ANZIIF Journal, V43, Issue 4 (Dec 2020)

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VOLUME 43

AUSTRALIAN & NEW ZEALAND INSTITUTE OF INSURANCE & FINANCE

2020

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VOLUME 43 ISSUE NO. 4 / 2020

PANDEMIC POOLS Is there a public–private approach to closing the protection gap?

5G: gearing up for next-gen innovation Paving the way with PAYG insurance BI policies put to the test

ANZIIF.COM

EDUCATION | LEADERSHIP | TECHNICAL EXPERTISE | INSIGHTS | INNOVATION | COMMUNITY

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Contents• 34

Time to give back Sedgwick Australia’s CEO and new ANZIIF board member Diego Ascani looks to a positive future for the insurance industry.

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The fifth generation of wireless networks promises to revolutionise risk and reward for the insurance industry.

Winnie Wong reveals how launching a cheeky digital start-up has helped her future-proof Asia Insurance.

The dawn of 5G

In search of Resilience Re

With the private market buckling under the weight of pandemic risk, could a pooled scheme reduce the protection gap?

24 28 Connecting coretech New eyes in the sky For insurers struggling to integrate next-gen technologies with their legacy IT systems, coretech could be the answer.

Regulars

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Innovative applications of satellite technology are helping insurers protect customers from climate change.

04 Courses & webinars

Best of both worlds

38 Talking shop

With the right product, shopassurance could satisfy customer demand for more personalised insurance.

70 Member listing

ANZIIF welcomes its newest members.

73 Supporters

42 Not easy being green

Insurers have an important role to play in supporting the shift towards a more efficient built environment.

ANZIIF’s 2020 corporate supporters.

74 The list

Five insurance trends to look out for in 2021.

CONTENTS Volume 43 / Issue no.4 / 2020

Technical

The Journal is published quarterly by Hardie Grant Media for the Australian and New Zealand Institute of Insurance and Finance (ANZIIF). Vol. 43 No. 4 ISSN 144-8505

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GENERAL ENQUIRIES

Tel (61 3) 9613 7200 Fax (61 3) 9642 4166 Email [email protected] Web anziif.com ANZIIF OFFICE

Level 7, 628 Bourke Street, Melbourne, VIC 3000 Australia Tel (61 3) 9613 7200 Email [email protected]

CLAIMS

Putting BI cover to the test

JOURNAL ENQUIRIES

COVID-19 shutdowns have shone a spotlight on business interruption policies and the potential for costly outcomes.

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PAYG: built for the road ahead?

Life lessons from a pandemic

GENERAL

LIFE

With motorists spending less time on the roads, usage-based insurance has moved into the fast lane.

Tech innovation in life insurance has skyrocketed during COVID-19 as insurers see a spike in demand.

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Investigating Industry 4.0

The power of partnerships

RISK

The fourth industrial revolution is reinventing manufacturing as we know it, creating new risks for insurers.

BROKING

Collaboration between brokers and insurers is proving more crucial now than ever before.

Key contributors

ABIGAIL MURISON

ZILLA EFRAT

ANNA GAME-LOPATA

5G — ‘For insurers, 5G may increase the scale and importance of risks such as cybersecurity, but innovation may also present new ways to mitigate those risks.’

Coretech: the next frontier — ‘Insurers embracing coretech have the opportunity to transform their entire business models. If they don’t do it, others will.’

In search of Resilience Re — ‘The global suffering caused by COVID-19 is a call to action for both the (re)insurance industry and governments to join forces.’

Freelance journalist

The Journal editor

Account director Scott Elmslie Account manager Hannah Louey Managing editor Jo Davy Tel (61 0) 490 091 713 Email jodavy@ hardiegrant.com Editor Zilla Efrat Subeditor Helen Eva Art direction & design Dallas Budde, Natalie Lachina & Kate Slattery ADVERTISING ENQUIRIES

Nicole Prioste Tel (61 0) 410 618 331 Email nicoleprioste @ hardiegrant.com

Hardie Grant Media Private Bag 1600, South Yarra, Victoria, Australia 3141 Tel (61 3) 8520 6444 Web hardiegrantmedia.com Publication conditions No responsibility is accepted by ANZIIF or Hardie Grant Media for the accuracy of any statement or advice contained in the text or advertisements. The opinions expressed in the Journal are those of the authors, not ANZIIF, unless otherwise stated. ANZIIF accepts no responsibility for the accuracy of information in articles and advertisements in the Journal. Article submissions to the Journal by ANZIIF members and others are welcome. Articles are accepted for publication only on the condition that the authors give ANZIIF an irrevocable non-exclusive licence to publish the article and authorise ANZIIF to give permission for production of the article in whole or in part by other persons and organisations for educational and training purposes, as well as on ANZIIF websites. ©Hardie Grant Media, 2020. All rights reserved.

ANZIIF content writer

Connect with ANZIIF via social media and anziif.com ANZIIF.COM // ISSUE 04 2020 // JOURNAL

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LEARNING

ANZIIF South Australian Charity Luncheon 14 May 2021 PANORAMA BALLROOM, ADELAIDE CONVENTION CENTRE // ADELAIDE, AUSTRALIA

ANZIIF is delighted to be holding the South Australian Charity Luncheon again in 2021. Now in its 48th year, the luncheon has gained an enviable reputation as one of the key fundraising and networking events on the South Australian calendar. Not only does the event raise vital funds for deserving charities, it also provides the local industry with a platform to network and socialise, offering the opportunity to meet like-minded industry professionals while supporting the local community. In 2020, ANZIIF has once again partnered with Camp Quality, an organisation that works towards helping every Australian child impacted by cancer to thrive.

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Camp Quality provides innovative programs and services to develop life skills and strengthen the wellbeing of children aged 0—13 growing up with cancer, and to support their families.

Visit the ANZIIF events page to register: Take me there

Don’t leave compliance to chance Australia’s general Insurance industry is on the cusp of the biggest set of regulatory and compliance changes in its history. All insurers are required to implement the changes by July 1, 2021. Polonious has prepared a clear and easy to understand report detailing how the changes directly impact insurance companies. It outlines the penalties for non-compliance and shows how you can meet the compliance requirements. Remember, if investigations are not being carried out fairly, the penalties are not only financial but there is substantial risk to reputation and future confidence in your own business. 42 of the 235 requirements defined by GiCoP are specific to the management of investigations alone. Fortunately Polonious has an out of the box solution for managing investigations that ensures compliance. Don’t leave it to chance, read the report and be ready to embrace change.

+61 2 8916 6445 www.polonious-systems.com

Click to download our report

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PANDEMIC POOLS by Anna Game-Lopata

In search of

Resilience Re There’s no doubt the private market can’t carry pandemic risk on its own, especially in light of COVID-19 economic losses. But could a pooled risk scheme work to reduce the protection gap?

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IN SHORT › Government fiscal stimulus

during COVID-19 would have been more effective if undertaken in partnership with the (re)insurance industry.

› Due to correlated risk in the

case of a pandemic, the scale of funds required means the structure of existing catastrophe pools falls short.

› Any public–private pandemic partnership needs to invest in modelling, pricing and risk mitigation to enable a transfer of risk back to the market.

› Such partnerships would

› Another solution might be to

unite existing terrorism and catastrophe pools into one large facility capable of responding to any major systemic event.

Insurers shy from systemic risk Unlike other catastrophes such as earthquake, flood and fire, the insurance industry has long considered pandemics too systemic a risk for the insurance of economic losses, except in limited cases. However, given the unprecedented protection gap in the case of COVID-19, debate and work are taking place on many industry fronts to come up with a solution. UK-based Pool Re CEO Julian Enoizi argues that without an existing framework for collaboration between (re)insurers and government, there was no way to prevent coronavirus from being an economic disaster.

In a blog on the Pool Re website, Enoizi quotes Marsh & McLennan Companies president and CEO Dan Glaser’s point that although governments ‘acted quickly’ to support economies during COVID-19, it was ‘all done after the fact’. Enoizi highlights Glaser’s observation that the effects of the pandemic ‘would have been less severe with a greater level of “commitment and organisation” between the public and private sectors as regards to risk transfer, mitigation and restoring confidence’.

Forming the right partnership Paula Jarzabkowski, Professor of Strategic Management at the City, University of London Business School and the University of Queensland Business School, has published extensively on the topic of public–private partnerships in the event of catastrophe. She argues a public–private partnership with a government backstop is the only way the economic losses of a pandemic might be covered affordably. ‘It would work to create a public–private or fully public sector risk pool with a view to working with the private market to distribute insurance products,’ says Jarzabkowski. ‘Policyholders or ANZIIF.COM // ISSUE 04 2020 // JOURNAL

Photography: iStockphoto

require a government backstop and should focus on timely business interruption benefits based on parametric triggers.

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OVID-19 is taking a terrible human toll, with more than 1.6 million deaths at the time of writing and more than 72 million cases worldwide. Equally, this pandemic is severely impacting the global economy. The Asian Development Bank estimates losses of up to US$8.8 trillion — or almost 10 per cent of global gross domestic product — as a direct result of coronavirus. Additionally, as many as 242 million people worldwide could lose their jobs, with overall income reduced by US$1.2 trillion.

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PANDEMIC POOLS

‘Sovereignty is problematic in a pandemic. For example, the choices governments made to lock down, which led to business interruption, were political choices.’ Paula Jarzabkowski / City, University of London Business School & University of Queensland Business School

businesses could be levied for a business interruption product and the premiums all passed into the pool, which would then build up as a pot of capital with a backstop from the government.’ She adds that we need to remember that not all pandemics will present like this one and we should ‘begin to understand what degree or type of pandemic the private market could take’. ‘A risk pool is a very good way to go about establishing an insurance product that can gradually be shared with the private market.’

A powerful tool

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Pandemic pools in perspective While a terrorist attack might cripple part of a city or a cyberterrorism attack impact a few countries, neither are likely to affect the entire globe as we have seen with

Photography: iStockphoto

Catastrophe risk pools can be a powerful tool to overcome market failures and enable risk transfer at affordable prices while contributing to higher insurance penetration among exposed population groups. ‘Equally, public–private risk pools also need to accommodate political preferences and priorities,’ says Michael Schwarz, managing director and head of Public Sector Asia Pacific at Guy Carpenter. ‘A simple example

of this is the absence of full mandatory insurance in many catastrophe schemes, which, in many instances, would help increase insurance penetration.’ Several successful catastrophe risk pools have been established over the past 20 years, ranging from those covering residential homeowner risk to multi-sovereign facilities utilising parametric triggers that provide cash injections to vulnerable populations. In the United States, United Kingdom and Australia, as elsewhere, successful schemes also exist where government-backed pools share the systemic risk of terrorism with the private market, allowing capital for losses as well as investment, research and modelling incentives to understand and price the risk more effectively.

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COVID-19. That puts the sheer size required for a pandemic pool into perspective. Jarzabkowski also says multi-sovereign risk pools are unlikely to work for a pandemic. ‘The whole point of a multi-sovereign risk pool is to share the mitigation of a commonly understood risk such as flood. Sovereignty is problematic in a pandemic. For example, the choices governments made to lock down, which led to business interruption, were political choices. Those actions were not related to the peril itself but to the way governments chose to deal with the peril.’ Schwarz says the political, legal and cultural contexts vary from country to country, so catastrophe pool arrangements and features need to reflect specific boundary conditions, goals, priorities and the underlying motivation that led to their establishment. ‘There is no one-size-fits-all approach, so success needs to be assessed and seen against such factors,’ he says. Schwarz adds that pandemic risk is ‘fundamentally different from those risks for which cat pools have been established to date’. ‘Consequently, (re)insurance as well as capital market capacity can only absorb a very small portion of the total risk,’ he says. ‘However, there is certainly room for new forms of public–private partnerships that address pandemic risk on various ends, including risk assessment, reduction and adaptation.’

Pre-event financing mechanism Given the government backstop needed for a pandemic risk-transfer scheme to work, Schwarz says the solution is less a traditional catastrophe pool and more a ‘dedicated catastrophe funding scheme which results in a shift from ad hoc post-event responses towards a dedicated government pre-event riskfinancing mechanism’. Swiss Re advocates for all types of infectious diseases and associated outbreaks (whether localised or not) to be removed from private business interruption (BI) policies and covered under private — public BI scheme policies instead. Vincent Eck, managing director and head of Public Sector Solutions for Asia Pacific at Swiss Re, says the aim is to ensure that society is better prepared for the next pandemic. ‘Pandemics can be both frequent and severe, no two outbreaks the same, and baseline determinants — such as social norms, the political environment, nutrition and climate — remain largely untested,’ he says. ‘Therefore, the outcomes will be dependent on the arrangements and preparations already in place, as well as selected interventions and the timeliness of action.’

RISK POOL SUCCESS STORIES Pooled risk schemes have already proven effective in strengthening disaster preparedness and crisis response, improving insurance literacy and affordability around the world.

Taiwan + Turkey The 1999 earthquakes in Taiwan and Turkey resulted in significant losses for private homeowners, among others. Through the subsequent establishment of the Taiwan Residential Earthquake Insurance Fund and the Turkish Catastrophe Insurance Pool, the governments in Taiwan and Turkey have helped increase earthquake insurance penetration significantly in both countries, with exposed homeowners having access to at least some basic protection.

Caribbean The Caribbean Catastrophe Risk Insurance Facility is a parametric hurricane and earthquake insurance pool covering more than 20 Caribbean and Central American governments. Member governments can choose how much coverage they need, up to an aggregate limit. The payouts are triggered by the intensity of the event (modelled loss triggers). This model has been successful, benefiting a number of countries and communities with payouts:

2010 — US$24.92m to Haiti,

Barbados, Saint Lucia, Anguilla, and St Vincent and the Grenadines

2016 — US$1.1m and US$500,000 to Nicaragua for

Hurricane Otto and an earthquake

2017 — US$48.96m to 13

Caribbean countries for Hurricanes Harvey, Irma and Maria

New Zealand The Earthquake Commission (EQC) in New Zealand is an insurance pool that protects the first layer of all insured private residential buildings and land against named perils. A flat rate levy is imposed on all households that purchase a homeowner insurance policy to fund EQC’s National Disaster Fund. The scheme is government-owned and has been in operation since 1945. EQC levies make up part of home and contents insurance premiums. As the levy is flat across all policies, the better risks cross-subsidise the poor risks. It provides multi-peril coverage for homes — for example, earthquake, natural landslip, volcanic eruption, hydrothermal activity and tsunami.

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PANDEMIC POOLS

Fiscal resilience

there would also be limited retrocession appetite. ‘However, pools enable reinsurers to choose to deploy their scarce capital to geographic regions and to limit their capacity. This limiting of capacity by size and region should enable a reinsurer to participate in a limited way in supporting future pandemic pools, which still diversifies their risk.’

Eck agrees that fiscal resilience in the form of prearranged financing is a better solution than the ad hoc support governments have so far had to devise. ‘Financial preparedness — for all types of risk — is the best solution,’ he says. ‘This includes insurance of known and measurable risks, which builds resilience and frees up funds for governments to deal with the severe, unexpected events.’ Australian Reinsurance Pool Corporation (ARPC) CEO Dr Chris Wallace confirms that the state guarantees of many pooled schemes would be inadequate for the sheer scale of a pandemic. For Wallace, governments have quite rightly focused on providing fiscal stimulus for pandemic relief measures to save jobs and businesses. He believes an effective pandemic BI response would ideally target small business policyholders who need cover the most. ‘It would require a simple benefit that can be rapidly delivered through a parametric trigger, and it would need to be time limited to curb the financial risk to a government guarantee,’ says Wallace. A proven terrorism pool backed by the Australian Government, ARPC is familiar with the limited appetite reinsurers have for terrorism. However, Wallace argues that it is beneficial for them to participate in retrocession reinsurance programs run by pools. ‘Such pools offer reinsurers a homogenous pool of risks and allow them to participate and limit their exposure to each country,’ he says. ‘The same could apply to pandemic risk. In a pandemic pool, I expect

Such as ARPC in Australia, Pool Re in the UK and TRIA in the US

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Schwarz says central to the success of a pandemic risk funding scheme is awareness of what both the private and public sectors can and need to contribute. ‘While pandemic risk capacity from the private sector is clearly limited, the insurance industry can help in various ways — for instance, with respect to understanding and pricing pandemic risk and by providing an established and efficient network for cash flow management,’ he says. ‘Governments on the other hand need to ensure legal certainty and provide enabling legislation and regulation, as well as incentive structures.’ Enoizi argues that having constructive solutions available means ‘having insurers at the heart of the recovery from the next national crisis’. This, he writes in his blog, will require viable cover for ‘mega-tail events or the black swan situation — be it a pandemic, a systemic cyber event, a terrorist attack or liabilities associated with climate change and geopolitical turbulence’. For this reason, he says, ‘creating a public–private facility to backstop pandemic risk alone, significant as this would be, would only

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Pools have relationships with government or are often a part of government.

Pools have existing people, systems and processes that can be deployed in a crisis to other systemic risks.

Pools support the pooling of risk, bringing about community rating where risk rating makes premiums unaffordable for customers.

Pool retrocession programs protect taxpayers and engage the private reinsurance industry in participation and capacity.

Photography: iStockphoto

BENEFITS OF TERRORISM POOLS

At the heart of recovery

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DEVELOPING PANDEMIC POOLS ACROSS ASIA PACIFIC The Insurance Regulatory and Development Authority of India (IRDAI) has formed a working group to establish an Indian pandemic risk pool. The IRDAI proposes that this public–private sector collaboration will be based on a parametric trigger, covering 50 million micro, small and medium enterprise workers for nondamage business interruption from future pandemic events and lockdowns.

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The pool allows for the quantification of risk from a reinsurance standpoint, which means reinsurers can supportcoverage in a limited nature as the amount reinsured is capped at the total size of the pool.Â

Governments are often compensated for their risk-bearing roles through the pools.

Singapore is also exploring pool options, with more details expected to be announced at the Singapore International Reinsurance Conference in November 2021. In Australia, the Insurance Council of Australia (ICA) has led the industry discussion on solutions that the Australian Government may undertake for funding future pandemics. The ICA, with Finity Consulting, has produced a study titled Insuring for Pandemics. P Download the study here

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PANDEMIC POOLS

see a similarly damaging pattern play out next time a catastrophic risk manifests and a crippling protection gap is revealed’. ‘It is not the trigger,’ he adds, ‘but the systemic consequences we must partner with the government to address.’

Credentials in challenging times

A PUBLIC–PRIVATE APPROACH IN THE US

Enoizi points to the proposed expansion of his own organisation, Pool Re, into an ‘umbrella’ facility, ‘Resilience Re’, which would aim to ‘benefit from economies of scale by not only uniting existing statesupported pools but creating further pools to facilitate (re)insurers’ participation in risks for which there are currently little or no commercial market’. Through this approach, he explains, businesses would have access to comprehensive, affordable protection against BI losses resulting from systemic risks, and (re)insurers could enjoy profit and innovation opportunities while reasserting their ‘credentials as a sector’ in challenging circumstances. ‘Meanwhile, an integrated public–private structure for managing disaster risks would allow the government to monetise its guarantees as it does for terrorism,’ says Enoizi, adding that the ‘state would be in a position to realise the full potential of the risk mitigation expertise of the insurance industry and work with it to smooth economic damage when the next disaster strikes’.

Property and casualty insurance giant Chubb is pushing for a public– private partnership to address future pandemics in the United States.

RELATED COVERAGE

The legislation also provides for the treatment of existing BI insurance policies resulting from the COVID-19 pandemic.

Beyond terrorism — how can we reinforce the re?

Under the proposal, the US Government would offer up to US$750 billion in coverage for small businesses with up to 500 employees. Of that, the industry would pay for 6 per cent of claims, or up to US$15 billion, during the program’s first year, growing annually to 12 per cent by year 20. COVID-19 would be excluded. The proposal also includes a program for businesses with more than 500 employees, which would be voluntary for insurers and provide a total of up to US$400 billion in coverage through a government reinsurance entity. Insurers would share up to US$15 billion during the program’s first year, rising to US$40 billion during its 10th year. Payouts to businesses would be limited to US$50 million per policy. Also currently being discussed in the US is the Pandemic Risk Insurance Act of 2020 (PRIA). PRIA comprises the establishment of a government-administered insurance backstop that would pay for business interruption (BI) claims related to a pandemic. Once the Pandemic Risk Reinsurance Program is established, participating insurance companies will annually pay deductibles to fund the program.

By Dr Chris Wallace

P Take me there

Skin in the game — the cyberterrorism insurance conundrum By Anna Game-Lopata

P Take me there

ANZIIF content writer

‘The global suffering caused by COVID-19 is a call to action for both the (re)insurance industry and governments to join forces in the creation of sovereign pool facilities that can promote a better understanding of pandemic risk, as well as the ability to mitigate and affordably price it.’

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Photography: iStockphoto

ANNA GAME-LOPATA

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INNOVATION by Abigail Murison

5G

supercharging innovation The fifth generation of wireless networks promises to revolutionise the way we rely on technology. So, how can the insurance industry harness the potential of 5G while understanding its risks?

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IN SHORT › Asia Pacific is

the world’s most advanced region in terms of 5G rollout, with China, Japan, Australia and South Korea leading the charge.

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› The 5G network

will supercharge digital advances such as the Internet of Things, artificial intelligence and automation.

› 5G will increase

cyber risk, but will also potentially reduce risks in home, health and commercial insurance because of better monitoring and maintenance.

Photography: Getty Images

rom videoconferences, telehealth appointments and Zoom parties, to file sharing and online school sessions, 2020 has demonstrated the power of wi-fi and mobile tech — and how frustrating it can be when networks aren’t capable of handling the needs of millions of people online. All that could be set to change if 5G networks live up to the hype. According to the Global System for Mobile Communications (GSMA), the body that represents mobile operators worldwide, the Asia-Pacific region is leading the world in 5G implementation and is expected to spend around US$331 billion between 2020 and 2025 on deployments of this latest communications technology. ‘To date, the most advanced 5G rollouts in the region are in China, Japan, South Korea and Australia,’ says Stuart Johnston, Asia Pacific telecommunications sector leader, partner, consulting at Deloitte. Julian Gorman, the GSMA’s head of Asia Pacific, notes there are several characteristics that set 5G pioneers apart from others. ‘5G requires significant investment and a commitment from society, government and industry to work together. We’ve seen that in South Korea, Japan, Singapore and Malaysia,’ he says. In Australia, he says, Telstra has already invested A$8 billion in its network and has more than 2,000 5G sites, compared with Optus (900 sites) and Vodafone (650 sites). None of the telecommunications providers can currently use the high-frequency mmWave spectrum — the fastest form of 5G — but they will be able to bid for access in 2021. In New Zealand, three telecommunications companies — Dense Air, 2degrees and Spark — were allocated 3.5GHz 5G frequencies in May 2020. Vodafone New Zealand already had access to mid-band spectrum frequencies and intends to have more than 400 5G sites by the end of 2020, after refitting existing 4G towers with 5G infrastructure. Another key feature in 5G pioneer countries is the level of digital literacy. Gorman says in some places, there’s 70–80 per cent broadband penetration and people have grown up with it. They don’t need an instruction manual to figure out, for example, how to use a new app. ‘This impacts whether a country is really ready for 5G and what it can do to transform society,’ he says. 5G implementation is far from a flick-of-the-switch change; it’s set to be a multi-year process, piggybacking

5G AND YOUR HEALTH Since the late 1990s, scientists have investigated the impact of electromagnetic fields (EMFs) and wireless technology on humans. Most studies have focused on the 0–300GHz radiofrequency range, which includes the frequencies currently used by 3G and 4G, as well as the high-spectrum frequencies that 5G networks can use. The World Health Organization (WHO) established the Electromagnetic Fields Project in 1996, which researches potential health impacts of EMF exposure and advises international authorities on EMF radiation protection. According to WHO, no causal links have been found between any negative health effects and exposure to wireless technology. The main risk of EMF exposure is related to tissue heating, and at current exposure levels, body temperature increases are negligible. As radiofrequencies increase, our skin and eyes actually prevent energy from being absorbed deeper into body tissues.

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INNOVATION

WHAT’S THE DIFFERENCE?

off existing infrastructure. The networks require many more cell sites to ensure stable coverage, so 5G has to be deployed city by city. At the outset, countries and telecommunications providers are faced with selecting one or more 5G technology providers — a task that has become a political minefield. While there are nine possible suppliers of 5G infrastructure, Huawei, Ericsson, Nokia and Samsung account for between 88 per cent and 94.75 per cent of market share, depending on which sources you use (and Samsung is only used in South Korea). Another challenge for 5G rollout is the capital commitment required from the telcos, says Johnston. ‘There is a strong business case for 5G and it’s cheaper to run, but most telcos will have to run dual networks for a period,’ he says. ‘That’s particularly an issue in countries where margins are lower.’

There are four main differences between 4G and 5G:

Speed

5G will allow much faster data downloads and uploads. 5G is expected to be up to 100 times faster than 4G. For instance, it will allow you to download a two-hour feature film in 10 seconds, compared with seven minutes with 4G.

Widespread benefits

Latency / lag

Despite the challenges, if 5G delivers what it promises, it will be worth every cent. ‘Smartphones have only really come into their own with 3G and 4G,’ says Gorman. ‘Mobile phone companies have talked about having the internet on your phone, but it’s been a poorer version of what you can do on your laptop at home. 5G goes far beyond what your laptop and even your smartphone are currently capable of doing. As it is rolled out over the next four or five years, we’re going to be interacting and communicating in a different way — perhaps via Google Glasses or a wrist device.’ While 5G will deliver benefits for consumers, Johnston says these will be even greater for businesses. Asia is the manufacturing hub of the world, so there will be lots of innovation in how 5G is used commercially as it’s rolled out. This is similar to what happened with 3G and 4G: innovation came with scale. ‘One of the first places we’re going to see a noticeable transformation effect is at airports and ports in 5G pioneer countries,’ says Gorman. ‘For example, Hong Kong is going to have its own 5G network for Hong Kong International Airport, while Singapore is developing 5G use cases for advanced ports.’

5G will reduce the time between command and response significantly. With 4G, latency is around 50 milliseconds; it will be around one millisecond with 5G. Low latency is especially critical for technology such as driverless cars and drones, as well as telehealth innovations such as techenabled surgery.

Capacity

5G networks can support thousands of devices in the same geographic space, which is essential for the adoption of Internet of Things technology.

Bandwidth

5G can be built on high-band spectrum networks that transfer more data faster. These frequencies are more easily intersected by hard surfaces like walls, so telcos need to install lots of tiny cell sites in order for 5G networks to work effectively.

‘5G goes far beyond what your laptop and even your smartphone are currently capable of doing ... we’re going to be interacting and communicating in a different way.’ Julian Gorman / GSMA

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In China, Johnston says the authorities were able to set up temporary hospitals in Wuhan during the COVID-19 outbreak and give them access to 5G networks. ‘That enabled a really rapid response.’ Reliability and speed are two of the big advantages of 5G. Where 4G has limitations on how many devices a tower can handle, 5G technology enables far more devices to connect with a network at any one time. And the latency or lag time will be much lower with 5G, which means the time between a command and a response will be almost undetectable. ‘Gamers will have an amazing experience, but it’s commercially where latency really matters. As we move to autonomous vehicles, high latency can have some very important consequences,’ says Johnston. He notes that there are already mature proven use cases for 5G in Australia. ‘Mining companies are taking advantage of the benefits of 5G and next-gen wi-fi and using driverless vehicles and other driverless machinery to do work and access areas that are dangerous to humans. This has increased human safety significantly.’

Data everywhere

Photography: iStockphoto

For insurers, 5G will have the biggest impact with commercial clients. For example, 5G will allow improvements in supply chains and logistics. Real-time monitoring of traffic can help reduce risk in terms of avoiding congestion and high-traffic routes that could contribute to driver error. Power companies and telcos that currently rely on human monitoring of lines across a wide geographic expanse will be able to monitor these assets remotely, for example, with drones. This will lead to better-maintained

5G TO THE RESCUE DURING THE PANDEMIC As the first country to be affected by COVID-19, China has shown how 5G technologies can assist the world’s response to the pandemic. In the epidemic centre of Wuhan, three large carriers — China Mobile, China Unicom and China Telecom — set up 5G base stations that broadcast the construction of two field hospitals to more than 150 million online viewers. As lockdowns and outdoor restrictions became the norm throughout China, 5G devices took over services that would normally require personnel. For example, agricultural drone manufacturer XAG and telco Huawei converted 5G smart robots and drones into disinfectant sprayers. Covering a much wider area from the air with variable flying speed, XAG says one drone can disinfect the same area it would normally take 100 workers to complete in one day.

5G robots also staffed a coronavirus hospital ward in Wuhan, taking patients’ temperatures, delivering meals, disinfecting the facility and enabling doctors to check patients’ vitals remotely, reducing their exposure to the virus. Elsewhere, engineers from Xi’an Jiaotong University collaborated with robotics manufacturer Youibot and local police to deploy 5G-powered temperature-screening robots in shopping malls and other areas with large volumes of people. Similarly, China Mobile deployed 5G thermal imaging robots in major Chinese cities. These could perform rapid, non-contact body temperature measurements within one to 10 metres and sound an alarm when abnormal temperatures were detected. Later, they were also able to use high-resolution cameras to identify people not wearing face masks in public places.

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INNOVATION

networks and fewer business interruption claims. With the combination of 5G and satellites, there will also be advances in the detection of natural disasters such as fires, and improved ability to respond quicker to these emergencies. From a life and health insurance perspective, Johnston says we can expect to see more innovation in wearable devices that monitor your health and help you manage existing health conditions. ‘In some way, the COVID-19 pandemic helped overcome some traditional resistance to telehealth and other innovations in remote health management,’ he adds.

IoT on steroids There has already been an improvement in home monitoring and security with 4G, but it will get even better with 5G, especially with home automation. There will be fewer home insurance claims from equipment failure — for example, from fires and flooding — because owners will be able to do proactive monitoring and maintenance with connected devices. The GSMA estimates there will be 11.6 billion Internet of Things (IoT) devices in APAC connected to mobile networks by 2025: almost half of the world total. Consequently, cyber risk is the key risk insurers and reinsurers face with 5G. With many more devices attaching to networks, the security flaws in each one — and the possibility of user error or exposure — present an increased opportunity for hackers. ‘Companies need to up their own standards around cybersecurity, and insurers will have to look more closely at their clients’ cybersecurity standards operating with 5G,’ says Johnston. This includes keeping on top of staff cyber education and training. ‘The greatest risk is still human,’ he says.

Look to the future Insurers will also need to work with technology providers and customers to decide how they will operate in the 5G ecosystem. How will insurers access data, and who owns the data? Who captures and stores it? ‘Typically, when you sign up for an insurance policy, the applicant supplies the information,’ says Gorman. ‘5G could let insurers gather or verify that information themselves and assess and manage risk better, perhaps via a digital identity. For example, a UK bank found that 20 per cent of bank accounts set up online were at risk of fraud. With access to a digital ID, that fraud risk was reduced to 4 to 5 per cent.’ Johnston’s advice is to ensure a group within the company is monitoring advances and innovations in technology — not just 5G. JOURNAL // ISSUE 04 2020 // ANZIIF.COM

‘5G will lead to an acceleration in digital trends and developments,’ he says. ‘Insurers need to consider how to bring that back into insurance products and processes.’ Gorman agrees. ‘I would say to insurers: take the opportunity to get involved and collaborate in developing the 5G ecosystem and working to solve not just one problem, but thousands of problems. We just have to be committed to a 5G future.’

ALL ABOARD THE 6G BANDWAGON The global race for 6G has already begun. Three Chinese tech giants have reportedly set their sights on 6G. Huawei says it’s working simultaneously on 5G and 6G, while Chinese kit vendor ZTE and China Unicom have signed an agreement to cooperate on 6G. The Chinese Government is also getting involved. China’s Ministry of Science and Technology says it will set up two working groups to carry out research on 6G. The first will be made up of government departments responsible for promoting 6G research and development. The second, consisting of 37 universities, research institutes and enterprises, will lay out the technical aspects of 6G. Similarly, Samsung and LG research centres in South Korea are conducting research on terahertz band technology for 6G. And, in Finland, a 6G flagship research program is being backed by Nokia, the University of Oulu and other business bodies. Although there’s still no universally accepted definition of 6G technology, Nigel Jefferies, chairman of the Wireless World Research Forum, believes its potential will have a profound impact on scientific research and everyday life. He told the 2019 World 5G Convention in Beijing that the speed of 6G will be faster than 125 gigabytes per second, enabling virtual reality of ultra-high fidelity, zero latency for machine-to-machine communication and global high-speed internet coverage using extensive satellite networks. ‘6G will incorporate technologies that are left out of 5G, such as terahertz signals, satellites and visible light communication,’ he said.

ABIGAIL MURISON Freelance journalist

‘It’s hard to imagine the innovations 5G will lead to, but it’s set to change how we live and work. For insurers, 5G may increase the scale and importance of risks such as cybersecurity, but innovation may also present new ways to mitigate those risks.’

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PROFILE

Winnie Wong Story Jacqueline Blondell

The best of both worlds Winnie Wong runs two completely different insurance companies in Hong Kong. One is a traditional general insurance company; the other a cheeky digital start-up. And what she learns at one helps her at the other.

W

hen Winnie Wong joined Asia Insurance as CEO four years ago, she had no idea that she would soon be launching one of the most innovative insurance concepts in Hong Kong. In October 2019, two years after the Hong Kong Insurance Authority announced it would be granting virtual insurance licences, Avo was the first recipient of a general insurance licence. This independent entity is headed by Wong in a joint venture between Asia Insurance, investment fund Two Sigma and Hillhouse Capital founder Zhang Lei, an early investor in tech juggernauts Baidu and Tencent. Juggling the operations of a traditional insurance company alongside a digital start-up is a challenging undertaking. But Wong is cheerful, relaxed and unfazed by the efforts to bring Avo to fruition while running one of Hong Kong’s largest general insurers. ‘Insurance used to be more formal and now I’m running between the two offices every day. I have to get “younger” and closer to the team,’ she acknowledges. Avo’s first birthday was in October 2020. ‘It’s a very important milestone for us, and there have definitely been both challenges and opportunities,’ says Wong. On the opportunity side of the equation, Avo presented a clean slate. ‘I don’t have any legacy system issues that face traditional insurance companies,’ she says. ‘I was able to shape a new culture that has drive, energy and passion with a young and energetic team, most of whom are in their 20s and half of whom have technology backgrounds. And, I don’t have to worry about the business channels, because it’s totally virtual enterprise.’

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Two different worlds

OPPOSITE Winnie Wong says her learnings from launching start-up Avo have helped her to future-proof Asia Insurance.

Thankfully, neither of the two businesses Wong oversees cannibalise each other. While Asia Insurance is primarily a B2B operation, Avo focuses on selling lifestyle, health and financial protection plans directly to consumers, with the intent of ‘integrating insurance into people’s everyday lives’. Avo even ventured into people’s wardrobes, coming up with a ‘shoe policy’ late last year. The clever marketing ploy was a joint venture with Hong Kong footwear chain Mirabell, aimed at highlighting that the brand can provide ‘instant protection to all walks of life’. Customers who purchased a pair of shoes from the chain during the campaign period were entitled to ‘shoe protection’ by registering on Avo’s website. If the insured shoes were lost or damaged during the coverage period, policyholders would be compensated with a voucher to purchase a new pair. Avo, which has been launching a new policy or solution every month, uses big data and deep machine learning to provide risk profiling and pricing more accurately. ‘A lot of the products we’ve introduced to the market are totally new,’ explains Wong. ‘For example, e-wallets are becoming popular in Hong Kong, but their unauthorised use can result in financial loss. We acknowledged this and were the first to launch e-wallet insurance.’ Digital smarts and a new approach to customer protection also helped Avo develop a cancer plan covering the eight most prevalent cancers in Hong Kong. ‘This was a breakthrough, because historically cancer protection covers all different types of cancers, which made the product very expensive and very

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TWOMINUTE BIO Winnie Wong COMPANIES // Asia Insurance and Avo TITLE // CEO

CAREER

An insurance veteran, Winnie Wong’s career includes roles as CEO of Aon Risk Solutions Hong Kong / Macau and assistant general manager of Royal & Sun Alliance Insurance Hong Kong. In addition to her current position as CEO of Asia Insurance and Avo, Wong sits on various boards in Hong Kong, including the Financial Services Development Council and the Human Resources Planning Commission.

EDUCATION

She has a Bachelor of Arts in English and Translation from the Chinese University of Hong Kong. ‘An arts degree is a good foundation to build on. It gives you the flexibility and capacity to develop other skills. It’s one with transferrable skills,’ she says. After several years of working, she completed an MBA from The Hong Kong University of Science and Technology.

OUTSIDE THE DAY JOB

Wong used to be a keen swimmer, but with the advent of COVID-19, she picked up hiking — as did a lot of other people in Hong Kong. She also runs. ‘A couple of years ago, I started a running group for our Asia Insurance colleagues, because we wanted to encourage exercise,’ she says. ‘I actually hated running at the time, but of course I had to go because I started the group. Luckily, the coach was excellent. Now I really enjoy it.’

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PROFILE

‘I don’t have any legacy system issues … I was able to shape a new culture that has drive, energy and passion with a young and energetic team ...’ difficult to understand,’ says Wong, noting that Avo has accepted customer suggestions for separate male and female cancer protection plans.

Fighting back from COVID-19

In February 2020, Avo rapidly developed and deployed a COVID-19 protection plan. In the first instance, it offered the plan free to frontline health workers in Hong Kong’s public and private hospitals. ‘We knew we had to be quick to address the protection needs of our healthcare staff,’ says Wong. ‘These are the frontline people helping to save lives every day. They are risking their lives and we wanted to do something for them. Our strength is insurance protection, so instead of donating masks, we donate protection.’ COVID-19 protection is also now available to the general public after strong interest was shown from other at-risk workers, including delivery drivers and journalists. While health protection is thriving for the company, one of Avo’s earliest products — travel insurance — has understandably suffered during the pandemic, with borders closed and airlines grounded. ‘It was a very popular product,’ laments Wong, acknowledging that the lockdown also slowed Avo’s partnership development, in a region where face-to-face interaction seals deals. Wong says Avo is keen to expand operations into the surrounding Greater Bay Area and into other countries in the region. ‘With COVID-19, people are now used to meeting online as well as buying online, which has helped our virtual business model as well.’

On the traditional side

So, how is Asia Insurance faring alongside the brash new start-up? Wong says the 60-year-old company is rapidly embracing a digital future. JOURNAL // ISSUE 04 2020 // ANZIIF.COM

‘The learning for Asia Insurance is the importance of a quick turnaround time to address the needs of our customers,’ she says. ‘That’s why we’ve kickstarted our digital transformation process. We’ve developed a huge digital transformation roadmap, with quite a few projects to be launched.’ Wong believes both companies benefit from their differences. ‘My learning at Asia Insurance helped me to start Avo, and then what I learned with Avo, I fed back into Asia Insurance to further modernise it and make it more sustainable going forward to meet the expectations of our customers.’

Why insurance?

Wong’s first job was as a group management trainee at the Swire Pacific Group, a diversified conglomerate headquartered in both Hong Kong and London. Different managing directors throughout the group came to talk to the trainees. ‘The managing director of the insurance division was very inspiring,’ she says. ‘He made insurance very attractive to us fresh graduates. He told us that with insurance, everyone is a client because whenever there is a risk, there is a need. ‘I was also attracted to the fact that technical expertise was needed and we had to pass exams to qualify. As a fresh graduate, I aspired to a profession. ‘Quite a lot of people wanted to work in the insurance division, but I was lucky to be chosen, without a business major or background.’ Wong was CEO of Aon Risk Solutions Hong Kong / Macau prior to joining Asia Insurance and has more than 20 years’ experience in insurance and risk management consulting. ‘When I started my career, almost all of the senior people were male. It’s still very male dominated, but it’s gradually changing, because we have a huge talent pipeline of women at mid-level,’ she says.

Advice to others

Wong is hesitant to offer others advice on how to pivot during times of great change. ‘Different insurance companies have different business focuses and different models,’ she says. ‘They will also have different challenges and opportunities. So, I think it’s important to understand where they are and what lessons they have learned in terms of the gaps during the pandemic.’ Even though COVID-19 is a rare event, Wong says that businesses need to be prepared. ‘Perhaps some companies discovered that they needed a better business continuity plan or work-from-home policy, and that they need to support their customers and support their people better,’ she says. ‘I believe companies are all changing based on what they have learned during the pandemic.’

Two Magic Quadrant leaders. Better Together. Learn more about Hyland and Alfresco as Leaders in the Gartner Magic Quadrant for Content Services Platforms, 2020.

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INSURANCE TECHNOLOGY by Sonakshi Babbar & Zilla Efrat

Coretech

the next frontier Insurers worldwide are working on ways to move past the restraints of their legacy IT systems, embrace new technologies and put their customers first. Here, we put what some call coretech under the spotlight. JOURNAL // ISSUE 04 2020 // ANZIIF.COM

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IN SHORT

‘The truth is that insurtechs are just one performer in a diverse insurance ecosystem and require a supportive cast to achieve their potential. ‘One aging actor, insurers’ so-called “modern core systems”, cannot share the stage. But the show must go on and a new class of core systems, which I call coretech, is emerging to play that role.’

choices as they move to overhaul their laggard IT systems.

› Many encounter frictions

when they bring in insurtechs to help with this task.

Coretech: a new theatre

› Coretech enables insurers

Coretech is a new term designed to describe how the architecture and the role of core systems have changed over the past five years. Other terms for it could include ‘next-gen core systems’ or ‘platformbased core systems’. Grosso describes coretech as a digital insurance platform that enables insurers’ core systems to harness insurtechs’ next-generation technologies and data so that they can deliver a vastly improved customer experience.

to better combine nextgeneration technologies with their current systems.

F

or some time, insurers have harnessed the innovation of insurtechs to help them improve their customer experiences and products, and to squeeze out savings and efficiencies from the current insurance industry model. However, Tony Grosso, senior vice president and head of marketing and communications at San Francisco-based insurtech EIS Group, says it’s becoming increasingly apparent that insurtechs are challenged by this task and cannot go it alone. While there is often friction between the ‘fast company’ start-up culture of insurtechs and the slower, more risk-averse insurance culture, Grosso says that insurers can also find that insurtechs are not built to support their very high premium volumes. Additionally, insurtech partners often lack experience with insurance processes, systems and integrations. Meanwhile, the IT systems that insurers have used for many years are not always easily compatible with the technology developed by insurtechs. In fact, Grosso describes even recently deployed core systems as ‘modern’ legacy systems if they are still product-centric. ‘Many need to be updated, or even re-engineered, to easily participate in the new digital insurance ecosystems,’ he says.

THE EVOLUTION OF INSURANCE TECHNOLOGY

2000s

‘The truth is that insurtechs are just one performer in a diverse insurance ecosystem and require a supportive cast to achieve their potential.’ Tony Grosso / EIS Group

‘Coretech is the logical combination of nextgeneration technologies and methodologies with the IT systems insurers are using,’ he explains. There are four major factors that differentiate coretech from the monolithic and modern legacy core systems many insurers still use. First, while insurers’ core systems have always been product-centric, coretech platforms are built with customers in mind.

2010s

2020 & beyond

Monolithic legacy IT systems

Modern legacy: digital on the surface

Coretech: digital to the core

Closed, proprietary systems hindering upgrades and integration.

Disparate technologies slow down development cycles and reduce core infrastructure into siloed systems.

Modern core technologies that are all interconnected, easy to upgrade and accessible on the cloud.

Source: EIS

› Most insurers face tough

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INSURANCE TECHNOLOGY

MODERNISATION CHOICES Achieving the full benefits of digitalisation requires real-time data access as well as agile features development in core systems, says management consulting firm McKinsey & Company in a 2019 report. ‘To enable this vision, most insurers must substantially overhaul their core systems and, in conjunction, transform their overall business model,’ it says. According to McKinsey, three options can help insurers achieve this goal: modernising a legacy IT platform, building a new proprietary platform or buying a standard software package. Each, it says, has pros and cons. Daniel Sandaver, managing director at Brisbane-based insurtech Codafication, cautions that it’s not easy to disrupt legacy systems. ‘A more effective approach is to leverage modern technologies to support legacy systems and provide a runway for the insurer to consider migrating onto a new platform,’ he says. Codafication, which has worked with companies such as IAG, Suncorp, Youi and QBE, provides an interface that plugs into existing IT systems and allows teams to work on multiple parts at the same time. ‘We try to help insurers optimise their business and digitise the front-end customer experience with omni-channel chat tools, real-time analytics and data insights,’ says Sandaver. EIS Group’s Tony Grosso sees some solutions that are layered onto legacy core systems in an attempt to boost their digital capabilities. ‘Wrapping the legacy with an application programming interface layer is one way,’ he says. ‘Another is hollowing out certain functions, such as underwriting or rating. ‘Each is a commitment to creating and maintaining a growing number of complex integrations to systems and data to maximise the value of those investments.’ But Grosso believes more needs to be done. ‘Without a true transformation of their legacy core systems, insurers have one hand tied behind their backs in their ability to deliver a truly modern customer experience,’ he says. McKinsey says the modernisation approach will depend on the state of the legacy system, the level of an insurer’s ambition, the availability of a solution for the market, the effectiveness of IT capabilities and the amount of available resources. However, the report concludes: ‘Given the digital advances in insurance — especially in personal lines — transforming the core is the next frontier. Combining core and business transformation, through an appropriate and considered approach, can yield significant IT modernisation benefits.’

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Second, coretech is built on platforms, allowing multiple participants to connect to it, interact with one another and create and exchange value. Third, coretech platforms host an ecosystem — the collection of often-interconnected tech solutions that an insurer uses to run its business and within which people, hardware, systems and services interact dynamically. Today, seven of the 10 largest companies by market capitalisation — Alibaba, Alphabet, Amazon, Apple, Facebook, Microsoft and Tencent — have been built on such technology ecosystems. Finally, coretech relies on open architecture, which makes adding, upgrading and swapping components easy. Coretech also shares the DNA of insurtechs. In other words, its ecosystems use technologies that insurtechs use, such as micro-services (which arrange an application as a collection of loosely coupled services), application programming interfaces (which define interactions between multiple software intermediaries) and event-based workflows. This makes it easier for insurers to bring insurtechs’ innovations on board. And, because coretech is cloud-native, it leverages the cloud’s on-demand, scalable and secure infrastructure, allowing for the rapid and continuous delivery of new business capabilities. Using coretech, Grosso says EIS successfully deployed a new core and digital platform for New Zealand’s Tower Insurance to replace numerous legacy core systems. This helped Tower Insurance to enhance the buyer journey for direct consumers and distribution partners such as online marketplace Trade Me. Tower Insurance has since reported that 60 per cent of its new business has arrived through digital channels, and it has experienced a huge increase in the number of customers using the new self-service portal for claims.

The future line-up In Asia, the term coretech may not be widely used, but the concept has fast gained traction.

27

Where insurers are implementing new modular, open architectures to create platforms for operating in an ecosystem business model in Asia Pacific, Grosso says they are implementing coretech. A good example, he says, is Chinese insurer Ping An. Its five ecosystems include finance, health care, automobile, real estate and smart city. Similarly, Albert Yuen, counsel and head of the technology, media and telecommunications legal team at Linklaters in Hong Kong, believes coretech platforms have enabled software teams to deliver extremely fast, flexible and continuously improving platforms for digital-focused insurers in Asia. Yuen predicts that the next normal of core technology will see insurers leap from modern IT systems to even more dynamic, flexible and easily scalable models and platforms. Grosso agrees. ‘Coretech defines the characteristics of the insurance software of the future, leveraging the new technologies pioneered by the major technology companies … like Amazon and Google, who have reshaped the customer experience,’ he says. ‘We have a customer who just went live with 25 million customer records using the same technology as Netflix.’ Grosso also points to German-headquartered insurance giant Allianz, which partnered with various ecosystem partners to tackle the problem of pollution caused by motorbikes in Morocco. The company developed an electric motorbike infrastructure that enabled consumers to purchase, operate, maintain, charge and insure their electric motorbikes for one simple monthly subscription fee. ‘Allianz’s insurance is embedded in the product,’ says Grosso. ‘This is only possible with open and modern core technologies that can operate seamlessly in an ecosystem.’

WHICH MODEL WORKS BEST? Insurers must carefully evaluate which IT modernisation approach works with their operating models.

1 Modernising the legacy platform Ownership of system (at lowest total cost) Low-risk, mature technology • Functionality can be gradually enhanced • •

2 Building a proprietary platform Can be designed and built (with sufficient internal skills) • Differentiating capabilities (in-house or with sufficient scale) • Long-term implantation possible •

3 Buying a standard software package Sufficient functional coverage and capabilities Adequately low total cost of ownership • Manageable integration • Relatively short implementation time • •

SONAKSHI BABBAR & ZILLA EFRAT Freelance writer & The Journal editor

‘Insurers embracing coretech have the opportunity to transform their entire business model. If they don’t do it, others will — encroaching on their territory.’ Source: Reaching the next normal of insurance core technology, McKinsey & Co

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SATELLITE TECHNOLOGY by Susan Muldowney

New eyes in the sky Photography: iStockphoto

Satellite technology has been around for years, but new applications are helping insurers to reinvent how they protect customers from extreme weather events and climate change.

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IN SHORT › Climate change presents

one of the greatest risks to the future of the planet — and to the insurance industry.

› More insurers are drawing on data from satellite technology to help customers manage risk and to provide more efficient insurance coverage through better underwriting and pricing.

› Partnerships with technology

HOW SATELLITES ARE MONITORING CLIMATE CHANGE

start-ups are proving a valuable way for insurers to benefit from the wealth of satellite data.

C

limate change represents one of the greatest risks to the future of the planet. For the first time in the 15-year history of the World Economic Forum’s Global Risks Perception Survey, environmental concerns dominate the top five likely longterm risks. For an industry like insurance, which is focused on measuring and mitigating risk, climate change represents a significant threat. But as the earth continues to warm, more insurers are turning to space for ways to address the challenges. Ranging in size from a shoebox to a school bus, satellites can monitor the climate from their position within or just above the earth’s atmosphere and deliver vital information to help address climate-related risks. There are currently about 162 satellites in orbit that measure various climate-change indicators. Satellite radar altimetry, for example, gives precise information about sea levels and wave heights by measuring the time taken for a radar pulse to travel from a satellite to the earth’s surface and back again. Satellites can also use advanced infrared radar imaging to detect fires in remote regions and send location details directly to land managers worldwide within hours of the satellite overpass. This data is increasingly being used by insurers to monitor physical changes in the environment, with the aim of helping customers manage risks and facilitate efficient insurance coverage through better underwriting and pricing of risks.

D windling ice covers R ising sea levels G reenhouse gas emissions Deforestation O cean pollution C oral reefs Desertification Source: www.geospatialworld.net/blogs/ satellites-for-monitoring-climate-change

Mandarin feature

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SATELLITE TECHNOLOGY

SATELLITES RESCUE

SMALL FARMERS IN VIETNAM Satellite technology has helped pave the way for a new national agricultural insurance scheme in Vietnam.

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Dr Marta Yebra, senior lecturer in Environment and Engineering at the Australian National University (ANU) College of Science, says satellite technology has evolved significantly over the past decade. ‘Globally, the technology really picked up when NASA opened its archive of Landsat imagery [in 2008] and made it free for anyone to access,’ she says. ‘This helped to calibrate new models, and remote-sensing science made huge progress. It also changed how satellite data could be used for many applications.’ Yebra and her colleagues at ANU are developing new satellites to help pinpoint how bushfires start and spread [see breakout far right]. Meanwhile, in sectors such as agriculture, satellite data is providing early assessments of the potential impact of drought and floods [see breakout left]. Scientists can monitor rice growth patterns and anticipated yields and, in the event of a disaster, the beforeand-after images enable insurers to perform loss assessments for more efficient claims management for the affected farmers. ‘Satellite technology can detect crop stress and help to protect the agriculture industry,’ says Rade Musulin, principal and head of the climate risk practice at consulting firm Finity. ‘It can detect the soil moisture on the ground and then pay claims to farmers based on the lack of moisture, instead of having to send an inspector to assess the crops.’

Benefits for insurers For insurers worldwide, collaboration with technology firms is proving a valuable way to better understand climate-related risks. Insurance giants such as MS&AD Insurance and QBE, for instance, have partnered with US-based

Images: iStockphoto

A public-private partnership between several organisations, including Swiss Re, uses satellite technology to monitor rice-planted areas, rice growth and damaged areas. They can also estimate paddy rice yields and enable swift payouts for farmers in need. The partnership, RIICE (Remote Sensing-based Information and Insurance for Crops in Emerging Economies), was launched in 2012 and collects and analyses detailed information on ricegrowing in the Philippines, Vietnam, Cambodia, Thailand and India. The technology will underpin a new national insurance scheme in Vietnam that aims to increase national food security and income safety for the farming population by offering insurance premium subsidies to eligible farmers. In November 2016, the Indian state of Tamil Nadu’s government introduced RIICE technology into its insurance system. Now, more than one million of its farmers are insured. Using the technology, Tamil Nadu’s government has been able to provide support well in advance of crop failures. In addition, more than 22,500 rice farmers received compensation for crop losses within three months — instead of up to a year — after a severe drought in 2017.

Addressing climate risk

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‘Data and insights from satellite or any form of aerial imagery provide new ways to understand and assess risk.’ Scott Gunther / IAG Firemark Ventures

predictive climate data and analytics company Jupiter Intelligence to help them assess and manage risks. Jupiter CEO Rich Sorkin says his company is currently working with almost half of the world’s top 10 property and casualty insurance firms, several of which have a significant presence in the Asia-Pacific region. ‘MS&AD, for example, is working with its clients to evaluate their risk exposure over a climate time horizon in collaboration with the Japanese Government, which is pushing pretty hard on this issue,’ says Sorkin. In Australia, IAG Firemark Ventures recently invested in technology start-ups like Digital Agriculture Services and Arturo to leverage climate data and imaging. The company’s general partner Scott Gunther says the investments help IAG to experiment and ‘create new and innovative experiences’ for its insurance customers. ‘Data and insights from satellite or any form of aerial imagery provide new ways to understand and assess risk,’ he says. ‘Our investment in Digital Agriculture Services will help us better understand agriculture and climate risks using data and location insights from satellite imagery and unique data services. This will help empower agriculture customers with emerging data and insights about their property and assets and the risks associated with their farms.’ Gunther adds that the investment in artificial intelligence property analytics company Arturo will provide new ways of understanding residential property risk. ‘By using satellite, aerial and drone imagery to deliver accurate property information in real time, this technology has the potential to reinvent how we help our customers during major weather events like floods and bushfires,’ he says.

PREPARING FOR

BUSHFIRE SEASON As Australia stares down another bushfire season, the devastating impact of last summer’s fires remains top of mind. A frightening example of the impact of changing climatic conditions, the natural disaster was fuelled by record-breaking temperatures and drought across the nation’s southern and eastern states. The fires killed 33 people, burnt almost 19 million hectares of land, destroyed more than 3,000 houses and produced record loss amounts of around A$2.8 billion, of which around A$2 billion was insured due to the high proportion of fire insurance cover for buildings. The Australian National University’s Dr Marta Yebra is involved in developing the first Australian satellite designed to predict where bushfires are most likely to start and those that will be difficult to contain. She explains that satellite technology is now used in almost all facets of bushfire management across the globe. ‘It provides information about all components of the fire triangle,’ she says. ‘You can know about the fuel conditions — how much fuel there is, how dry it is, how it is arranged. All this information goes into fire danger ratings and fire spread models. ‘During a fire, you can also know where the hot spots are. You can use satellites to inform you of where the fire may spread, and that helps to inform evacuation activities.’

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SATELLITE TECHNOLOGY

Opportunities above the clouds

NEW ZEALAND

LAUNCHES INTO SPACE New Zealand is emerging as a key player in the global space industry, thanks to factors such as clear skies above its remote geographical location and the government’s appetite to increase satellite design and manufacturing capabilities. Data from Deloitte shows the industry contributed NZ$1.7 billion to the country’s economy in 2018 / 19. Rocket Lab, a US company with a New Zealand subsidiary, established the world’s first private orbital launch range on the Mahia Peninsula in 2017 and has a second launchpad under construction at the site. Earth observation research institute Xerra is developing satellite data products to deliver economic and environmental benefits. Meanwhile, NASA is partnering with the New Zealand Ministry of Business, Innovation and Employment, the New Zealand Space Agency, Air New Zealand and the University of Auckland to install Global Navigation Satellite System (GNSS) reflectometry receivers on passenger aircraft to collect environmental science data over the country. Dr Nicholas Rattenbury, science lead for the Auckland Programme for Space Systems and a member of Auckland Space Institute at the University of Auckland, says the institute is developing the country’s space industry through projects such as monitoring the country’s oceans and coasts via small-satellite radar. He sees ‘great potential’ for satellites to address climate change. ‘The range and quality of satellite data are extraordinary and there are some interesting projects happening around the country,’ says Rattenbury. ‘New Zealand has agreed to support MethaneSAT, for instance, which is a methane gas monitoring satellite program and this is a clear climate change mission. There is huge scope for the broader space industry here.’

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David Kells, national sector leader, insurance, at KPMG Australia, says the growing use of satellite data is an indication of the industry’s increased willingness to embrace technology. ‘If you look at the innovation curve, insurers have generally been at the lower end of it,’ he says. ‘But I think there’s definitely been an acceleration of thinking in recent times, and a lot of this ties to the whole idea of prevention versus protection. This also links back to a greater use of technology, which includes satellites.’ As technology becomes more advanced, insurers can expect a greater understanding of climate risk, says Sorkin. Jupiter’s ClimateScore platform, for example, draws on a range of climate data from sources, including satellite observations, to provide analysis from one hour to 50 years in the future. Its metrics measure the risks of hazards such as flood, wind, heat, fire, drought, hail and earthquake. Sorkin says the modelling starts with a simulation of the current risks using the existing terrain and weather data. ‘The observational data and modelling for this is vastly more sophisticated than it was even 10 years ago,’ he says. ‘The computer power that’s available for that simulation is also much better. In many cases, we’re actually outperforming the risk models that insurance companies are using today, and customers have validated that for us against their own loss history.’ With the risks from climate change growing as the planet continues to warm, Gunther expects more insurers to tap into satellite data to manage the challenges ahead. ‘By understanding how risk, including climate risk, is changing and evolving over time, customers and communities will be better informed to make decisions to prepare and mitigate risk, while protecting their assets through insurance.’

RELATED COVERAGE

How climate risk will affect vulnerable populations By Susan Muldowney

P Take me there At the vortex – when climate change and natural perils meet By Anna Game-Lopata

P Take me there SUSAN MULDOWNEY Freelance writer & editor

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Time to give back Sedgwick Australia’s CEO and new ANZIIF board member Diego Ascani looks to a positive future for the insurance industry and an opportunity to give back to the profession he loves.

PROFILE

Diego Ascani Story Zilla Efrat Photography Michael Amendolia

D

iego Ascani realised that being in insurance was his life purpose soon after taking on his first job. Now CEO of Sedgwick in Australia (formerly Cunningham Lindsey) and a new member of the ANZIIF board, Ascani originally studied law in South Africa, the country of his birth. After graduating, he went to live with an aunt in the Lake Como area in Italy, but finding a job in law was difficult because of the different legal system there. Ascani soon found himself back in Johannesburg, where he joined a company that later became part of international loss adjusting group GAB Robins. ‘I absolutely loved what I was doing,’ he enthuses. ‘I loved the nature of claims and the fact that my boss for eight years was a brilliant guy called Terry Ward. He was an absolute gentleman and looked just like [actor] Richard Gere. He mentored me and taught me the art of loss adjusting. I literally followed him like a shadow. ‘I also loved that we got to travel around southern Africa and I got to see places I would not have normally gone to. There was lots of variety in the work and every day was different.’ Ascani describes loss adjusting as a craft. ‘There’s art and science to it,’ he says. ‘It’s a profession that almost requires you to be multiskilled: you must understand the black letters of a policy and at the same time, you need to be empathetic in order to reach negotiated settlements.’ But he adds: ‘I think the thing that got me hooked on insurance is helping people get back on their feet after a material loss. I am part of an important process that helps repatriate people with their pre-loss assets or put them back into the same position they were in before the loss. That has been close to my heart to this day. ‘I really found my life purpose in insurance, and now, at this stage of my career, I feel it’s really time to start giving back and that’s why I am excited about my new role on the ANZIIF board. ‘I am super enthusiastic about the training and education ANZIIF does. I’ve seen how the insurance industry attracts individuals with all kinds of

‘The thing that got me hooked on insurance is helping people get back on their feet after a material loss.’

backgrounds — doctors, actuaries, lawyers and even fresh graduates straight out of school. There’s a home for everyone who wants a role.’ Ascani acknowledges that the insurance industry can receive bad publicity. ‘That’s unfortunate, because 99 per cent of the time, insurance gets it right and is very helpful,’ he says. ‘Unfortunately, the media and perhaps some political forces sometimes focus on the small portion that does not go to plan.’

Onwards and upwards in Australia

OPPOSITE New ANZIIF board member Diego Ascani says there’s ‘art and science’ to loss adjusting.

After migrating to Australia in 1999, Ascani worked in the insurance divisions of Deloitte and later PwC, consulting to their insurance company clients for almost 10 years. In 2009, he joined Xchanging, a workers compensation company that needed a New South Wales manager. ‘After five years at PwC, I felt I was ripe for change. I didn’t know anything about workers comp, but I knew about injury management and claims and decided to give it a go,’ he says. ANZIIF.COM // ISSUE 04 02 2020 // JOURNAL

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PROFILE

TWO-MINUTE BIO

Xchanging was later purchased by technology company CSC, which was then bought by another technology company, DXC. Because insurance claims management made up less than 2 per cent of what DXC did and because he didn’t want to work at a technology company, Ascani started looking around. In January 2017, he joined loss adjusting and claims management company Cunningham Lindsey as chief operations officer. This company was then acquired by Sedgwick in April 2018. Ascani describes the acquisition as ‘a fantastic experience’. ‘Sedgwick didn’t have a presence in Australia. There was no integration, no redundancies and no duplication of roles. It all went very smoothly,’ he says. ‘Sedgwick HQ helped us with the rebrand and spent a lot of time communicating with our staff. It recognised that we needed to modernise our technology and worked with us to make it happen. It was a very supportive effort. ‘Since I became CEO in August 2018, I have been able to surround myself with some really great people on my leadership team and outstanding colleagues. Now I am looking forward to the opportunities that are ahead of us.’

Diego Ascani

Surviving COVID-19

COMPANY // Sedgwick Australia TITLE // CEO

EDUCATION

Bachelor of Commerce and Bachelor of Laws at the University of the Witwatersrand in Johannesburg; Master of Business Administration at Bond University in Queensland; Company Directors Course, Australian Institute of Company Directors.

BACKGROUND

After studying to be a lawyer and practising law in South Africa, Ascani’s first insurance job was as a loss adjustor at a company that later became part of GAB Robins. He has been in insurance ever since. He migrated to Australia in 1999 and joined the insurance divisions of Deloitte and later PwC, consulting to government and other large insurers. In 2009, he signed up as Xchanging’s manager of workers comp in New South Wales and later became its head of insurance. In 2017, he was hired by Cunningham Lindsey as its chief operations officer.

JOURNAL // ISSUE 04 2020 // ANZIIF.COM

Five months after Cunningham Lindsey was acquired by Sedgwick, he was promoted to CEO of the Australian operations. He was appointed to the ANZIIF board in May 2020.

LEADERSHIP PHILOSOPHY

‘Do what you promise to do. Try to always do the right thing even when no-one is looking.’

OUTSIDE THE DAY JOB

‘I am an Alfista (Alfa Romeo fanatic) at heart and love travelling, particularly to Italy. I am also a keen cyclist, both on-road and on a mountain bike. I have a wonderful wife and daughter with whom I try to spend as much time as possible enjoying life.’

TOP TIP

‘Try to take something positive out of every experience — even the bad ones — and never stop learning.’

Ascani believes COVID-19 is a once-in-a-century event that will have a lasting impact on just about everything, including the insurance industry. It will certainly be a catalyst for more uptake of Sedgwick’s digital capabilities, which allow claims or repairs to be assessed remotely with the help of mobile application uploads by insureds or repairers. ‘There was a bit of resistance to technology change before the pandemic,’ he says. ‘Adjustors still enjoyed driving out to sites to examine the damage and meet insureds. But COVID-19 flipped everything on its head. Our adjustors couldn’t undertake site visits and have started using technology advancements.’ Ascani expects this technology to become business as usual post-pandemic, and Sedgwick plans to extend its use to commercial and larger losses, which will also result in some cost savings. But because it’s still vital to meet face to face with customers who have suffered a loss, Ascani says Sedgwick will still do site visits where insureds or insurers want them, and especially for vulnerable customers with all the safety precautions in place. ‘I think we are going to emerge from COVID-19 in a stronger position with more resilience,’ he says. ‘I’d like to believe that we’ll have more loyal colleagues, having lived through this difficulty together. ‘We’ve had strong backing from the Sedgwick global leadership team and it has given us the tools we need to get through this period.’

IN A YEAR LIKE NO OTHER,

caring counts more than ever.

caring counts | sedgwick.com/au

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RETAIL by Timothy Chan ANZIIF (Aff) CIP Illustrations by Cami

Shopassurance Coming to a check-out near you With the right product and vision, shopassurance channels might prove the solution to rising demand for more personalised insurance.Â

JOURNAL // ISSUE 04 2020 // ANZIIF.COM

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T

he insurance industry is going through a period of transformation. While investment in insurtechs may have dipped due to the COVID19 pandemic and the resulting uncertainty in global markets, insurance products and distribution channels have continued to evolve. McKinsey & Company reports that personalisation will drive the marketing of products and services in the next five years. Selling insurance in partnerships with supermarkets and retail chains — shopassurance — might be the answer to consumers’ demand for more personalised insurance. But like most new technologies, there are some issues to think through before we all opt in.

A tailored shopping experience Shopassurance makes the annual ‘grudge’ purchase feel like a more common affair. Adding insurance to existing sales channels for other products and services, whether online or instore, allows the insurance purchase channel to be customised with a particular look and feel that customers can come to recognise. For the retailer, this promotes conversion and brand loyalty. It is no wonder that supermarkets, an essential and familiar part of the landscape for customers, are now selling insurance. In Australia, Coles and Woolworths have joined in, while Tesco in the United Kingdom has a similar offering. Shopassurance providers are also able to use data they hold about their customers’ buying behaviours and preferences to market insurance products. Understanding this data can be challenging and require specialist expertise; however, if its potential can be unlocked, data can create significant competitive advantages for the retailer.

IN SHORT › Shopassurance is the

practice of using existing retail channels to sell insurance products.

› It has the potential to fulfil growing consumer demand for more personalised products and services.

› However, insurers and

partners must strike the right balance when using data to ensure they continue to deliver positive consumer outcomes as this distribution model matures.

Optimising conversions Data-driven decisions play a significant part in optimising insurance conversions. According to Capgemini and Efma’s World Insurance Report 2018, 47.5 per cent of tech-savvy consumers were open to receiving proactive insurance offers. Where unlocking data achieved insurance offers that were correlated to life events, consumers reported significantly higher positive experiences with that provider. Changes to Australia’s hawking laws are proposed to apply to insurance products in 2021. The changes will prohibit the unsolicited sale of insurance products. Other reforms include a proposal to defer the sales of add-on insurance products. While it is likely shopassurers can continue to advertise insurance, more personalised targeting, where immediate responses are demanded, may be subject to greater scrutiny.

A more personalised product As well as delivering a more personalised shopping experience, shopassurance can also create a more

‘Shopassurance makes the annual “grudge” purchase feel like a more common affair.’ personalised insurance product, whether it be through specific coverage options or more accurate risk-based pricing. This is made possible through data held by the retailer, and, with time, this data can be interpreted in conjunction with claims experiences. Shopassurers are generally not risk carriers. Instead, they partner with licensed insurers. As such, they may be limited in their ability to customise products without a co-operative and entrepreneurial insurance partner. As an example, an electric car manufacturer could share information about a person’s driving habits and style with the insurer, providing valuable information that can be used in assessing a driver’s risk for car insurance. Interestingly, shoppers’ buying habits — tracked through their use of loyalty cards — have also been linked to car insurance risks. Those who filled up their petrol at night and were more frequent consumers of spirits were less favourable insurance risks, reported supermarket giant Woolworths. Insurers who are open to playing around with their products will be more successful shopassurance partners for retailers. In turn, insurers can reap the rewards of tapping into the data held by retailers to better understand the risk insured and the claims experience, as well as driving the profitability of the portfolio by delivering customer-centric policy coverage. For customers, it means obtaining better value for their insurance purchase.

Enter the tech giants The World Insurance Report 2020 found that over the past four years, consumers worldwide have become more open to purchasing insurance products from large tech companies. In 2016, research showed only 17 per cent of customers were willing to purchase insurance from tech companies; in 2020, this figure was 36 per cent. It is perhaps no coincidence then that technology giants Amazon and Alibaba have launched their own insurance offerings in the past few years. In 2016, Alibaba launched its online insurance platform on Alipay, the world’s largest mobile payments platform, and in March 2019, Amazon acquired an insurance agent licence in India. Chinese tech company Tencent also launched an ANZIIF.COM // ISSUE 04 2020 // JOURNAL

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RETAIL

An underinsurance problem?

insurance offering, WeSure, in November 2017, insuring 25 million customers by the end of 2019.

A higher premium may make insurance unaffordable for some, meaning they may switch from being insured to uninsured, increase their excess or reduce their sums insured. This means they are likely to suffer financially if a claim event ever occurs and are more likely to require support from public services, which could mean a strain on government resources. An additional concern is that the data being used to justify a higher premium may be inaccurate due, for example, to a faulty Internet of Things device or a mismatch of information in the public domain. It could then be highly challenging for the consumer to navigate the processes of making the discovery in the first place, through to obtaining the specific data utilised by the insurer and having the record corrected.

A new insurtech vertical Looking more broadly, increased interest in shopassurance has created opportunities for a new vertical within the insurance industry that is creating jobs and attracting fresh talent. There are now a number of insurance technology companies that specialise in assisting retailers to become shopassurers. These companies can help retailers to launch more quickly and assist with implementing the technology on the retailer’s website. They also play a role in connecting retailers with established insurers who underwrite the risk. Two Australian examples are start-ups Insured By Us, which specialises in travel insurance, and Cover Genius, which specialises in add-on insurance during the retail check-out process.

Quality of life

PROS AND CONS While shopassurance can create many benefits for consumers, the resulting granularity of risk selection could potentially lead to adverse implications for society, including the inability to access insurance for some and an insurance gap for those who may need it the most. Analysis undertaken by the Actuaries Institute suggests that as more data is used, a significant number of individuals who are currently paying a premium correlated to the ‘average’ risk will be able to pay a lower premium.

NO. OF INSURANCE CUSTOMERS

Source: The Impact of Big Data on the Future of Insurance Green Paper, Actuaries Institute

SPREAD OF INSURANCE PREMIUMS

A

Current

Area of unaffordable insurance

Future (Big Data)

C

B Low Risk

Average Risk

High Risk

INSURANCE PREMIUM LEVELS

However, those who do not consent to sharing data with the insurer, or where the data shows they are higher risk, may be required to pay a higher premium. The result of the Actuaries Institute’s analysis is depicted in the diagram (above), with a larger number of people grouped in the red high-risk zone. The axiom that insurance involves the sharing of risk is still correct, but the sharing of risk is more correlated to each individual’s contribution to it in the pool than is currently possible.

JOURNAL // ISSUE 04 2020 // ANZIIF.COM

Unaffordable insurance can reduce the quality of life for individuals classified as ‘high risk’ because they may be reluctant to participate in certain activities as a result. For example, a person with multiple medical conditions may not be able to obtain travel insurance that covers claims arising from these conditions. While this divide already exists, the Actuaries Institute predicts it will become more prevalent as more risk factors are identified and insurers are able to underwrite using an individual’s specific risk rather than classifying individuals into risk groups.

Government involvement While products can be segmented to cater for particular risk profiles and specific coverage terms can be employed, there are also several options available to governments to address this public policy concern. The Actuaries Institute believes that the government may choose to act as an insurer of last resort by forcing insurers to share the risk of high-risk individuals between themselves. Governments could also amend current antidiscrimination legislation to regulate for the use of certain data points and review the exemptions in place for insurers. This kind of scenario will require great caution to ensure the continued viability of insurance, which is an industry based on risk analysis and selection and reliant on product development for its growth. TIMOTHY CHAN, ANZIIF (AFF) CIP Norton Rose Fulbright

Timothy Chan is an insurance lawyer at Norton Rose Fulbright in Sydney. He advises clients on setting up insurance businesses, distribution issues, licensing in Australia, reinsurance and coverage disputes. He has also advised financial institutions on eligible regulatory capital requirements under the Australian Prudential Regulation Authority’s prudential standards, and the use of specialist risk transfer solutions.

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GREEN BUILDINGS by David North ANZIIF (Aff) CIP

It’s not easy being green The construction industry is going green as demand for sustainable buildings skyrockets. But green buildings present a fresh set of challenges that insurers will need to address in supporting the shift towards a more efficient built environment.

T

New materials, new risks While the idea of green buildings has obvious appeal, as highlighted in the 2020 Swiss Re SONAR JOURNAL // ISSUE 04 2020 // ANZIIF.COM

report, a lack of experience with new and more sustainable materials poses fresh risks for the insurance industry. Since green construction is relatively new, its long-term effects are still unclear and more needs to be done to better understand how such materials are made and maintained for longterm use. Based on previous experience, some of the more concerning elements include the underperformance of products, non-compliance with building standards, structural deficiencies, indoor pollution, leakages, moisture, mould and deterioration. For example, water used for cooling and irrigation may lead to leakages in the run-off system and the possibility of mould growth, while popular green materials such as wood are also more sensitive to moisture, water or infiltration. Another example is the construction material called drywall — also known as plasterboard. During the 2000s, drywall panels imported from China were used extensively in new home builds in the United States. Unfortunately, they created increased moisture, causing respiratory illness and headaches due to the emission of sulphur. And we all know the tragedy of London’s Grenfell Tower blaze in 2017. The rapid spread of the fire is alleged to have been mainly caused by the high-risk aluminum composite material panels used in the building’s refurbishment.

Construction experience key When it comes to the installation of green building materials, it is important that the contractor has the knowledge and experience for proper installation, as well as ongoing maintenance. Although some materials are considered ecofriendly for the construction process, they might

› Green buildings are a

great tool in the fight against climate change but pose new exposures for insuring the construction industry.

› Underperforming green materials, structural deficiencies and noncompliance with building standards are issues of concern.

› Insurers can support the

green building movement with a robust framework that enforces good standards.

WHAT TURNS A BUILDING ‘GREEN’? According to the Green Building Council of Australia guidelines, a green building: has design, construction and operational practices that reduce or eliminate its negative impact on the environment and its occupants. promotes efficiency through construction and ongoing performance. uses resources effectively and creates healthier environments for people to live and work in.

Photography: iStockphoto

he COVID-19 upheaval has left many people pondering the question: what will our future workspace look like? The changing view of traditional work practices during the pandemic, coupled with the environmental considerations now given to newly built homes and offices, means green buildings will play a big part in the answer. Also known as sustainable or high-performance buildings, green buildings champion energy efficiency, the use of eco-friendly materials and a reduction in greenhouse gas emissions. The Green Building Council of Australia rates the sustainability of buildings through the Green Star system, which assesses the sustainability attributes of a project through ‘impact categories’. Buildings are awarded credits for each initiative judged to improve their sustainability performance. The credits are then tallied up and converted into a certified Green Star rating. Green buildings are rising in popularity, with software company Atlassian recently announcing plans to build the world’s tallest hybrid timber building in Sydney. The 40-storey tower will generate 50 per cent less carbon during construction and consume 50 per cent less energy while in operation than a conventional building. Green building features and materials in high demand include water-efficient plumbing fixtures, self-healing concrete and organically coated steel for use in ‘smart’ buildings.

IN SHORT

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‘Since green construction is still relatively new, its long-term effects are still unclear.’

HOW THE (RE)INSURANCE INDUSTRY IS SUPPORTING THE TRANSITION TO GREEN CONSTRUCTION Decennial liability insurance / inherent defect insurance to cover long-term risks associated with the new construction methodology and materials. Product liability insurance to cover unknown alteration / impact on humans and the environment. Increased use of risk engineering services to assess the risk and understand the potential long-term impact. Extended warranties that cover, for example, performance of solar panels over the lifetime cycle. There is scope for the policy to have a double trigger whereby payment is made only if the performance drops below a certain level and if the company would become bankrupt due to the warranty payments. Therefore, it’s paramount that the client is willing to share in-depth long-term performance data and quality control procedures.

be harmful when it comes to maintenance or demolition of the building. Swiss Re has seen one claim example where the use of recycled crushed concrete caused problems for a contractor’s liability claim when the product was found to contain a high level of asbestos.

Complexities in claims One solution suggested in the SONAR report is that insurers start offering coverage for green building upgrades to cover the expense of upgrading a building to gain or regain green building certification after a green event. ‘Failure to achieve a Green Standards labelling, for example planning / supervision error, construction failure or product defect, or losing a Green Standards labelling during operation of the building due to product defects may trigger liability claims, for example, due to a reduced property value,’ the report notes. ‘The cleaner the roles and responsibilities, the smaller the effort needed to achieve, maintain and enforce standards.’ Another example of green buildings adding a new layer of complexity to the claims handling process is when home owners seek out incentives based on the assumption they will qualify for certain ‘green’ credits. But if the building is unable to qualify, who would be left to foot the bill? Buildings that are green certified may require additional costs to ensure that repairs are sufficient to return the building back to that level of certification, so it’s important to be cautious if requested to provide a guarantee. Insurers should be wary of attempts to shift faulty workmanship or product guarantees into product liability covers. It is pleasing to note that green buildings and more environmentally sustainable construction are a fantastic trend for climate change mitigation. However, for (re)insurers to efficiently support the transition to green construction materials, a robust framework with clear responsibilities is essential in order to achieve, maintain and enforce standards and good practice. Being well informed and prepared is important in order to ensure that while the construction industry turns green, the insurance industry does not end up in the red. DAVID NORTH, ANZIIF (AFF) CIP Swiss Re

David North is a claims expert at Swiss Re. He has extensive experience in the reinsurance industry, including facultative and treaty underwriting, claims management and broking. He currently manages large and complex casualty claims and has an interest in emerging risks. North has also worked in Swiss Re’s London and Zurich offices.

ANZIIF.COM // ISSUE 04 2020 // JOURNAL

ADVERTORIAL

Building a sustainable insurance business through Covid Raj Nanra, CEO of IQumulate Premium Funding, talks about how he continued to build a sustainable insurance business and brand through a challenging year of natural disasters and a pandemic. The Covid-19 pandemic has caused the world around us to change and is the most serious global health crisis we have seen in a century. The uncertainty and effects of the pandemic on people’s lives, on business and the economy, have been catastrophic and will continue to affect the world for some time. The insurance industry has been greatly affected as seen in key coverage around travel and business interruption. Consequently, we have seen extreme pressure on sales teams due to reduced business activity and lockdowns have meant that face to face meetings with clients were not possible. Despite the negative impacts, the pandemic has also given the insurance industry an opportunity to demonstrate their purpose, their commitment to their clients and the value that they can provide to businesses. IQumulate is an intermediated business where we distribute our product through insurance brokers across Australia and NZ, with our key stakeholders being our broker partners and their clients. They play a critical role in ensuring that businesses have the right level of insurance cover to protect their assets and manage risk. We’ve seen an overall increase in the

demand for our services as more businesses look to find ways to preserve cash and ensure adequate coverage. Spreading out their payments over a longer period is a sensible option that more businesses are clearly considering. With the pandemic escalating in March 2020, our Business Continuity Plan kicked into gear and meant that our business had the operational agility to easily move to a remote setup. This allowed our team to move seamlessly to a remote working environment whilst continuing to provide the highest level of service to our broker partners. In terms of impacts, we front all sectors of the economy and have been working through numerous requests for assistance from businesses facing hardship and possible default. We set up a dedicated customer service team and looked to work with our broker partners to implement strategies that would be in the best interests of customers and therefore providing peace of mind. This has put a heavy burden on various departments within our business, but I am proud of the way that the entire team has banded together and shown resilience over the last 9 months to support customers and each other.

As a business we have a clear sense of purpose and have remained focused on delivering our strategy, while having to make adjustments in an ever-changing environment. Our mission is to build a sustainable business for the benefit of: y Our people and their careers y The brokers we service; and y The people and businesses who benefit from using our product As the lockdowns across Australia and New Zealand start to ease, this will allow us to once again to re-engage with our business partners. While we often reflect on some of these changes, what’s also clear, is that systemic threats such as climate change, cyber-attacks and pandemics are something we will need to face in a world marked by instability. I strongly believe that an agile business which is able to respond to changes, not only remains resilient, but is able to continue to meet the needs of their staff, business partners and ultimately the customers.

Raj

Enabling business to afford the right level of insurance cover.

IQumulate provides insurance premium funding solutions to support you and help your clients make the right choices in protecting their assets. What are the benefits of premium funding? Free up cash for business growth Flexible payment options Interest charges can be tax deductible Spread the cost of insurance and enable the right level of cover Contact us today on 1300 555 068 or visit IQumulate.com This information is provided by IQumulate Premium Funding Pty Limited ABN 82 127 517 677, on behalf of the funder, IQumulate Funding Services Pty Limited ACN 632 439 902. This information does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for you. Lending criteria, fees and T&Cs apply.

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We’d love to hear from you — suggest a topic or make a submission to the Journal at anziif.com/about/the-journal or email us at: [email protected]

Technical• Keep up to date with the latest research, market trends and big issues facing the industry.

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GENERAL //

LIFE //

RISK //

BROKING //

PAYG for the road ahead?

Lessons from a pandemic

Investigating Industry 4.0

The power of partnerships

With motorists spending less time on the roads, usagebased insurance products have moved into the fast lane.

Rising customer interest during COVID19 has kick-started a tech innovation boom in the life insurance sector.

The fourth industrial revolution is reinventing manufacturing as we know it, creating new risks for insurers.

Brokers are uniquely placed to champion innovation, making collaboration with insurers more crucial than ever.

46 CLAIMS //

Putting BI cover to the test COVID-19 shutdowns have shone the spotlight on business interruption policies with the potential for costly outcomes.

ANZIIF.COM // ISSUE 04 2020 // JOURNAL

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Business interruption cover

CLAIMS

by Alexandra Cain

Photography: iStockphoto

JOURNAL // ISSUE 04 2020 // ANZIIF.COM

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Putting BI policies to the test COVID-19 has had varying implications for business interruption cover across the globe. At least three court cases in Australia are testing the wording of policies, but Asia Pacific and New Zealand face a different claims environment.

IN SHORT › There are at least three test cases underway in Australia related to business interruption (BI) insurance and COVID-19.

› An issue is the extent of BI cover

provided in policies that refer to the now-obsolete Quarantine Act 1908.

› Other factors under the

microscope include the meaning of ‘damage’ in policy wording and the impact of action taken by authorities.

I

nsurance markets around the world are taking very different approaches to business interruption (BI) insurance as it relates to COVID-19. In the United Kingdom, the High Court judgement for the Financial Conduct Authority’s business test case found that most, but not all, of the disease clauses in a representative sample of standard-form BI policies from eight insurers did provide cover for policyholders. A subsequent appeal was heard by the UK’s Supreme Court in November and judgement was reserved, as expected. The judges indicated a verdict could be handed down before Christmas. Across Asia, previous experience with the severe acute respiratory syndrome (SARS) pandemic in 2003 informed insurers’ approaches to COVID-19. In Australia, meanwhile, at the time of writing, three legal cases related to BI cover and the pandemic are going through the courts. One is a test case involving two separate small business claims that were lodged with the Australian Financial Complaints Authority (AFCA) as part of its insurance dispute resolution service. The case — led and funded by the Insurance Council of Australia (ICA) — relates to policies issued by Hollard and HDI Global Specialty that provide cover for BI losses arising from infectious diseases, but which exclude diseases notified under the Quarantine Act 1908 and subsequent amendments. The New South Wales Court of Appeal heard the test case on 2 October and recently made a determination. ‘COVID-19 was notified under the Biosecurity Act 2015, which replaced the Quarantine Act. Most policies have been updated to refer to the Biosecurity Act, but some still refer to the Quarantine Act and subsequent amendments,’ says Mark Darwin, a partner at law firm Herbert Smith Freehills. ‘The key issue in the ICA test case is whether policies that still refer to the Quarantine Act, which was repealed and

replaced — not amended — should be interpreted as an intention to include its replacement legislation, namely the Biosecurity Act.’ In a 5–0 decision, the NSW Court of Appeal held the exclusion in the infectious diseases extension for ‘quarantinable diseases notified under the Quarantine Act and subsequent amendments’ did not exclude listed human diseases under the Biosecurity Act. The ICA has confirmed it will appeal the decision in the High Court. Darwin is uncertain how far-reaching the test case’s outcome will be for Australian and New Zealand policyholders, regardless of who wins or loses. ‘The success of local authorities’ actions to limit the spread of COVID-19 in this part of the world means that unlike in the UK, perhaps with the exception of Victoria, few premises were infected with the disease or had the disease within the vicinity of the business,’ he says. ‘Obviously, a lot depends on the individual policy wording and circumstances, but many policyholders may not even get to first base on triggering a claim under the disease extension, meaning arguments about the scope of the exclusion to the disease extension could be largely irrelevant.

‘Obviously, a lot depends on the individual policy wording … but many policyholders may not even get to first base on triggering a claim under the disease extension ...’ Mark Darwin / Herbert Smith Freehills

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CLAIMS

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‘In Australia and New Zealand, most of the BI losses arose following the actions taken by authorities restricting gatherings and movement of the population to prevent or minimise the spread of the disease.’ The relevance of the actions by authorities will be scrutinised in casino operator Star Entertainment Group’s claim — the second test case. It deals with BI cover for losses caused by actions taken by authorities, under a claim made pursuant to the civil authorities extension. It involves a claim by The Star Sydney, which was required to close its casino complex under health regulations legislated as part of the national cabinet’s agreed response to the threats presented by COVID-19. The Star’s policy contains the following civil authorities extension: ‘The word “Damage” under Section 2 of this Policy is extended to include loss resulting from or caused by any lawfully constituted authority in connection with or for the purpose of retarding any conflation or other catastrophe.’ Darwin notes The Star’s policy contains the infectious disease extension, although it excludes diseases notifiable under the Biosecurity Act and The Star’s policy has been updated — meaning the Quarantine Act point is not relevant. ‘The Star’s insurers, led by Chubb, have denied the claim, alleging that the meaning of damage under the policy refers to physical damage, that COVID-19 is not a catastrophe and that the policy’s intent isn’t to cover pandemics, as exhibited by the exclusion of diseases notifiable under the Biosecurity Act in the infectious diseases extension,’ says Darwin. ‘They essentially say “why would we give cover under one extension when we exclude it under another”. Note that a similar argument was rejected in the UK FCA test case.’ The Star case — in the Federal Court before Chief Justice James Allsop — is presently progressing through the interlocutory stages. A directions hearing is expected to set a hearing date for early in 2021. The other Australian test case — also in the Federal Court — is an action filed against Vero Insurance by the owner of the Vanilla Lounge restaurant, located in the Melbourne suburb of Oakleigh. This case raises the same issues as the ICA / AFCA test case, but there is a dispute about which policy wording applies. It also addresses a number of other factors surrounding BI losses, including the impact of COVID-19 on consumer behaviour and the action taken by state and local governments.

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Who stands to win?

‘… in Asia, policy wording has moved from requiring an outbreak in the vicinity to an outbreak on the premises. That’s hard to prove. People are unlikely to be diagnosed on the premises.’ Neil Thomas / Willis Towers Watson

Mark Waller, the Clayton Utz partner who acted for the insured policyholders in the ICA / AFCA test case, says: ‘The outcome of the test case is likely to have more relevance to medium to small businesses, a large sector of the economy that has been very hard hit by COVID-19.’ Waller’s colleague Chris Erfurt, special counsel at Clayton Utz, also worked on the test case. He says: ‘In my experience, the cover provided to larger insureds was generally based on the Mark IV or Mark V ISR [Industrial Special Risks] policy form and was heavily negotiated between the insured’s broker and the insurer. The extent of any cover for COVID-19 BI losses will depend on the breadth of the extensions of cover negotiated by the broker for disease, prevention of access extension or civil authority action. ‘In the case of medium to small businesses, their policies were often standard form policies that were not negotiated by brokers, and many of those policies contain cover for BI due to the outbreak of infectious diseases within a

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ADVICE FROM ASIC specified radius of the insured’s premises and the exclusion in many of those policies refers to the Quarantine Act and not the Biosecurity Act.’

A different experience Across the ditch, the situation is quite benign compared with Australia. So far there has only been one large BI claim in New Zealand, involving about 700 childcare centres closed in the nationwide lockdown by the government. ‘As is common for these sorts of extensions, there is apparently a small sublimit for each centre, which will cap the total size of the claim,’ says Darwin. There are no test cases in New Zealand and the Australian tests cases are unlikely to affect Kiwi policies. In Asia, the approach to BI insurance is quite different to the situation in other parts of the world, due to cultural differences and lessons learned during the first SARS outbreak. Willis Towers Watson head of claims for Asia, Neil Thomas, says his broking group started logging COVID-19 claims very early on in the pandemic. ‘It’s no surprise we have thousands of claims across the globe. But of those, only 26 were from Asia, so a very tiny number, and the figure also included some travel claims. Whereas if you look at Australia, the numbers are much higher — more than 10 times higher. Once you get to Europe and the United States, the numbers escalate exponentially.’ The main reason claims across Asia are so limited is because after SARS, the wording in Asian policies as they relate to BI and pandemics became far more restrictive than in policies issued by European, US and Australian insurers. But that’s not the only reason the Asian experience is quite different. ‘SARS played a part. But Asian societies are inherently conservative, so I suspect there’s a measure of watching and waiting to see what happens among the business community,’ says Thomas. ‘Also, of those 26 claims, the ones that involve BI were made by multinational corporations from America or Europe.’ Further, Thomas notes that the insurance buying pattern is different in Asia. ‘Asian small businesses are less likely to buy BI insurance versus businesses in Europe and the US, where restaurants, dental surgeons and all sorts of smaller

businesses buy BI insurance, often through schemes,’ he says. Thomas says the legal case that defined SARS involved a Hong Kong hotel. ‘It had cover for an infectious disease outbreak within 25 kilometres of the premises for a notifiable disease, and the decision was in favour of the hotel. A point of contention was the date from which the claim applied, which was determined to be the date on which the disease became notifiable. As a result, most policies were subsequently changed so the outbreak needed to occur on the premises for the policy to pay out.’ By contrast, he notes that in Europe and the US, many policies still include a vicinity clause and may pay out if an outbreak occurs within a certain distance from the policyholder’s operations — a distance selected by the insured party. In the Hong Kong hotel case, Thomas says that one of the insurer’s arguments revolved around relying on that radius and proving there was a SARS outbreak within it. ‘The judge said it’s impossible to know where the outbreak was, but if the country was locked down as a result of the epidemic, the insurer had to pay the claim,’ he says. ‘Nevertheless, in Asia, policy wording has moved from requiring an outbreak in the vicinity to an outbreak on the premises. That’s hard to prove. People are unlikely to be diagnosed on the premises.’ Thomas adds that after SARS, Asian policies also tended to exclude certain diseases like SARS and bird flu. In the case of COVID-19, he says insurers are arguing it is a variant of a previous virus. Although this may be a matter of technical medical evidence, insurers are using it as a defence. It’s too early to tell how BI claims will play out in Australia, New Zealand and, to a lesser extent, across Asia, especially as the ICA is pursuing a High Court appeal. But whatever happens, it’s almost certain it will fundamentally change this type of cover for policyholders in the future.

ALEXANDRA CAIN Freelance writer

‘It’s fascinating to see how different insurance markets are responding to COVID-19. I think it will shake up the way BI cover works across the world.’

Insurers should have a plan for responding to the outcome of the business interruption (BI) insurance test case that was heard by the NSW Court of Appeal in October. That was the word from the Australian Securities and Investments Commission (ASIC) in a letter to general insurers, Lloyd’s coverholders and brokers on 16 October 2020. ASIC’s acting chair Karen Chester said the plan should include how to communicate with policyholders. ‘General insurers should also provide appropriate information to insurance brokers to pass on to small business policyholders,’ she added. Chester said the test case examined exclusions for losses arising from a pandemic where the ‘disease’ has been designated under the now repealed Quarantine Act 1908 (Cth) or the current Biosecurity Act 2015 (Cth). Most BI insurance policies sold to small businesses in Australia contained such exclusions, she said. But regardless of legal outcomes, Chester said some policies may respond to losses arising from COVID-19 because they: • do not include a pandemic exclusion; or • contain a pandemic exclusion that applies only to ‘infectious disease’ coverage clauses and not to other coverage clauses in the policy such as ‘prevention of access’ or ‘closure by authority’ coverage clauses. ‘As with all insurance claims, claims on these policies should be assessed and, where appropriate, paid in a timely manner to ensure that financial pressures on small businesses are not exacerbated by slow payments,’ said Chester. ‘If there are reasonable grounds to pay part of a claim but not to pay the full claim, we encourage general insurers and Lloyd’s coverholders to make an interim payment.’

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Usage-based insurance

GENERAL

by Domini Stuart

IN SHORT › The pandemic has highlighted the value of

usage-based insurance (UBI) to consumers, as many are using their cars far less. › Cheaper bandwidth, mobile apps and connected technologies being built into new cars are making UBI more affordable and convenient for consumers. › Insurers can use telematics to build a stronger and more tailored customer experience.

B PAYG: built for the road ahead?

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A two-decade evolution The concept of UBI dates back to the late 1990s, but US insurer Progressive is widely acknowledged as one of the early pioneers in the market, launching its Snapshot UBI program in 2010. Andrew Dart, head

Photography: iStockphoto

Usage-based insurance for motor vehicles has moved into the fast lane, driven by improved technologies and increased demand from motorists who are spending less time on the roads. Is pay-as-you-go the way of the future?

efore COVID-19, usage-based motor vehicle insurance looked like a promising opportunity for investors. ‘Based on current take-up rates in the United States, European Union and APAC, it was forecast to grow 50 per cent year on year to 2026 to a total of US$115 billion,’ says Simon O’Dell, CEO of Insurtech Gateway Australia, a leading investor in, and incubator of, early-stage, insurancefocused start-ups in Australia. ‘Fifty per cent is enough for any investor to jump on for the ride.’ Then, as the pandemic rolled on, the business case for usage-based insurance (UBI) shifted into high gear. ‘Consumers started calling their insurers and taking to social media, asking for discounts or refunds as their dormant vehicles were attracting minimal risk,’ says O’Dell. ‘Without suitable usage-based pricing models, insurers have no choice but to apply discounts blindly.’ Simultaneously, the mobility market continues to move away from ownership and towards Transport as a Service (TaaS). ‘The vehicle of the future will be like public transport, but to the door,’ O’Dell continues. ‘You’ll pay for the journey you make rather than own a vehicle that sits redundant for 70 per cent or more of the time. Or, failing that, you might buy a vehicle and put it on a platform to rent it out when you’re not using it. ‘Insurers with a product that understands and aligns with this marketplace will be ahead of the game when this becomes the only way to address transport issues.’

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of The Digital Insurer’s global telematics practice and its Australia and New Zealand business, has been offering telematics UBI to providers since 2013. ‘In the early days, when you had to fit specialist devices into cars, it was fiendishly difficult to come up with a viable economic model,’ he says. ‘And, as recently as five years ago, bandwidth was very expensive. That’s now much cheaper and, as people can use apps on their phone, UBI has become much more cost effective.’ Market intelligence and consulting firm Future Market Insights forecasts that when the figures are in for 2020, the Asia-Pacific region will demonstrate the fastest growth in the global automotive telematics market. In Malaysia, for example, AXA’s FlexiDrive product is rewarding safe drivers with an average premium discount of 14 per cent. South-East Asia’s largest automotive marketplace, Carro, has partnered with Singapore’s NTUC Income to offer a new usage-based car insurance model. In addition, at least five insurers in India — ICICI Lombard General Insurance, Edelweiss General Insurance, Bharti Axa General Insurance, TATA AIG General Insurance and Bajaj Allianz General Insurance — have recently launched UBI products. ‘In Australia, the telematics technology that underpins UBI has become commonplace in the commercial sector,’ says Dart. ‘It can have real bottom-line advantages for fleets, rental car companies, ride share and taxis. ‘Scope Technologies, a South African company I consulted for, offers a set of analytics dashboards for the owners of the vehicles so they can optimise routes and keep track of things like engine wear and tear. Just making sure all of the tyres across the fleet are correctly inflated can shave 5 per cent off the fuel bill.’

LINKING DATA WITH PERFORMANCE The Digital Insurer’s Andrew Dart believes the impact of telematics on driving performance needs to be included in the insurance equation. Here are some examples of the role this data can play.

Simplicity is key But in the personal auto insurance sector, UBI seemed to die on the vine, despite there being no obvious disadvantages for the consumer. ‘The benefits are lower costs and flexibility,’ says O’Dell. ‘With daily and monthly caps, there is no downside. In the worst-case scenario, you simply pay the same as you would with a conventional policy.’ However, insurers must also take human nature into account. ‘We have looked into UBI and found that, in general, consumers want to spend as little time as possible thinking about and managing their vehicle insurance,’ says Matt Giles, digital marketing manager at Auckland-based auto insurer Cove. ‘Adding a layer of interactivity, whether that’s a box installed within the vehicle when the policy is purchased or using an app which sits on the driver’s phone, might be too much to ask of customers who crave simplicity. Consumers’ increasing concern about privacy and being tracked could also inhibit uptake.’ Andy Coon, Cove’s co-founder and CEO, adds that market size is also a challenge. ‘Most people drive close to an average distance,’ he says. ‘Those who drive very infrequently tend to do it in higher-risk situations, such as through city centres or on road trips, and do it badly because they lack practice. So, it’s not a slam dunk that significant savings will justify the extra effort for the consumer.’

Making inroads Some car manufacturers are making the process simpler. In Australia, for example, Hyundai has partnered with UbiCar, a company offering monthly cover based on how well or how far customers drive their cars. ‘Many manufacturers have started to add connected technologies to their new

In commercial vehicles, in-cab cameras can alert drivers when their behaviour suggests they’re too tired to drive safely.

A New South Wales trial suggests that having a telematics device installed in their cars can have an overall positive impact on young people’s driving behaviour.

Norwich Union found claims fell by more than 30 per cent after a telematics box was installed in the cars of its pay-as-you-drive policyholders. It withdrew the policy in 2008, citing relatively poor sales, high costs and slow take-up of the technology.

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GENERAL

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CHANGING A TRADITIONAL MODEL Edelweiss General Insurance (EGI), India’s first cloud native insurer, recently introduced Edelweiss SWITCH — a pay-asyou-use model that only charges customers a premium on the days they actually drive. An app-based motor insurance own damage (OD) policy, Edelweiss SWITCH was developed under the Insurance Regulatory and Development Authority of India’s Regulatory Sandbox, which was created to foster innovative ideas in the sector. The policy provides continuous cover for fire and theft, with cover for accidental damage switching on as soon the vehicle is used. As a ‘floater’ policy, it covers all of the vehicles owned by the customer. Instead of relying on the traditional model of calculating a premium based on the age, make and model of the vehicle, the policy uses telematics to compute a premium based on usage and driving experience.

models,’ says Rob Coon, Cove’s co-founder and head of product. ‘This makes it much simpler to track usage and driving habits.’ Manufacturers such as Tesla are also developing autonomous capabilities. ‘This takes the risk of crashing away from the driver and into the car’s artificial intelligence,’ says Coon. ‘In this case, liability falls on the programming of the system, as will the liability of the insurance contract. The manufacturer needs to manage the insurance risk.’

The gig economy Motor vehicle cover isn’t the only sector being shaken up by UBI. Skye Theodorou is co-founder and CEO of upcover, one of the first providers in Australia to tailor insurance for gig economy workers. ‘The challenge with this type of insurance is to make your product both affordable for consumers and sustainable from an insurance carrier’s perspective,’ she says. ‘That means providing the cover your customer needs without too much exposure for the primary carrier. JOURNAL // ISSUE 04 2020 // ANZIIF.COM

‘The vehicle of the future will be like public transport, but to the door. You’ll pay for the journey you make ...’ Simon O’Dell / Insuretech Gateway Australia

‘Our first product, which we’ll be launching soon, achieves this with a mobile app offering a combination of asset protection for food delivery workers’ bicycles and e-bikes, along with public liability and personal accident.’ Theodorou plans to build on this, adding cover for anyone who works on their own time. ‘Many people in the gig economy work for more than one employer,’ she says. ‘We want to make it easy and affordable for them to stay covered whenever and wherever they’re working, for them to pay only when they’re actually doing that work.’ Theodorou and co-founder Anish Sinha are determined to make upcover as sustainable as possible from the outset. ‘We know that two million Australians are working through platforms like Uber, Ola, Uber Eats and Deliveroo, but we’re not going into this thinking it will be easy to sell heaps of policies, build scale and establish a sustainable portfolio right away,’ she says. ‘We’re very aware that there’s usually a bit of a burn within the first year of a new product being launched, and the risk is even higher with a pay-as-you-go product.’ The Hayne royal commission into financial services also created new challenges for insurers trying to develop this kind of product. ‘Following the legislative changes showcased in December 2019, we’ve seen a whole raft of new rules around how you can talk to prospective customers,’ says Theodorou. ‘And, while I think the new provisions around vulnerable customers and how they should be treated are absolutely vital, the changes have made a lot of primary carriers much more cautious about dipping their toes into the UBI pool.’ Still, she sees potential for providers who are prepared to do the right thing. ‘You just need to be as compliant as possible and ensure your communications with your customers are super clear,’ she says. ‘It’s no longer enough to tell them to read the policy document. You need to explain exactly what they’re buying.’

An opportunity to create value Dart believes many insurers are missing out on an opportunity to build customer relationships through UBI products. ‘The data being collected through telematics is very, very valuable,’ he says. ‘It’s a waste to limit customer benefits to cash discounts.’ He points to Amodo, a rapidly expanding European company offering a combination of customer engagement and analytics technology. ‘Amodo gathers behavioural data to help insurers offer their products to the right users at the right time,’ he says. ‘This data can also be used to encourage good driving behaviour and build customer loyalty.’ Dart says Amodo used one insurer’s data to analyse behaviour when dropping children off at school. ‘Those who were driving and parking safely were rewarded with a free children’s insurance product,’ he says. ‘This is just one example of how insurers can use data to strengthen their business by creating value for their customers.’

RELATED COVERAGE

Insurance by subscription in a post-pandemic world By Graeme Adams

P Take me there DOMINI STUART

Freelance business journalist

‘During the COVID-19 lockdowns, consumers began to resent the fact they were paying to insure their cars even when they were safely garaged. Usage-based insurance could solve that problem. That said, trends towards Transport as a Service and driverless vehicles suggest there are more challenges ahead for motor vehicle insurers.’

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LIFE

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Life lessons from a pandemic COVID-19 prompted Asia-Pacific’s life insurers to fast-track technological innovations that were already in train. Many took different pathways in the race to stay ahead of the curve.

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JOURNAL // ISSUE 04 2020 // ANZIIF.COM

Technological innovation by Zilla Efrat

IN SHORT › COVID-19 has heightened

interest in life insurance and driven consumers to search and transact more online.

› Life and health insurers

took the technology they were already developing and fasttracked their use to overcome COVID-19’s challenges.

› The solutions offered and

technology applied differed among insurers and countries, with Chinese insurers leading the way.

L

Photography: iStockphoto

ife and health insurers were already using technology to transform themselves before COVID-19 struck; the pandemic has just accelerated the process. ‘It’s probably turned trends that would have taken five or eight years and compressed them into six months. It was just a necessity,’ says Bernhard Kotanko, a senior partner at McKinsey & Company in Hong Kong. The Swiss Re COVID-19 APAC Consumer Survey, conducted in April 2020, confirmed the surge of interest in life insurance among consumers in Singapore, Hong Kong, mainland China and Australia since the outbreak. It also found that selecting an insurer able to process their policies online from start to finish had become a priority for many consumers, with Chinese respondents topping the survey at 77 per cent. Participants in the S&P Global Ratings’ 2020 Virtual Insurance Conference in June heard a similar message from life insurance executives, who reported that digitisation efforts had been rapidly fast-tracked during COVID-19. Kotanko points to research from McKinsey that found that people often feel overwhelmed by the number of commitments they have, and the pandemic only served to heighten these concerns. This fuelled demand for life insurance, which people see as a tool to organise their commitments and protect their loved ones, making them feel more in control of their situation. According to Kotanko, as more people began to research life insurance online during periods of lockdown, this accelerated a shift towards digital connectivity that was already well and truly underway.

Asia-Pacific’s first responders As the first country to deal with COVID-19, China also went into recovery mode earlier. And its life and health insurers were quick off the mark to innovate.

‘China has become another major centre of innovation in the world besides the United States,’ explains Anthony Lee, partner, financial services – insurance sector, KPMG China. ‘In many ways, it sees more investor development interest in its use of technology, especially in insurance.’ Lee believes COVID-19 affected Western life insurers, which tend to operate out of Hong Kong, differently to insurers in China. ‘That’s because Chinese insurers were already very heavily into the digitisation journey and leading the way in how technology was being adopted,’ he says.

Keeping in touch Chinese consumers have widely embraced social media platforms like WeChat, Sina Weibo and QQ on their phones, and Lee says these became very handy for insurance agents during COVID-19. ‘They filled the void when face-to-face interaction wasn’t possible,’ he says. ‘On WeChat, for example, agents could set up a special topic account, make personal postings and disseminate helpful reminders or information to targeted groups. Customers could also easily reach these agents to ask questions.’ Lee notes that Chinese life insurers also responded quickly when face-to-face distribution came to a halt. Ping An, for example, used a combination of artificial intelligence (AI) and voice recognition to deal with customers. AI service robots handled 82 per cent of its service calls. The rest were handled by contact centre agents working remotely. Foreign insurers in Hong Kong also leapt into action with different approaches. For example, Manulife Hong Kong, a branch of the Canadian multinational insurer, launched a ‘virtual face-to-face’ agency sales platform in June to sell its products. The platform, approved by Hong Kong’s Insurance Authority through its Insurtech Sandbox, enables customers to speak to ANZIIF.COM // ISSUE 04 2020 // JOURNAL

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LIFE

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insurance agents via highly secure video chat. It allows recordings in real time for record keeping and uses a hi-tech e-signature technology tool.

Life down under

REINVENTING LIFE INSURANCE There is a huge opportunity for life insurers to shift from being a provider of a product that people don’t want, to becoming a partner in customers’ life and health journeys, says McKinsey & Company’s Bernhard Kotanko.

‘Data analytics help you create personal contextual marketing that fits the customer’s family, financial situation and values. In the past, you could only do this through the intuition of the adviser.’

‘Rather than only being there to protect you when devastating events happen, life insurance is becoming more of an infrastructure that helps you live a good life,’ he says. ‘Technology is helping to turn a push product into a pull product.’

Kotanko adds: ‘Typically across Asia Pacific, we see health as the area where you can create the strongest bond with customers and really add value through services. It can be as simple as wearable devices or apps or much more sophisticated with ongoing advice, including using data from wearable devices.

Kotanko says today’s customers want to be better understood and appreciated in their individual situations.

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‘It also improves customers’ understanding of their health and the underlying risk drivers. Based on data and analytics, you can assist customers earlier in the process of preventative medicine and activities. It helps customers to become more mindful about things, even if it doesn’t necessarily change their habits.’

Photography: iStockphoto

‘For example,’ he says, ‘our research shows that in China, which used to be a product push market, 80 per cent of customers now want their financial advisers to consider their needs, have empathy for their situation and create tailored services, [rather than] trying to push the next product onto them.

Australian life insurers put immense effort into using innovation to ensure business continuity as the COVID-19 virus began influencing work practices, observes Bernadette Howlett, PwC Australia’s insurance leader. However, she adds, other regions are generally ‘more progressed with regards to data and data sharing and innovating around the use of data than we are in Australia’. ‘Australian insurers know what they would like to do but they don’t have the capital or management bandwidth to innovate as well as they want to,’ she says. ‘Too much of their time is consumed in regulatory efforts and managing the claims experiences within their existing capabilities.’ Howlett notes that the increase in digital ways of working and information flows has sharpened the focus on cyber risk. ‘Cybersecurity has become even more important and on the agendas of life executive teams,’ she says. Among the life insurers accelerating their use of technology to overcome COVID-19’s challenges are AIA Australia (see breakout far right) and BT. ‘The technology that we had in place has seen us through the new COVID-19 work era,’ says BT’s head of claims, life insurance, Neil Borthwick. ‘We already had video conferencing available, and we quickly became more familiar with using tech tools that enable collaboration.’ Borthwick believes one of the most impressive changes during COVID-19 has been the medical profession’s adoption of telehealth services. ‘BT is looking at telehealth very carefully to see how it can benefit our customers and the medical profession in their future interactions with us.’ Post-COVID-19, Howlett anticipates positive outcomes for life insurers from developments in the telehealth device market and the emphasis on mental health. ‘I think we should be watching the interplay of telehealth into the life insurance sector more broadly,’ she says.

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PICKING UP SPEED China’s Ping An put its pedal to the metal as COVID-19 hit. ‘COVID-19 has really accelerated digitisation even for us, and we have always been at the forefront of digitisation,’ says Ping An’s co-CEO Jessica Tan. First, the pandemic fuelled demand for Ping An Good Doctor — China’s largest mobile internet telemedicine platform — as people with minor illnesses avoided hospitals. In the first half of 2020, the platform, which has its own medical team and proprietary AI-based medical system, saw an average of 831,000 consultations a day, up 26.7 per cent year-on-year. Ping An also launched its COVID-19 smart image-reading system to assist doctors with fast and accurate diagnoses to help control the pandemic. It can generate smart analysis results in about 15 seconds, with an accuracy rate above 90 per cent, says Tan. Another trend highlighted by COVID-19 is the digitisation of government services. Here, Ping An’s Smart City platform is helping 118 cities in China digitise their services. In Shenzhen, Ping An worked with the government to provide 7,000 services on one mobile app. As face-toface interactions became impractical, citizens could access 70 per cent of the government’s services from the app. Ping An isn’t about to slow down. By end-June 2020, it had 26,008 technology patent applications. Plus, it topped the 2020 global fintech patent ranking list for the second consecutive year with more than 1,500 applications in the area.

THINKING OUTSIDE THE SQUARE There’s no doubt that 2020 has challenged paradigms and forced AIA, which operates in Australia and New Zealand, to think differently about how it solves problems, says Kelly Smith, AIA’s general manager of portfolio, delivery and intelligent automation. ‘We were already on a journey of using automation and AI [artificial intelligence] to make it easier for us to meet our customers’ and partners’ needs. So when COVID-19 hit, we have only had to re-prioritise some of our plans, not create new ones.’ Smith says AIA Australia expedited its delivery of electronic completion and execution of forms so that advisers and customers could operate virtually, without the need for face-to-face meetings. This capability enabled clients to provide information and sign electronically, replacing 80 per cent of manual forms and providing advisers with more time for client contact. It also reduces data-entry errors and gives AIA’s operations teams more time for value-add customer tasks. ‘Most importantly, we can issue policies and provide other important services to our customers sooner than we could before,’ says Smith. ‘Since COVID-19, we’ve also seen more engagement in our rapidly growing AIA Vitality program in Australia and New Zealand, as members have become more focused on their wellbeing. One of our priorities is to respond quickly to member email enquiries, with the help of AI and robotics. ‘Using AI, we automatically read and sort incoming emails. Those emails in the common cohorts have responses automatically crafted. Our customer service representatives add a personal touch and then release. We now answer more emails than we used to, in half the time, which frees up team members to focus on enquiries that require unique and complex responses. Most importantly, we’re responding quickly with the information members need to make the most of their AIA Vitality membership.’ In June, AIA Australia also ran a two-and-a-half-day virtual hackathon across 30 sites in Australia and New Zealand. ‘That was something no-one thought would be possible to achieve,’ says Smith, ‘but the team was able to develop new data models in a very short time.’

ZILLA EFRAT

The Journal editor

‘COVID-19 really upped the pace of innovation in the life insurance industry in 2020, but perhaps we are likely to see even more of its impact over the next 12 months, making 2021 a year of even greater change.’

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RISK

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IN SHORT › New technologies such as 3D printing, the IoT, AI and nanoscale manufacturing are increasingly used in factories as we embrace the fourth industrial revolution. › With this comes new risks for insurers to manage. › The pace of change is accelerating, due in part to the impact of COVID-19.

JOURNAL // ISSUE 04 2020 // ANZIIF.COM

ARE YOU READY FOR

Manufacturing Story by Zilla Efrat Illustrations by Cami

The fourth industrial revolution, and its growing use of new technologies, is reinventing manufacturing as we know it, fast creating new opportunities for producers and new risks for insurers.

I I N S H OR T › New technologies such as 3D

printing, the IoT, AI and nanoscale manufacturing are increasingly used in factories as we embrace the fourth industrial revolution.

n early 2015, a precision technology company set up the world’s first fully automated, unmanned factory. Located in Dongguan in China’s Guangdong province, the facility, which once employed 650 people, is now believed to employ about 20 staff members who monitor everything through a central control system. Welcome to the fourth industrial revolution (Industry 4.0). This brave new world is reimagining everything we thought we knew about manufacturing. It’s creating new opportunities for businesses, improving productivity and efficiencies, reducing costs and helping to better the customer experience. ‘The scale and pace of change we are seeing is unprecedented — and technology is one of the biggest drivers of an altering risk landscape,’ says Nick Sordon, head of casualty underwriting, Australia & New Zealand, at Swiss Re. ‘New manufacturing methods and processes through technology have a marked effect on the risks and exposures faced by manufacturers.’ Some of the new technologies Swiss Re sees as leaving their mark include robotics, 3D and 4D printing, the Internet of Things (IoT), artificial intelligence (AI), machine learning, augmented reality, virtual reality and nanoscale manufacturing.

‘While there may not be a dramatic change to the end products, the processes used will continue to evolve,’ says Sordon. And this will lead to a range of different implications and impacts. ‘For example, there’s a human effect as we see a continued reduction in the need for certain jobs,’ says Sordon. ‘There’s a dynamic shift in the skillsets required in the manufacturing workforce. And, with increased automation, there’s an increased need for energy. ‘Supply chains are also becoming progressively more automated through the value chain, from raw materials procurement to the delivery of finished products.’

Another batch of new risks As with most new manufacturing processes, new risks often emerge. ‘This has been seen throughout history each time a major change in industrial process has occurred, from steam, to mechanisation, to electronics,’ says Sordon. He believes the new risks fall into two groups: first, the risk created by new methods and second, the risks that may be inherent in the products themselves. When it comes to end products, there could be safety or quality concerns. ‘New methods can occasionally take time to manifest as product risks,’ he says.

INDUSTRY 4•0? › With this come new risks f or insurers to manage.

› The pace of change is

accelerating, due in part to the impact of COVID-19.

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RISK

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THE MANY RISKS OF LITHIUM-ION BATTERIES State-of-the-art lithium-ion batteries are increasingly being used to store electricity and in the manufacture of digital devices and electronic vehicles of all types. But while they are lightweight, high-performing and cost-efficient, they also bring risks — especially fire risks. Swiss Re’s SONAR New emerging risk insights June 2020 report notes that through mechanical damage, overheating, short circuits, overcharging or production defects, a lithium-ion cell can reach a temperature at which heat increases rapidly, with a sudden release of the energy stored in the battery. This can result in flammable and toxic gas leaks and fires. And once lithiumion cell fires start, they can be hard to extinguish, as they do not need oxygen to continue burning. Swiss Re says the fire hazards associated with lithium-ion batteries span their entire value chain. It lists the following risks for insurers: + Fires in lithium-ion battery production facilities can trigger property damage, business interruption and environmental liability claims. + Events during lithium-ion battery production such as fires or explosions that injure workers may trigger claims in employer liability and workers compensation. + The transport of lithium-ion batteries can lead to accumulation risks, impacting marine covers and others. + Losses caused by burning batteries when in use can result in property and casualty claims. + Special decontamination measures after an event can cause prolonged downtime of critical infrastructure. + Environmental and human rights issues in mining and lithiumion battery disposal may lead to reputation issues for the companies involved, including insurers.

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‘This has been one of the challenges with 3D printing and hazards potentially posed by nanotechnology. Such risks can also lead to an increase in the recall of products.’ On the production side, Sordon says there’s the risk of fires — for example, from a greater exposure to lithium-ion battery manufacturing, which is expected to play a crucial role in the likes of energy storage, transport and consumer electronics (see breakout left). New manufacturing methods often create new occupational health and safety hazards for workers. ‘This has been shown over history, either through increased acute injuries or illnesses that can take many years to manifest,’ says Sordon. Cybersecurity is already a huge concern for many industries, including manufacturing. But as industries increasingly use IoT devices and connected machines, he says their vulnerability to cyber attacks will also rise. Michael Bruch, global head of risk

consulting liability / ESG at Allianz Global Corporate & Specialty, agrees, noting: ‘The more connected devices, the more entryways there are for hackers. Cybersecurity is a real concern.’ Bruch adds that digital products could also boost technical and litigious risks. ‘Liability claims may be levelled against the developers and vendors of predictive maintenance software in cases where injury or death occurs,’ he says.

The impact on insurers Sordon notes that industry evolutions or revolutions inevitably change the needs of insurance over time. ‘But risk is our business and the (re)insurance industry has been dealing with new production methods for more than 100 years,’ he says. ‘That said, the industry doesn’t always get it right. However, (re)insurers who put time and energy into enhancing their knowledge, critically analysing experiences and adapting their pricing, coverage, underwriting and

‘... technology is one of the biggest drivers of an altering risk landscape.’ Nick Sordon /Swiss Re

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claims management will capitalise on the opportunities presented.’ Bruch expects the shifts to stimulate innovation in new risk-mitigation solutions in areas such as intangible risks — for example, brand, intellectual property and cyber. Also on the positive side, he says workers compensation and general liability insurers could benefit as sensors and autonomous machines increasingly prevent accidents and limit toxic exposures. Similarly, Sordon believes new risks can create new business opportunities. ‘For example,’ he says, ‘with the reduced reliance on fossil fuels for mobility, some Chinese cities are progressively banning vehicles with traditional combustion engines to be replaced with new energy vehicles [NEVs]. Therefore, there is a need for increased lithium-ion battery production. ‘This trend brings new challenges for the auto industry. In response, Swiss Re has partnered with our clients to develop

solutions such as a new extended warranty insurance product on batteries for NEVs that offers protection against battery failure and degradation risk beyond the standard warranty cover.’ In October 2020, Hitachi and Swiss Re Corporate Solutions announced a new bundled technology and integrated warranty solution. Initially focused on the manufacturing machinery and transport industries, it will help customers embrace AI and cutting-edge technologies to maximise productivity, increase automation, implement contactless operations and reduce downtime, while also insuring them against any unexpected business disruption. ‘Through this partnership, we are activating machine-sensor data and continuous diagnostics across the industrial sector,’ says Andreas Berger, CEO of Swiss Re Corporate Solutions. ‘Ultimately, this will enable us to price risk more precisely, ensure effective pay-out mechanisms and provide a seamless risk management

GETTING SMART ABOUT SMART DUST In its SONAR New emerging risk insights June 2020 report, Swiss Re predicts that tiny devices — called ‘smart dust’ or microelectromechanical systems (MEMS) — are set to revolutionise the way we manufacture and gather data. ‘Made of minute slivers of silicon and guided by software, the sometimes pollen-grain-sized MEM devices are released like dust into an environment to measure light, vibration, temperature, noise or any other physical force,’ the report notes. ‘Working simultaneously and autonomously, they store and relay data wirelessly back to a server.’ The experts suggest that MEMS could, for example, be embedded into paint to monitor aircraft stress or how vehicles are being driven. They could also be used in ‘smart’ manufacturing where the materials themselves — with appropriate ‘dust’ applied — dictate the manufacturing processes. The possibilities are many and so are their risks, including: + Workers compensation or employers’ liability claims if employees inhale smart dust and suffer ill effects. + Potential second-line exposure to the families of workers, if workers take dust home with them. + General liability claims if smart dust leaks out to communities, causing health problems. + Product liability claims where products are defective. + Environmental impairment liability claims if smart dust pollutes water sources or third-party property. + Data privacy risks. But Swiss Re adds: ‘All these issues make underwriting the technology problematic. As smart dust is not expected to hit the market with a big splash, but rather appear slowly over the next decade as more and more of the research initiatives reach market readiness, underwriting risks may remain under the radar.’

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experience that addresses industry inefficiencies and is tailored to our customers’ needs.’

Looking ahead More sophisticated products can be expected in the future. One reason is that while Industry 4.0 technologies were already transforming Asian manufacturers’ operations before COVID-19, their use has picked up since it struck, according to a McKinsey & Company study. Indeed, 39 per cent of Asian manufacturers polled said they had implemented a nerve-centre, or controltower, approach to increase end-to-end supply-chain transparency. And around a quarter were fast-tracking automation programs to stem worker shortages arising from COVID-19. As we move forward, we may also be increasingly talking about the Industrial IoT (IIoT). This refers to the billions of industrial devices used in factories that are filled with sensors, connected to wireless networks and gathering and sharing data. China, backed by positive and proactive government support, is becoming a leader in this area, according to the GSMA, which represents the interests of mobile network operators worldwide. Indeed, the GSMA predicts China will account for one-third of the global IIoT market by 2025. ‘Overlaid with AI, cloud computing and advanced analytics, factories can monitor and interpret data from production lines and complex machinery in real time to anticipate faults, manage infrastructure and mitigate risk,’ says the GMSA in an IIoT report. ‘The captured data will, in turn, drive efficiencies, optimise productivity and decrease costs in many important economic sectors beyond manufacturing, such as resources, energy and telecoms.’

ZILLA EFRAT

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There are also cybersecurity risks, which could put insureds’ intellectual property in danger.’ That said, Rahman believes combining The city of Suzhou, in eastern China, is new technologies also holds the key to now home to one of the largest 3D-printed reducing their risks. ‘For instance, if we structures in the world — a massive move our 3D-printing data and store it in 500-metre-long river protection wall built blockchain, no-one will be able to tamper in 2019 by a company called Winsun. with our data or copy our products.’ The wall, installed along the ShanghaiJuergen Weichert, senior risk consultant Jiangsu Port waterway, was designed to liability – emerging risk consultant at absorb and deflect the energy of strong Allianz Global Corporate & Specialty, water currents, protecting the surrounding believes the issue of liability, among other land from destructive shoreline erosion, risks, could become more complex as 3D soil contamination and flooding. printing becomes more widespread. It is another example in the use of In the past, manufacturers and 3D printing, which Shams Rahman, a suppliers were responsible for the goods Professor of supply chain and logistics at they produced and sold. 3D printing, RMIT University in Melbourne, expects to however, may see responsibility broaden become one of the biggest disrupters in to include product designers and the future of manufacturing. internet platforms, as well as printer and But, he says, ‘as with all new technologies, software manufacturers. there are uncertainties and known and Weichert points to the question of unknown risks. For example, we still don’t whether the original blueprint itself could have any regulation on how we are going to be considered a product, as defined by a manage the different parts of the 3D-printing country’s product safety law, for example. process, including design and production. ‘If so, then 3D printing could see liability in ‘The risks could include the quality of such cases extend to include the designer products made and possible counterfeiting. of the blueprint.’

Image: courtesy WinSun

The Journal editor

‘Insurers have been dealing with new production methods for more than 100 years. The only difference now is that changes keep coming faster and faster. No insurer can afford to be asleep at the wheel.’

PRINTING MORE RISKS FOR INSURERS

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Collaboration

BROKING

by Anna Game-Lopata

IN SHORT › There has always been a strong

tripartite relationship between brokers, insurers and customers, but given tough market conditions, innovative collaboration has never been more important.

› Brokers are uniquely placed to

champion innovation, as they are the eyes and ears of the industry. They deal directly with clients, understand their needs and have their own powerful networks.

› Both insurers and brokers can

benefit from the collaborative development and improvement of new products and the buying experience, which can contribute to an increase in public trust.

The power of

partnerships in the marketplace

Strong collaboration between brokers and insurers has always been intrinsic to an evolving, competitive insurance market. In the wake of the pandemic, such partnerships are even more crucial.

Photography: iStockphoto

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C

o-operation between brokers, carriers and clients has never been more important — insurers and reinsurers need more information than ever before to underwrite specific risks. ‘It is no longer just about differentiation of risk quality, but, in many cases, the basic availability of capacity,’ explains Ben Rolfe, managing director, broking and chief broking officer at Aon Australia. ‘Collaboration between brokers and insurers is vital as we help clients through this unprecedented market change.’ Of particular concern is the unabated deterioration of economic conditions, which for many buyers means the gap between insurable and uninsurable risks continues to grow — all at a time when they can least afford volatility.

The client lens ‘Brokers and insurers alike need to work together as an industry to find sustainable ways of providing risk transfer solutions to clients who operate in those sectors that insurers have deemed almost uninsurable over the past 18 months,’ says Rolfe. ‘This involves both brokers and insurers collaborating on the co-development of products ultimately designed to help clients adapt to the everevolving insurance market landscape.’ Brokers are uniquely placed to champion such innovation. ‘Because of the way in which insurer capacity is structured, the vast majority will look at their books through a product rather than client lens,’ explains Rolfe. ‘This is where a broker can help bring the client needs, both current and emerging, into the picture and help insurers both broaden the scope of existing policies and work with them to create new and innovative products to meet these unmet needs.’

A strong tradition In Vietnam, Nguyen Thi Minh Trang, deputy head of the property and casualty department at Willis Towers Watson, says co-operation between insurers and brokers has always been a strong tradition. With 16 years’ experience in banking and insurance broking, Nguyen has observed that insurers ‘do not hesitate to reach out to brokers when they have a request from their clients or the need for new products or services that they can’t satisfy internally’. She agrees that at the present time, brokers play a critical role in helping insurers define and deliver the innovation needed to keep pace with market changes, new trends, higher and more sophisticated customer expectations and emerging risks. ‘Brokers are proactive in involving different stakeholders and seeking out and forming partnerships with third parties; however, innovation shouldn’t be carried out in isolation,’ she says. ‘That’s why Vietnamese insurers and their broking partners prefer to work hand in hand.’

‘Because of the way in which insurer capacity is structured, the vast majority will look at their books through a product rather than client lens. This is where a broker can help ...’ Ben Rolfe / Aon Australia

Cornerstone of the business For John Saunders, managing director of Warren Saunders Insurance Brokers (WSIB), which won the 2019 ANZIIF Small–Medium Broking Company of the Year award, such collaboration with insurers is the foundation of his familyowned business. ‘Providing well-researched, professional information to insurers is essential for placement of any risk,’ says Saunders. ‘The market is currently very challenging, so being well prepared and focusing on our strong insurer relationships is essential.’

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Importantly, Saunders notes that treating insurers with the respect they deserve lies at the core of WSIB values. ‘Insurance is truly a tripartite relationship between client, broker and insurer,’ he says. ‘Too often, brokers treat insurers as the enemy. We’ve found over many years that the more an insurer is engaged directly with our clients, the better the result achieved.’

Collaboration starts at home Anna Parker, head of the Auckland branch of Frank Risk Management and a senior broker who specialises in commercial insurance, has always taken the approach that part of providing a topclass service to clients requires making an underwriter’s life easier. ‘I want my client to have the most competitive and comprehensive insurance cover in the market, and that involves ensuring the dealings I have with underwriters are based on co-operation and mutual respect,’ she says. ‘One of the ways this can happen is by utilising my legal background to help pinpoint areas of contention, so underwriters can accurately assess the risk.’ At Frank Risk Management — New Zealand’s first broking and risk management company to provide full income disclosure to clients — a teamfocused approach starts at home. Brokers don’t have individual sales budgets so they need not aim for client ownership. ‘Clients have a primary point of contact, but we prefer to use the strengths of the whole team to ensure clients have specialised advice,’ explains Parker. ‘We make a point of employing the most engaged and qualified insurance and risk management professionals, and we have specialists across multiples lines of insurance.’

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Improving trust Bimo Ambarseno, executive director of Willis Towers Watson Indonesia and member of the Association of Indonesian Qualified Insurance and Reinsurance Brokers, says both insurers and brokers can benefit from the innovation of new products. ‘In Indonesia, insurance market penetration is low, so the industry needs to work together to improve public awareness and trust,’ he says. ‘Insurers and brokers can bring value to achieve this purpose.’ Ambarseno says brokers must start by identifying common goals and improving the buying experience for clients. ‘As insurance managers for their clients, brokers have a firsthand understanding of policyholders’ expectations,’ he says. ‘Based on this input, brokers and insurers can identify and develop products and key services that both improve the buying experience for policyholders while increasing market share at the same time.’ Rolfe adds that innovative collaboration with brokers also means helping them find the balance between their drive to crosssell and bringing the ‘so what?’ to a client discussion. ‘Just because insurers are able to write a number of policy lines for a specific industry, it doesn’t mean that their capabilities are aligned across these,’ he says. ‘All too often the “so what?” for the client is missed and the conversation becomes one of discount or insurer leverage rather than a genuine ability to offer something unique.’

New products According to Nguyen, Vietnam’s largest local insurers are government-owned, so they change ‘moderately and slowly’ compared with foreign private insurers. ‘To compensate and to avoid being left

‘I want my client to have the most competitive and comprehensive insurance cover in the market, and that involves ensuring the dealings I have with underwriters are based on co-operation and mutual respect.’ Anna Parker / Frank Risk Management

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WORKING HAND IN HAND Brokers reveal how they’re partnering with insurers to bring new products to the market.

NEW TYPES OF COVER Nguyen Thi Minh Trang says her team at Willis Towers Watson has been co-operating with a leading local insurer to develop types of cover that are not yet available. ‘Multiple projects are running in parallel with different sub-teams through this insurer, including cyber for individuals, pet insurance and electronic warranty insurance, as well as parametric solutions for renewable energy projects,’ she says. In addition, Willis Towers Watson is working with the Asian Development Bank on parametric disaster insurance. ‘The outcomes of the project’s scoping study reveal that this is a very efficient and necessary insurance solution to help affected cities rapidly rebuild and re-operate normally,’ says Nguyen. ‘But in order for this product to be established in Vietnam, the participation of insurers will be required in the early stages of development to identify possible obstacles to implementation. Insurers’ roles will also be important for the bidding process to take place in full compliance with local laws, and later for servicing and claim settlement. ‘As well as insurers, we must also involve the Insurance Supervision Authority as soon as possible in this endeavour.’

Photography: iStockphoto

‘By focusing on risk in general rather than risk transfer, we can become far more relevant to our customers ...’ Ben Rolfe / Aon Australia

FINDING EFFICIENCIES THROUGH IT PLATFORMS John Saunders says his team at Warren Saunders Insurance Brokers has collaborated with insurers to deliver products more efficiently using IT platforms. ‘The work we have done with a variety of industry groups and associations has also enabled specialist products to be developed,’ he says. ‘By leveraging the economies of scale available via industry groups and tailoring products and services uniquely suited to the risks these groups face, beneficial results can be achieved for all parties.’ In addition, the company frequently holds joint presentations with insurers to a variety of industry groups and associations. ‘The insurers we have engaged enjoy the opportunity to talk with those clients directly and as we develop a trusted model of advice, the approach has created a significant increase in our client base,’ says Saunders. And it’s not just about insurance, he adds. ‘We also look to give back to local charities by working with insurers to support the causes we are all passionate about.’

ADDING VALUE FOR SMEs Bimo Ambarseno says Willis Towers Watson Indonesia is currently collaborating with selected insurers on products for small to medium-sized enterprises. ‘The collaboration is not limited to standard products but also includes developing additional products that would complement our value proposition to policyholders and increase sales for both companies,’ he says. ‘We are looking to increase market share in these segments by providing added value for customers as well as insurers.’

BROAD CAPABILITIES, UNIQUE INSIGHTS By taking the broad capabilities of Aon across risk, retirement and health, Ben Rolfe says Aon is able to look at the overall needs of a client in a specific sector or industry and gain unique insights into client needs. One example is its transportation and logistics practice. ‘Historically, our industry has looked at tools and technology such as cameras and tracking devices to monitor risk management practices and drive lower claims activity,’ he says. ‘Aon focuses on employee wellbeing, mental health and employee selection as a more effective driver in reducing claims longer term. This also has a material impact on colleague wellbeing, absenteeism and overall business performance. ‘By focusing on risk in general rather than risk transfer, we can become far more relevant to our customers while creating a more sustainable framework for insurers.’

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‘Brokers are the eyes and ears of the insurer’s marketplace. We deal directly with clients and work hard to obtain their trust. They tell us their plans and what keeps them awake at night.’ John Saunders /

Warren Saunders Insurance Brokers

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behind, they rely on their trusted brokers to update them with market changes and to help them innovate their products and services within the range acceptable by their governance,’ she says. Having said that, it’s quite common for local Vietnamese insurers to have a dedicated team for ‘new product development’ or a ‘reinsurance department’ — and some have both. ‘These teams rely on internal resources, partnerships, market studies and other sources of information and resources to develop and / or commercialise new products necessary for the evolution of the insurance market to meet customers’ needs,’ says Nguyen. ‘One of their favourite partners in this area is the broker.’

A changing ecosystem The proximity to clients previously enjoyed by brokers has, however, been threatened by COVID-19 and emerging digital technologies that create strong competition from fintech companies. This has changed the insurance ecosystem significantly for both brokers and insurers. Nevertheless, Nguyen argues that brokers continue to wield the advantage by working simultaneously with many insurers and reinsurers worldwide. ‘Brokers often have better information about products developed by foreign insurers that might respond to their clients’ expectations,’ she points out. ‘For new risks [such as parametric insurance for renewable energy], brokers in Vietnam talk to prospects like investors, lenders and suppliers to understand their new risks and demands. ‘Brokers also have experts within the network that can design new products and persuade reinsurers to write the risk. They can then connect the reinsurance market with the local market.’ Saunders sums it up: ‘Brokers are the eyes and ears of the insurer’s marketplace. We deal directly with clients and work hard to obtain their trust. They tell us

their plans and what keeps them awake at night. This often translates into new products and new methods of delivery. ‘We often engage our clients and insurers together, so having those relationships and conversations greatly assists in insurers understanding how they need to change or innovate.’

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‘John Donne’s poetic words “no man is an island” ring true in every setting, including that of business. Strong, authentic connections and productive partnerships are the basis for sustainable life, growth and prosperity in every area of human endeavour.’

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AFFILIATE Abby Harris Adam Smith Alyssah Yasmin Aneta Vuzeska Caitlin Robinson Carli Sherrington Daniel Greenwood David Gonzalez Dimitra Feronas Dimitri Konstantinidis Elizabeth Florendo Etain Mullarney-Ford Geeta Girdhar Hitenkumar Shah Holly Burns Iain Fleming Jacinda Huang Jacinta Sidwell Jai Yoon Ri Jake Maslin Jakobus van der Walt James Bowcock Jane Greenop Jazmin South Josh Porter Jun Wang Kayla-Marie Cooper

Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia

Kevin Wong Kimberley Jacinto Kurt Kambouris Lana Greatbanks Leslie McGregor Lily Chen Luke Cummins Luke Muirhead Mamoona Zahid Maraia Cagica Maria Plandes Mark Jones Michelle Rice Muhammad Ismail Khan Natalie Ward Paula Dyer Ramya Dixit Rees Hughes Renee Hall Samuel Pearce Shnow Khoshnaw Stephanie Canellis Wan Chi Chien Yvette Xiao Yvonne Lim

Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia

ALLIED Aaron Pang Alarice Tarlarini Alexander Biasi Ali Asghar Allen Paes Alyssa Sanfilippo Amanda Rogers Andrea Dent Andrew Yeo Anna Ocampo Anthony Salaese Anthony Doolan Belinda Muir Benjamin Carroll Brooke Groth Chris Roberts Christopher Charnock Christopher Smith Claire Truman Connie Panagiotopoulos Craig Morris Dale Coleman Damien Mu Dara Hanahoe Darren Halley Darren Quek Dean O’Halloran Debra Bell Edwin Raj Silva Das Elaine Nolan Elizabeth Lalor Frank Pazios Gabriela Skinner Geoff Babbage

Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia

Gerard Sitaramayya Grace Rod Hayley Viljoen Jacqueline Robson Jarrod Hill Jean Ngu Jeff Allen Jiayun Fan Jitesh Gill Jo Fox Jordan Itzstein Josh Catalano Joy Jikotani Kim Taylor Kirra Harrison Lauren Mckeone Laurence Basell Lee Desmond Lin Junbin Lingna Ma Lorraine Chatterton louise coombs Luke Vumbuca Man Hon Chan Mark Roberts Mark Treppo Mark Jefferies Martin Graham Matthew Henderson May Chuah Megan Black Meredith Thompson Michelle Zhang Mitchell Wight Monique Ford Natalie Bruce Natalie De Kok Natalie Cressey Nicole Pase Prashant Deulkar Rachel Ward Raphael Saccasan Rebecca Hill Rebecca Broad Richard Crawford Rob Bartlett Ryan Swarts Ryan Miller Sandra Griffith Sarah Sharp Scarlett Palinkas scarlett greenock Serah Hakon Stephane Pouzet Stephen Wilson Thomas Croshaw Thomas Lee Tim Fontana Tina Bayar Vicki Guillemet Wain Yuen

Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Singapore Australia New Zealand Australia Australia China (Hong Kong) Australia Australia New Zealand Australia Australia Australia New Zealand Australia Australia Australia New Zealand Australia Australia New Zealand Australia China (Hong Kong) New Zealand Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Papua New Guinea Australia Australia Australia Australia Australia Australia Australia Australia

ANZIIF.COM // ISSUE 04 2020 // JOURNAL

CORPORATE SUPPORTERS

ANZIIF’S CORPORATE SUPPORTERS The ANZIIF Corporate Supporter Program brings ANZIIF and the insurance industry together to work on not-for-profit projects that offer long-lasting benefits to the community, the industry and its people. ANZIIF thanks its corporate supporters for their generous support.

Protecting Professionals

ANZIIF.COM // ISSUE 04 2020 // JOURNAL

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THE LIST by Jo Davy

01

insurance trends for 2021

Following a year most of us would rather forget, two insurance experts offer their take on some of the key trends that will shape insurance in 2021.

// Responding to the ‘WFH revolution’ If 2020 was the year we worked from home, then 2021 will be the year insurers must work out how to underwrite the risks that have arisen from the ‘remote working revolution’. Brad Smith, chief operating officer at Gallagher Bassett, anticipates a more tailored approach to underwriting to account for more permanent flexible work practices, including increased occupational health and safety risks, reduced commercial exposures in CBD offices and supporting businesses, and fewer vehicles on the roads. ‘The convergence of these changes post-COVID will create a fundamental shift in the way people and business go about their activity, therefore insurance products will require more sophisticated pricing and offerings,’ he says.

02

// Prevention as a cure ‘Insurance is shifting from its traditional roots of providing customers with a product against a loss,’ says Arthur Calipo, Deloitte Australia’s national financial services leader. Instead, it’s focused on becoming more proactive and preventative. ‘Much of this will be tech-enabled with the development of sensors to keep homes safe and well maintained, data collection capability through the Internet of Things that will help, for example, keep pets and livestock away from the vets, right through to predictive technologies that could have the power to forewarn customers about the potential for future loss.’

03

// Man and machine While data-driven automation, artificial intelligence and machine learning remain critical in enabling insurers to keep pace with the level of personalisation customers expect from them, Smith anticipates a renewed emphasis on specialised services. ‘Automation will continue to play a large role, but, at the same time, an industry with an experience-oriented focus will emerge to manage policies and claims that are not fit for automation, or indeed those that require deep specialisation — for example, assisting vulnerable customers.’

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// Regulatory changes ramp up Governments and financial regulators across the world relaxed the rules at the height of COVID-19, but we should start to see delayed or deferred legislative changes brought into effect from early 2021. New Zealand’s new Code of Professional Conduct for Financial Advice Services will come into force in mid-March, while Australian regulators are slated to implement most of the reforms recommended by the Hayne royal commission by June. Calipo believes the regulatory focus on strengthening insurers’ accountability will be more important than ever post-pandemic as customers become more cautious. ‘Insurers have the opportunity to be a further safety net,’ he says. ‘To achieve this, however, they must manage regulatory priorities and tight implementation deadlines while improving customer experience and conduct outcomes across the full insurance value chain.’ Smith predicts a significant focus on ‘fair and reasonable practices’. ‘The basic test that leaders need to be comfortable with will be: “Was the customer journey informed, appropriate and of value?”’

Illustration: iStockphoto

JOURNAL // ISSUE 04 2020 // ANZIIF.COM

// Claims management’s push to mobile ‘The claims management experience is one of the biggest drivers of customer dissatisfaction, so a focus in this area is key,’ says Calipo. ‘Digital and connected claims processes are driving efficiency to lower operating costs and offer better experiences for customers.’ Smith agrees, adding that while mobile and digital applications for claims management should already be on every insurer’s radar, we will also see further use of notifications to enhance engagement.

What does the Solution Commercial Legal Protection Policy cover?

LEGAL ADVICE

Commercial Legal Protection is designed to provide advice and cover for the legal costs of pursuing or defending certain classes of legal action and essentially help SME businesses deal with unexpected legal issues not already covered by their other insurance policies. The policy is intended to complement traditional insurance policies, rather than substitute any insurance cover the client may already purchase. The cornerstone of the policy is access to expert legal assistance when an insured really needs it and protects them from potentially crippling costs which will have to be incurred, regardless of any fault on the client’s part. There are 7 sections to the policy including:

Head of Cover 1: Contractual Disputes regarding Supply of Good and/or Services

Heads of Cover 5: Restrictive Covenant

This section covers the Insured’s own legal costs and any legal costs awarded against them both when defending a claim against them by a customer or supplier; and when pursuing a customer or supplier over the breach of a term in a written commercial contract.

An SME’s customer base and sensitive commercial information is its lifeblood. When an employee leaves the business, it is imperative that they are not able to take this information to a new employer and use it to prejudice the SME’s interests. This cover ensures that where a restrictive covenant preventing them from doing so is written into their employment contract, legal assistance is on hand from a specialist in the field to enforce the relevant terms as far as the law will permit, in order to mitigate the damage caused.

Head of Cover 2: Tax Audit This cover will pay for an Insured’s accountant to respond to an audit by the Australian Taxation Office. If the audit escalates into a dispute, the policy can extend to also cover a specialist lawyer to represent the Insured in any proceedings which may arise. Not only does this Head of Cover include expenses associated with the Tax Audit but it also covers a claim from the ATO where additional GST is due or where additional income tax or fringe benefits tax is due.

Head of Cover 6: Third Party Damage to Goods or Premises This section is triggered when a third party causes damage to an Insured’s premises or property.

Head of Cover 3: Statutory Licence Protection

Head of Cover 7: Debt Recovery

This section will indemnify the Insured for costs incurred in seeking to protect the Insured’s rights under a statutory licence which is under threat of suspension, revocation or amendment and could have a material impact on the client’s ability to conduct their business. The policy will provide expert legal assistance to challenge any attempt to suspend, revoke or alter the terms of the licence to the Insured’s detriment.

Cashflow is vital to all SME businesses. The debt recovery service provided under the policy will provide assistance for the Insured to exert pressure in recovering the sums due, and ultimately taking matters to court if this fails to bring the desired outcome.

Head of Cover 4: Landlord Disputes Where a SME rents its business premises from a commercial landlord there is scope for dispute over the terms of the lease and alleged breaches arising from it. The policy will provide the Insured with a lawyer to pursue a claim against a landlord or defend themselves in the event that they are accused of a breach.

Legal Advice Service All clients have access to a free Legal Advice Service managed by one of Australia’s prominent legal firms. This dedicated service has been created for Solution Underwriting Agency clients and allows the Insured to receive targeted advice from a lawyer relating to any problem directly associated with the client’s core business activities. The Legal Advice Service provides free, specialist advice with fast turn around and clients can obtain legal advice as many times as required throughout the policy period – no limitations.

Solution Underwriting Agency Pty Ltd Level 5, 289 Flinders Lane Melbourne VIC 3000 T. 03 9654 6100

Suite 1602, Level 16, 109 Pitt Street Sydney, NSW 2000 T. 02 8582 6500

E. [email protected] W. www.solutionunderwriting.com.au © 2020 Solution Underwriting Agency Pty Ltd • AFSL 407780 ABN 68 139 214 323

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