Gen Re opinion poll found 69% of senior life professionals favour minimum standardised definitions becoming mandatory.

Ms Murphy says the Financial Services Council (FSC) issued a consultation paper on definitions last year.

“It is hoped this will define the additional steps needed to build consumer confidence, including education about the scope of cover and consistent labelling,” she said.

“Initially, the FSC will address the definitions for the most common causes of claim – cancer, severe heart attack and stroke resulting in permanent impairment.”

Ms Murphy says, once agreed, the new definitions should take effect on July 1, with a commitment to regular reviews that “will ensure definitions reflect evolving medical standards and practice”.

She says it is expected most life insurers will offer trauma definitions that exceed the minimum standard.

“Consumers must have confidence that the product will work as expected, and it is important they trust the integrity of insurers to assess claims fairly. Transparency in the whole process and consistency in product terms helps people to better understand their cover and this includes using consistent labelling and terminology.”

Bank compensation schemes have a long way to go

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The big four banks and AMP have paid $60 million in compensation to clients, from an expected total of more than $200 million.

The payouts are for general advice that was charged but not provided by various institutions the companies own, according to an update from the Australian Securities and Investments Commission.

It includes MLC’s failure to provide general advice to members of its superannuation funds.

NAB is examining this despite no longer owning the life insurer. The number of affected members is estimated at 220,460, leading to compensation of about $34.7 million.

NAB faces further compensation payments over adviser service fees deducted in error, affecting more than 3000 clients of Apogee Financial Planning, GWM Adviser Services and the bank.

The bank’s total compensation is estimated at $5 million, and by April 21 it had paid $4.6 million.

AMP’s total payout has dropped to $4.4 million from $4.6 million after reviewing client files. It had paid $3.8 million by April 21.    

Commonwealth Bank faces the largest compensation bill, of $106.6 million. Only $5.8 million has been paid.

ANZ’s compensation estimate has risen to $52.4 million from $49.7 million after the identification of failures in two adviser groups: Financial Services Partners and RI Advice Group. The biggest problem area was the bank’s Prime Access service, in which there was no evidence of statements of advice for the annual review period.

ANZ says $7.5 million will be required to cover its failure to rebate commissions. The bank had paid $43.8 million of compensation at April 21.

Westpac has paid all its $2.6 million of compensation.

The regulator will continue to monitor the compensation schemes. It expects to issue another payment update by the end of this year.

Infocus enjoys early success with H&R Block tie-up

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Infocus Group has seen 20,000 clients of taxation specialist H&R Block seek advice on matters such as life insurance during a nine-week pilot program in Queensland.

The financial advice company won the tender to provide personal financial advice to the accounting firm’s customers last December.

The pilot was held in southeast Queensland, and in August the partnership will go national.   

Before the national rollout, H&R Block offices at more than 300 locations will be introduced to their local Infocus Group financial advisers.

“The opportunity for our advisers to meet their local H&R Block office managers and accountants builds rapport,” Infocus CEO Rod Bristow said.

“It is helping H&R Block feel confident in referring its clients to us.”

The meetings began last week. Meanwhile, Infocus is seeking new recruits.

“During the pilot program we have recruited a number of advisers in southeast Queensland to service the demand from H&R Block clients for financial advice,” Mr Bristow said.

“With the national rollout from August, we are actively seeking qualified, experienced and personable financial advisers right around the country to join Infocus.”

Sony Life delivers flat result

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ClearView partner Sony Life has reported a small increase in ordinary revenue but a slight decline in profit for the year to March 31.

The Japanese life insurer says revenue grew 1.1% to ¥1243 billion ($15 billion), which was attributed to an increase in investment income, offset by a decline in premium revenue.

Inforce premium grew 5.1% to ¥45,334 billion ($548 billion).

New policy sales were down 3.8% to ¥4957 billion ($60 billion), attributed to lower sales of variable life policies and single-premium whole life products.

The lapse rate at Sony Life fell 0.45 points to 4.27% in the year.

Ordinary profit was down 1% to ¥60.1 billion ($726 million), with difficult investment markets partly to blame.

Sony Life forecasts 2.6% growth in ordinary revenue for the current financial year to ¥1276 billion ($15.46 billion), generated by increased premium revenue.

Ordinary profit is expected to remain flat at ¥67 billion ($812 million).

The life insurer faces changes to policy reserves that will affect the bottom line, despite increased inforce policy revenue.

Mortgage Choice reports strong premium growth

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Mortgage Choice has reported a 30% year-on-year increase in inforce insurance premium for the third quarter.

While not disclosing the third-quarter sum, in its half-year result the mortgage broker recorded $22 million of premium.

CEO John Flavell says financial planning revenue has grown to record levels.

“Throughout quarter three, the financial planning division has gone from strength to strength, with the value of funds under advice surging 59%... in comparison to quarter three [the previous year],” he said.

“Our network of mortgage brokers understands the value of providing their customers with access to professional financial advice.

“As a result, a larger proportion of our customers’ wealth needs are now being met.”

Mr Flavell says adviser numbers have also continued to increase, but gives no specific numbers.

NZ adviser guilty over false policy applications

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A New Zealand adviser has admitted making four false life insurance applications.

Anthony Wilson submitted three applications with forged client initials, and one in which he falsely amended the application form. 

He also pleaded guilty at Auckland District Court to failing to disclose pre-existing medical conditions.

He was charged by the Financial Markets Authority, which has withdrawn two further charges of dishonestly using a document for pecuniary advantage.

Mr Wilson will be sentenced on July 12.

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The Professional

QBE appoints product head for Australia and NZ

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QBE Australia and New Zealand has appointed Alex Green as Head of Product – Negotiated Lines.

Mr Green moves to the role after joining QBE’s workers’ compensation team in February. He will report to Chief Underwriting Officer Declan Moore.

Previously he oversaw specialist agencies including in marine, strata, film and mobile plant at Austbrokers underwriting agencies. He has also held roles managing workers’ compensation, professional risks and liability portfolios at Vero and Suncorp.

ICA President headlines APIG conference

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Insurance Council of Australia President and Suncorp CEO Insurance Anthony Day will speak at the Australian Professional Indemnity Group (APIG) National Conference on September 7.

The other speakers are Liberty COO and Senior VP John McCabe, Minter Ellison partner Maged Girgis, Clayton Utz partner Fred Hawke and Commonwealth Bank Head of Blockchain for the Global Innovation Labs Sophie Gilder.

APIG says the program will cover a range of topics affecting business locally and globally, and end with a gala dinner.

More details will follow, and tickets will soon go on sale for the event at the Westin Sydney.

Gallagher Bassett tackles mental health among police

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Third-party claims administrator Gallagher Bassett has joined forces with Victoria Police to improve prevention and management of psychological injuries among officers in regional areas.

A series of workshops around the state have connected officers with psychological injury management experts.

The program has also given senior officers a chance to highlight the occupational health and safety challenges they face in preventing and managing psychological injuries.

Guest speakers have included clinical and organisational psychologist Peter Cotton, Senior Police Medical Officer Foti Blaher and Senior Police Psychologist Alexandra West.

Workshops have taken place in Warrnambool, Bendigo, Mornington, Traralgon, Bairnsdale, Wangaratta and Mildura.

Gallagher Bassett GM Victoria Aidan Brophy says the exchange has been successful.

“These sessions have been a platform to share knowledge, network and demonstrate the commitment by all to improve treatment and intervention strategies for psychological claims.”

Education topics have included conditions such as post-traumatic stress disorder and how to access treatment resources.

NTI restores vintage truck for charity

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National Transport Insurance (NTI) is restoring a vintage truck to raise money for people suffering motor neurone disease (MND).

It will return a 1946 International Model K5 rigid truck to its former glory and raffle it for the MND and Me Foundation.

CEO Tony Clark says the NTI community, including suppliers and partners, will help.

“It’s a truck built for the community, by the community,” he said. “It will bring people together and tell a story, while serving a much greater purpose.”

MND is a cause close to NTI’s heart since former CEO Wayne Patterson was diagnosed with the disease in 2015.

“NTI’s efforts will generate better awareness of the impact motor neurone disease has on the community, and raise vital funds to ensure no one faces MND alone,” MND and Me Foundation CEO Paul Olds said.

The restoration will be documented via videos on NTI’s social media platforms. For more information, click here.

Allied World appoints local Assistant VP Property

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Jodi Garratt has been appointed Assistant VP Property at Allied World Australia, reporting to VP and Head of Property Asia-Pacific Carolyn Shreeve.

During a 17-year insurance career Ms Garratt has been a senior property underwriter for CGU and a broker at London-based Price, Forbes & Partners and at Horsell International – now owned by PSC Insurance.

She will be responsible for delivering property solutions for SMEs, complementing current product lines in the Australian market.

“Her arrival will help us to broaden and deepen our relationships with local buyers and brokers in Australia, growing our presence and bringing us closer to the market,” Ms Shreeve said.

McLardy McShane adds $30,000 to fundraising total

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Melbourne-based broker McLardy McShane’s first gala sports dinner and golf day at the Victorian town of Swan Hill raised more than $30,000 for the charities Reach and Cure for MND.

The dinner at the Murray Downs golf club was attended by more than 150 people and featured an “on the couch” segment hosted by veteran AFL journalist Mike Sheahan.

Guests included former Essendon footballer and Melbourne coach Neale Daniher, who has become a leader in fundraising for motor neurone disease research following his diagnosis with the disease.

Reach Foundation CEO and former Richmond player Chris Naish were also among the high-profile guests.

Reach, which supports people aged 10-18, was established in 1994 by Brownlow medallist and youth motivator Jim Stynes and film director Paul Currie.

This year 25 teams competed on the golf course, with the annual event shifting from its traditional Portsea home for the first time.

AILA adds young professional to board

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The Australian Insurance Law Association (AILA) has given voice to its younger members by making Jessica Beard, co-convenor of its young professionals group, an ex-officio board member.

Ms Beard is a solicitor with the Brisbane office of Quinlan Miller & Treston Lawyers.

AILA National President Angus Kench says Ms Beard’s appointment ensures the association continues providing value to its entire membership, including the under-30s.

“Many associations today stagnate because they do not encourage generations X and Y to be involved,” he said.

He says many of the Baby Boomers who ran AILA over the past 35 years are approaching retirement, and “it is vital for AILA to evolve so there is always a new breed of people willing to take the organisation into the future”.

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International

No respite for reinsurance pricing, Fitch says

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Reinsurance pricing will soften for the remainder of this year due to abundant capital and torpid demand, according to Fitch.

Low demand follows several years of below-average catastrophe claims, the ratings agency says.

Declining premium rates and investment yields are expected to weaken profitability, while the sector’s combined operating ratio is expected to deteriorate to 92% from 91.5% last year.

Most Fitch-rated reinsurers have a stable outlook because they are expected to maintain credit metrics in line with their ratings over the next 12-18 months, with capital typically above Fitch’s ratings guidelines.

However, small reinsurers lacking diversified business could receive negative ratings if prices deteriorate much further, while strong capital growth and lack of organic growth is likely to increase share buybacks, special dividends and mergers and acquisitions.

Notable reinsurance mergers and acquisitions so far this year include Sompo’s purchase of Endurance and Fairfax’s move on Allied World.

Industry trailing on shift to digital interaction

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Consumers increasingly want to interact with insurers via digital tools, but the industry’s investment in this appears to be lagging, according to research and advisory business Celent.

About 37% of consumers surveyed in France, Germany, Italy, the UK and the US prefer to use smart technology over speaking with an insurance company employee.

Another 21% have never used smart technology but are ready to test it out.

Just one insurer in five has invested in smart technology, while 40% intend to invest or are thinking of investing in artificial intelligence in the near future.

A challenge for insurers is ensuring they channel investment funds into the smart technologies that will best improve customer interaction, Celent says. The industry also needs to explore the operational impact of using smart technologies.

“The proportion of insurers that have already invested in smart technologies remains low… there is manifestly a harmony between consumers’ and insurers’ growing adoption of new machine-driven interaction tools,” Celent says.

“However, these tools create business challenges that insurers need to anticipate and address before investing in smart technologies.”

On customer service, a contact centre led by robots should capture all relevant information about a client, to quickly address queries, Celent says.

In sales, insurers should have in place machine-driven advisers capable of proposing the best covers, and this can only be achieved by having relevant and recent data about clients.

Lloyd’s canvasses staff for voluntary redundancy scheme

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Lloyd’s has confirmed approaching all its 1100 employees about registering for a voluntary redundancy program.

Head of Strategic Communications Stewart Todd told insuranceNEWS.com.au the market announced a review of its structure last year due to the challenging economic climate.

“Essentially, given the difficulties the market is facing right now, it is right that we ensure we are operating as effectively and efficiently as possible,” he said.

“We have no set number in terms of staff reductions, but clearly as we look at reducing duplication there could be areas where we will reduce numbers.

“Equally, there will be areas where we may decide there need to be more resources.”

The staff response to the redundancy program will assist in Lloyd’s development of its operating model.

Mr Todd says it will make proposals in the third quarter of this year.

Attacks will increase cyber coverage: Fitch

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Recent ransomware attacks including the WannaCry outbreak that crippled the UK’s public health system are likely to lead to increased demand for cyber insurance, Fitch says.

The ratings agency says insurers are in a unique position to assist customers, but warns caution is required in adding exposures because “there is considerable uncertainty in pricing and underwriting this risk”.

It says, for this reason, aggressive expansion in the sector could be credit negative.

US insurers wrote about $US1.3 billion ($1.75 billion) in cyber coverage last year, and the market could grow to $US14 billion ($18.87 billion) by 2022.

AM Best says the WannaCry attack highlights the need for technology companies and end users to mitigate potential losses.

“[WannaCry] could be a benefit to the insurance industry if it leads to a better ability to devise and craft appropriate policies with clear definitions and language, to attain the desired level of protection and coverage for policyholders,” it says.

AM Best says the attack was unique in terms of its scope, speed and reach.

However, it believes insured losses will be minimal “given the industry’s cautious and tepid position in cyber”.

Prodigal son returns to lead AIG

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Brian Duperreault has been appointed President, CEO and a director of AIG, replacing Peter Hancock.

Mr Duperreault began his insurance career at AIG in the 1970s and worked there until 1994.

He has led Ace (now Chubb), Marsh & McLennan and most recently Bermuda-based Hamilton Insurance.

Chairman Douglas Steenland says Mr Duperreault is “uniquely qualified” to lead the global insurer.

“He worked for AIG for 21 years at the start of his career, so he knows this company well,” Mr Steenland said.

“He is a hands-on leader who has consistently delivered strong bottom-line results. He has demonstrated a passion for deploying new and innovative ways to serve clients.”

At Hamilton Mr Duperreault introduced cutting-edge data science and analytics.

He says he aims to make AIG the most technology-enabled and capital-efficient carrier in the industry.

Windstorm costs to rise as climate changes: ABI

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The UK is likely to experience more frequent and expensive windstorms due to climate change, the Association of British Insurers (ABI) warns.

Average annual insurance losses from wind could increase 11% with a 1.5-degree temperature gain, while losses could jump 23% at three degrees. A temperature rise of 4.5 degrees could cause losses to escalate 25% according to research by modeller AIR Worldwide for the ABI.

“Concerns about global warming often focus on rising water levels and the threat of flooding, but this new research makes it clear the impact of other meteorological events such as high winds must not be overlooked,” ABI Head of Strategy Matt Cullen said.

Met Office analysis shows even small increases in temperature would likely shift stronger winds further north, with increased losses from climate change concentrated in Northern Ireland, northern England and the Midlands of England.

“Planners and builders should be aware of the need for more wind-resistant construction in specific areas of the country if claims are to be kept to a minimum and residents spared the distress and expense of higher levels of wind damage,” Mr Cullen said.

Southern England could see fewer losses from storms, with London losses sliding 16% at the 1.5-degree end of the range.

The worst windstorm to hit the UK in recent years was on January 25 1990, in which 47 people died. The insurance industry paid out £2.1 billion in claims, which would be more than £4 billion ($5.3 billion) today.

The ABI says floods and windstorms result in similar claims costs over the long term, with wind damage affecting more people less severely.

AGCS joins forces with emerging risk insurtech

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Allianz Global Corporate & Specialty (AGCS) has teamed up with US-based analytics company Praedicat to enhance predictions around key liability risks such as asbestos.

Praedicat uses machine learning to scan large volumes of data from peer-reviewed science publications and profile the likelihood that products or substances will generate litigation risks over their life cycle.

The joint venture aims to identify the next generation of catastrophe liability risks far earlier than under current methods.

“Forward-looking models will transform insurance underwriting,” AGCS Chief Underwriting Officer Hartmut Mai said.

“Emerging risks are challenging to quantify for an insurer.

“But now, AGCS underwriters will be able to identify emerging liability catastrophe risks with increased confidence based on in-depth data.

“Embedding these new tools into our underwriting process not only enhances the quality and efficiency of our decision-making, it also allows us to be true partners for our corporate clients through improved risk identification, potentially far in advance of current screening approaches.”

The two companies have produced a white paper on nanotechnology in food – the first in a series of reports on emerging liability risks.

Diversification pays off for Talanx

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HDI Global’s parent Talanx achieved a 7.2% rise in first-quarter net income to €238 million ($357.77 million), amid a drive to grow its global business.

The German insurer’s gross written premium (GWP) increased 8.4% to €9.75 billion ($14.65 billion), and net earned premium was 6.8% higher at €6.69 billion ($10.08 billion) in the quarter to March 31. Asia and Australia accounted for 9% of all GWP.

“We have begun the year well, with all of our divisions putting in a positive performance,” Chairman Herbert Haas said. “Our high growth abroad shows just how successful our diversification strategy is proving outside our domestic market.”

The combined operating ratio for property and casualty and non-life reinsurance remained at 96.3%.

Cyclone Debbie was the largest loss event in the quarter, with a group-wide burden of €50 million ($75.16 million).

Talanx’s overall major loss burden increased to €153 million ($230.11 million) from €123 million ($184.99 million), but was within its budgeted €243 million ($365.48 million).

Net investment income fell 1.1% to €1.01 billion ($1.52 billion).

‘Standard’ insurance not enough for young Brits

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Insurers need a “superior digital offering” to win over UK Millennials, according to research and consulting group GlobalData.

“These individuals have different insurance needs and preferences compared with the mass market,” Financial Analyst Danielle Cripps said.

“In other words, they are not traditional customers – meaning that in some product lines, standard insurance packages do not fit their requirements.”

At the very least, insurers must have online sales channels to capitalise on the group’s high usage of smartphones.

“Apps and social media platforms provide insurers with more opportunities to engage with Millennials as customers and to enhance policy and brand engagement,” Ms Cripps said.

“A superior digital offering will stand insurers in good stead, but any product or service that targets Millennials needs to acknowledge the unique circumstances of these consumers to truly succeed.”

There are about 14.7 million UK Millennials, aged 18-34, making up 28.6% of the adult population.

They are “digital natives”, with vastly different insurance requirements from previous generations.

Home insurance is one obvious area of difference: Millennials are more likely to want contents cover, since most live in privately rented accommodation.

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Analysis

SME index: now for the good news

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The first tranche of results from Vero’s annual SME Insurance Index earlier this year made sobering reading for brokers, showing that demand for their services has declined.

The second tranche highlights opportunities for brokers willing to take on the challenge.

Figures from the earlier issue show the proportion of SMEs buying insurance through a broker fell to 31% compared with 40% in 2013, amid digital disruption and a trend to buy direct.

The challenge for brokers is to reverse the trend and find niches that offer advantages for both sides.

Vero’s latest report looks for the first time at SME owner motivations, identifies insurance gaps and opportunities, and makes it clear brokers need to be on top of their game to win over the most promising clientele.

The group identified as having most potential is “business builders”, who want to achieve a long-term goal such as creating an empire, leaving a legacy or creating a saleable asset.

They tend to be younger, have the highest average business revenue, are significantly likely to have growth ambitions and demonstrate a degree of forward planning.

Only 27% of the group exclusively use a broker, so there is clearly an opportunity for intermediaries.

But the survey also finds business builders are significantly less likely to be satisfied with their broker than other SMEs. Only 55% of the group score their broker eight or more out of 10 for overall satisfaction, compared with 66% among all business owners.

“Part of the explanation for this may lie in the expectations they have of their broker,” the Vero report says.

When asked about broker tasks they consider important, they are more likely to nominate areas that require greater expertise, such as in-depth information and analysis, assessing risk profiles and providing advice on broader financial services.

Business builders also want more contact than other SMEs, with 79% desiring to see their broker face to face at least once a year and 59% expecting a phone call every few months.

Overall, they are more demanding than other owners, and to attract and win them as long-term customers brokers must show they can offer the desired expertise and high levels of service.

“Ultimately, the message to brokers remains the same: to attract and retain the best SME clients, brokers need to demonstrate the value they can deliver to businesses beyond a transactional relationship,” Vero Head of Commercial Intermediaries Anthony Pagano says.

Generally, owners looking to grow their businesses present opportunities for brokers, but they are also typically from a younger demographic more inclined to eschew the advisory channel.

Vero’s first tranche of data, released in March, shows 34% of respondents aged 18-39 use a broker, compared with 43% of those aged 40-plus.

About 72% of respondents aged 18-39 say they want their business to grow, compared with only 40% of owners in the higher age bracket.

In other findings, the survey shows SME owners are often not as well protected as they think, and may not be aware they would benefit from insurance advice.

More than half of the respondents to the survey say they have clear succession plans and contingency plans in case they are unable to work, but generally they don’t have business interruption cover.

“This significant gap is an opportunity for brokers to explain what business interruption insurance means to clients who want to protect their business for future growth,” Mr Pagano says.

Overall, half of SMEs want their businesses to grow, while 39% want to remain at the same size and 11% are looking to wind down.

The larger the business, the more likely it is to have growth ambitions.

Vero recommends talking to clients about their growth plans, tailoring advice not only to where they are but where they want to be, and discussing contingency planning.

“Consider discussing longer-term issues such as succession planning,” the report says. “While these have less direct relevance to insurance, showing interest in your clients’ broader business direction can help deepen your understanding and help in earning trusted adviser status.”

Two further tranches of survey results will be released this year, examining the changing attitudes of businesswomen and taking a broader look at how SMEs use financial services.

For brokers, challenges from technological upheaval are likely to continue, and there are no free rides on the horizon.

But those that pursue opportunities and adapt to changing client attitudes and needs will have brighter futures. And often the prospects that are hardest to win can offer the greatest long-term rewards.

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