First of all, if you are heading away to a lovely destination – I am very envious!!
There are many things to consider before you head away for a holiday to ensure that you have a well deserved, relaxing, stress-free break.
Some of these are:
- Don’t update your social network with holiday snaps until you return. Likewise, no need to announce that you’re going away online anywhere.
- Securing your home – lock all access ways into your home (windows and doors) and ensure that your curtains are drawn
- Ask a trusted neighbour (or two) if they can keep an eye on your home and collect any newspapers or other items that may be delivered during this time
- Consider arranging a house sitter
- Redirect mail – did you know that you can arrange for the Post Office to hold your mail while you are away?
- Mow your lawn prior to leaving. If you are likely to be away for an extended period perhaps arrange for someone to do it whilst you are away to keep up the appearance of a “lived in home”
- Arrange for your lights and TV/radio to come on with a sensor or automatic timer
- Turn off the water mains to the house if nobody will be staying – a common insurance claim is a burst or leaking pipe and no-one wants to return from holidays with their house resembling a swimming pool!
- If you are going away during cyclone, storm or bushfire season turn off your gas and power and lock away or tie any loose items
- Turn off all electrical devices. If possible, it is also a good idea to unplug the item
- Secure any valuable items in a secure or hidden location. This would also include the precious memories you have stored on your laptop or hard drive
- Photograph your travel documents – passport, itinerary etc. Consider sending a copy to a relative
- Photograph your suitcase contents, particularly if there are valuable item/s within it – this will assist in the event of a claim
- Obtain travel insurance, check the exclusions and conditions. Are you hiring a scooter, skiing or have pre-existing medical conditions? These are some of the common things that are excluded or limited
- Register with Smartraveller and check the potential issues in the country that you are travelling
Have an amazing holiday!!
Why are we paying higher premiums?
This is a question that I have been asked many times since moving to Broome. There are a few reasons why the North West is paying more, the main being the inclement weather and lack of Insurers willing to compete in this space.
Currently we have three main Insurers that will look at a property risk above the 26th parallel and those Insurers base their rating structure (mainly) on the following factors:
- Type of risk (occupation/business)
- Construction of risk
- Previous claims history of owner
- Loss history for the area
- Reinsurance costs
What you may not be aware of, is that the Insurers have a backing agent called a Reinsurer. Essentially, the Reinsurer is the insurance companies “insurance company”.
The Reinsurer provides capital to the Insurer and once they have exceeded the claims costs that they have agreed on with the Reinsurer, the Reinsurer will pay the Insurer the remainder. For example, if an Insurer has a maximum limit payable of $2,000,000 on properties in Hay St and a claim occurs for $5,000,000 the Reinsurer(s) will pay the remainder of claims costs to the Insurer.
The Reinsurer does not see Australia in states or areas but as “below and above the 26th parallel” (The 26th parallel south latitude is a circle of latitude that is 26 degrees south of the Earth’s equatorial plane). This means that any claims in the North West – think of the recent claims in Queensland and the East Coast from cyclone Debbie that are likely to cost $2b – affect all towns above the 26th parallel.
The Reinsurer provides a cost to the insurance company who in turn passes on some of this cost to the Insured.
Overall rate increases
Along with ongoing losses incurred by the Insurer this means that rates across the board are increasing (not just in the North West) but as we have incurred the highest percentage of losses to the Insurers; the premiums for the North West have increased comparatively more than the rest of Australia.
We have noted that this year the renewal cycle has started to turn and all property risks have been increasing and this is a trend that is likely to continue until the Insurers have been able to recover some of their losses and return their portfolios back to a profitable and sustainable level.
Ensuring you’re fully covered
Part of my role as a broker and client advocate is ensuring that my clients are not disadvantaged. We are continually in negotiations with Insurers to push them to understand the specific risks in Broome and surrounds and to determine a rating structure that is aligned with the actual risks that these areas face.
Whilst costs are very important to your balance sheet, I would like to impart this last thought – would you prefer to be covered adequately or pay the cheapest premium?
I have many people come to me in a time of great stress when they are fighting to get a claim paid out because they bought a policy online or went for the cheaper option without understanding the risks they actually needed covered. My preference is to discuss all the options with you and advise the relevant cover for your business and then you can decide with an educated mind what is best for you and your business.
This is a question that I am asked often as an insurance broker, along with “what do you do?” People wonder, are brokers just there to get the Insurer’s commission regardless of the client’s needs?
My answer to this is simple – as a professional broker I am here to serve my clients, I want to understand every aspect of your business and develop a program that fits your needs and budget. Above all, I want to make sure that my clients are comfortable with the cover they have taken, the risks that they are willing to take on themselves and to ensure that the overall process is as simple as possible.
It’s all about trust and assurance
At the end of the day, you only receive a piece of paper. You have to trust my ability as a broker to determine that a particular policy will fit your needs and ensure you are not left exposed in the event of claim. One of my main roles is to ensure that if an unfortunate incident occurs that your claims process is as smooth as possible and you are back to the same position prior to the loss.
Our main role as brokers is to be an advocate for our clients and deal with all the technical aspects of insurance so that our clients can get on with running their businesses safe in the knowledge that their insurance needs are covered.
Insurance is complex so a broker ensures you’re properly covered
Insurance can be complex – with endorsements, conditions and exclusions that unless you are aware of all the differences and products that are available in the market you can get caught out quite easily and take out a policy that does not meet your needs. The end result of this could be that in the event of a claim, your claims are declined and you have paid out premiums for nothing.
I look at it in the same way as my taxes – I can do them myself online but I would prefer to involve a tax professional to do them for me. This ensures I haven’t missed anything and I know that I can ask them questions about the process and they have my best interests at heart and will make sure I receive the maximum return based on my individual circumstances.
The difference between brokers and agents
There is a difference between brokers and agents as follows:
Brokers work for the clients and are not employed directly by any one Insurer. Our job is to ensure that the client receives the best cover at an affordable price regardless of Insurer chosen. We also determine if the Insurer is reputable and the likelihood of claims being paid.
Agents work directly for one Insurer; they will not approach any other Insurer for quotations and it is questionable if your policy will be tailored to your specific needs. For example Elders is owned and underwritten solely by QBE and Wesfarmers is owned and underwritten solely by IAG (CGU).
Adam Ware is Partner & Branch Manager at BJS Insurance Brokers in Victoria. Adam specialises in holiday rental insurance (landlord insurance) and founded https://www.holidayrentalsinsurance.com.au. He was recognised for the Warren Tickle Memorial Award, and as NIBA Young Professional Broker of the Year in 2017, as well as Insurance Business Australia Young Gun of the Year 2018.
Advisr spoke to Adam about his experience as a successful young insurance broker, his tips for brokers starting out, and where he sees the industry going.
What is it about insurance broking that makes you get out of bed every morning ready to go to work?
If you enjoy what you do then getting out of bed and heading off to work is the easiest part of the day. Our industry is so diverse and forever evolving which creates plenty of opportunities for brokers to evolve their own businesses as the world changes. We are lucky to work in an industry that unfortunately does not get the recognition it deserves for the results that are achieved. For all the negative comments you hear about Insurance, the facts are that a huge number of businesses, personal assets and infrastructure continue to exist today from the work completed by insurers and brokers alike.
Is there a difference in how the ‘young guns’ work compared with the ‘old guard’?
Yes, I’ve witnessed quite a few differences having worked both with the younger and older generations in my career to date. There is an endless amount that younger brokers can learn from their experienced counterparts. Young Brokers have these incredible resources at their disposal which allows them to learn from almost anywhere, about anything and everything. Also as a result of the technology revolution in the past decade, young people in general are incredibly adaptable, which is a huge advantage for these individuals entering the industry. The younger generation have a great ability to come up with new ideas on how to complete a variety of tasks. Some of the procedures BJS have implemented recently were developed by our youngest staff members. They provide a fresh set of eyes on potentially outdated processes and can often identify an alternative that could save time, money or increase productivity.
Alternatively, there is one trait often associated with more experienced brokers where I believe young brokers should place a sharp focus. The skill of being able to handle an emotional and/or difficult situation in a calm and mature manner, by listening to understand as opposed to listening to react. This has been a major focus of mine for a number of years. It is not an easy skill to implement at first, especially at times when emotions can be running high from multiple parties and even more so if you believe you are “right”, however you quickly learn that YOU can be the difference in either solving the problem, or escalating the problem further, simply by the way you listen, understand and the manner in which you respond. When dealing with a wide variety of people across the industry each day, including broking, underwriting, claims, etc, younger people can be emotionally charged. That is certainly not every young person and likewise not every experienced broker has their emotions in control either, however this is a trait I have seen regularly among successful experienced brokers and feel is vitally important for Young Brokers to learn and implement if they intend to have long term business relationships and ultimately career success.
What advice would you give to young brokers starting out in the industry?
Master the discipline of being able to complete the tasks required of your position without becoming distracted by external sources. At present, the world is constantly trying to get our attention all the time via Social media, “fake news,” politics, spam emails we never subscribed to. Ignore them. These things will be there after work.
What do you think is the secret to your success as a young insurance broker?
I had fantastic mentors at the start of my career. I truly believe anybody who receives mentoring similar to the quality I received, would have a sound foundation for long term career success. In addition I have always been willing to attempt anything. I really enjoy researching potential new ventures and trying new methods of broking. I was extremely fortunate to have the backing of the BJS Board when exploring new ventures as they followed me through with these new ideas on the basis that even if an idea “failed” it would be a great learning experienced. There were a few ideas that did not work, some had moderate success however one of these ideas became the biggest Insurance program within our Branch, making it all worthwhile.
Clients now seem to use email as their main method of initiating contact with us. Personal meetings and calls are still very frequent, but many clients initiate the contact via an email to our office first.
How has the way you communicate with clients changed over the years?
Since beginning with BJS in 2008, where email was practically an internal communication method only, clients now seem to use this as their main method of initiating contact with us. Personal meetings and calls are still very frequent, but many clients initiate the contact via an email to our office first.
This transition, along with streamlining some internal processes within our office has also helped us keep our operating model profitable. For example: 3 years ago we decided that we would make a conscious effort to contact every client asking them if they would be happy to receive email correspondence going forward. At the time we probably emailed 25 – 30% of our clients and hard copy went to the other 70 – 75%. Today email is roughly 95% of correspondence and our combined postage, printer and ink costs are down almost tens of thousands of dollars.
Having said that, I find it hard to foresee a technology that could replace the person to person relationship that only a broker can develop with their client.
We must adapt to the changing service environment. When you’re adaptable, you’re often willing to consider the best approach for each particular client situation. Therefore if we do not launch ourselves into these new areas and adapt to meet our clients future needs, our clients will eventually not need us.
The single greatest asset that many of us will own is our home, but how much thought has been placed into the current values? Are you adequately insured and will you be able to rebuild your property to the same standard as it was previously if the worst happened?
Some of the costs that need to be considered are:
- Local building codes and regulations—have they been updated, do you need to add additional fire measures to your property, will you need to change the building materials?
- The current replacement cost of your property (excluding land), taking into account any escalation in costs that may occur due to a catastrophe. Builders tend to increase their labour rates when a catastrophe occurs and the cost of building materials also escalates due to the number of properties that need rebuilding which puts pressure on the manufacturers and the ability to source materials.
Some policies do include an “escalation clause” to cover some of these costs
- The cost to remove all the debris from the site and re-level to start again. Consider any hazardous materials that are on site that will need specialist removal.
- Have you included sheds, outdoor structures, pools and outbuildings in your sum insured?
- The majority of policies have an underinsurance clause which determines how close you need to be to the correct replacement sum insured of your property. Generally this is between 10 and 20%, meaning that if you underinsure by more than this “buffer” you will be penalised in a claim. Please refer to your Product Disclosure Statement or Broker for more information on this.
Did you know that after the Blue Mountains fires many people were not able to rebuild their properties due to underinsurance? This was caused mainly by a change in council regulations which has left a number of insured people more than $200,000 out of pocket.
What should you do?
Check with your local council that the building regulations have not changed. Ask the council if you are in a flood or fire prone area.
Every 1-3 years:
Obtain a valuation on your property or at least speak to a builder about current rebuilding costs.
Some calculators that may assist:
Advisr asked Compliance & Governance Specialist Paul Muir to break down the findings of the royal commission in terms of how it relates to and might affect insurance brokers. While the commission was mainly focussed on the big banks rather than brokers, some of the report findings is likely to affect how brokers operate.
1. The Royal Commission into Financial Services has just been released. For someone who knows very little about it, how would you summarise the purpose and the findings of the royal commission?
Commissioner Hayne succinctly summarises the purpose and findings in the introduction to his final report. The purpose of the Commission was to inquire into, and report on, whether any conduct of financial services entities might have amounted to misconduct and whether any conduct, practices, behaviour or business activities by those entities fell below community standards and expectations. The conduct identified includes conduct by many entities that has taken place over many years causing substantial loss to many customers but yielding substantial profit to the entities concerned. Very often, the conduct has broken the law. And if it has not broken the law, the conduct has fallen short of the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them.
2. On which financial services did the Royal Commission focus most of its times and attention?
Whilst the Royal Commission focused upon banking, financial advice, superannuation and insurance (and industry regulators) the main focus and certainly media attention was on the misconduct of the big 4 banks and AMP. Having said that, a number of horrendous case studies were told at the insurance public hearings. As an aside, most attention of the Final Report of the Commission has been focused upon Volume 1 of the report containing the 76 recommendations. Volume 2 examines the case studies with Hayne providing his view on what the case study showed and his conclusions. Volume 2 should be read by all to industry participants to understand how certain behaviours and conduct can cause customer detriment. Volume 2 is insightful.
3. How did insurance fit into the Royal Commission? How much attention did Insurance and Insurance Brokers receive?
Insurance was included within the Commissions Terms of Reference under the generic heading of financial services. Initially the Commissioner wrote to 61 financial services entities (including insurers) asking questions on issues of misconduct. The Commissioner also invited regulators and members of the public to make submissions. The Commission proceeded on the basis of case studies through a series of public hearings between February and November 2018. The public hearing into insurance was conducted between 10 and 21 September 2018. The Terms of reference and subsequent public hearings did not specifically focus upon insurance brokers.
4. What were some of the areas where Insurance (insurance brokers) performed well?
It is important to understand this was a Royal Commission into misconduct in the financial services industry. It was not a Royal Commission into the financial services Industry per se and the focus was not on good conduct. Due to the absence of specific reference to insurance brokers it can be accepted that there was nothing in the submissions that required the Commission to specifically call out insurance brokers for misconduct of a nature that other sectors of the industry engaged in. That could be interpreted as a good outcome.
5. What were some of the question marks that the Royal Commission raised about Insurance Brokers?
In the 76 Commission recommendations there was no specific reference to insurance brokers however that does not mean they are untouched by the recommendations. There are a number of recommendations that touch upon the activities of insurance brokers. The most obvious is recommendation 2.6 where, by 2022, a Government review should consider whether the general insurance exemption on conflicted remuneration is justified. Hayne adopts a strong position on conflicted remuneration. He states this in terms of his sixth norm of conduct ”when acting for another, act in the best interests of that other.” The Government in their written response has agreed with this recommendation. In context of those recommendations applying to financial planners and mortgage brokers it appears this is a clear message to general insurance brokers that they have 3 years to develop a fairer remuneration model. The challenge will be to develop a model where independent and affordable insurance advice is provided to retail clients excluding commissions.
Other recommendations potentially having impact upon insurance brokers are recommendations 4.5 (pre-contractual non-disclosure and misrepresentations); 4.7 (Unfair contract terms); 4.8 (claims handling) and 4.6 (External dispute resolution). As an AFSL holder, insurance brokers should be aware of the heightened scrutiny of the industry by ASIC especially recommendation 6.2 where in its approach to enforcement ASIC’s starting point will be to consider whether a court should determine the consequences of a contravention.
6. What findings or recommendations do you think definitely need to be adopted?
I’m going to consider this question from a different perspective. All 76 recommendations are proposed to be implemented through either existing laws or industry codes. We already have a strong regulatory framework so more needs to be done rather than simply complying with black letter law. Insurance brokers and other financial services entities need to consider how they will meet community standards and expectations through their behaviours and conduct not just compliance with black letter law. This requires a conduct and behavioural change approach utilising existing compliance frameworks. Its worth repeating Hayne’s 6 norms of conduct as guiding principles in meeting community standards and expectations:
1. Obey the law;
2. Do not mislead or deceive;
3. Act fairly;
4. Provide services that are fit for purpose;
5. Deliver services with reasonable care and skill; and
6. When acting for another, act in the best interests of that other.
In short those recommendations that achieve the 6 norms of conduct should be adopted.
7: What is next for insurance and for insurance brokers?
It will take time for recommendations to flow through to regulatory change. However, Insurers and insurance brokers should already be acting in a manner that embraces the principles underlying the recommendations. They need to develop positions and business models that adequately manage issues such as conflicted remuneration adopting solutions that recognise the inherent conflict and is in the best interests of consumers. Boards and senior executives need to drive the tone from the top in setting expectations of desired conduct and behaviours. The organisations purpose needs to permeate through all levels of the business with remuneration rewarding good behaviour. Industry Codes need to be considered and amended to reflect community standards and expectations.
8: With trust in financial service providers at a low level, what can institutions and brokers do to rebuild trust with customers?
Act fairly from the customers perspective of fairness and deliver fairness through products, services and conduct and do so consistently. At an individual level act ethically and with regard to professional standards of conduct and call out those who do not, without fear or favour. We are all custodians of the reputation of our industry.
9: The compliance regime will certainly change, how can businesses within Insurance benefit by engaging external experts like you?
The insurance industry is complex and the proposed regulatory change will only add additional layers of complexity. External experts such as myself bring a wealth of experience (in my case 35 years) together with independence to assist businesses to respond in a customer focused manner. A deep understanding of the insurance ecosystem enables a quick response to the changing landscape tailored to the unique customer value proposition of the business.
Advisr have been shortlisted as Insurance Innovator of the Year at the Fintech Business Awards 2019.
Firmly established as one of the leading awards programs in the Australian financial technology sector, the Fintech Business Awards seeks to recognise the leading individuals and organisations who display outstanding innovation and entrepreneurship.
As the Australian fintech ecosystem becomes increasingly diverse, the third annual awards program will showcase a broad range of innovative technologies, from mature fintech areas, such as payments and lending, to new areas of fintech innovation, including regtech and insurtech.
Culminating in a gala networking dinner on 28 March 2019, the prestigious event will bring together Australian entrepreneurs, start-ups and established tech firms from across the Fintech spectrum — from private equity and angel investors to large financial institutions and professional services firms.
Advisr is in the running to be recognised as the most innovative insurance startup along with Claim Central Consolidated and Cover Genius.
Wish us luck, and if you’re attending the awards be sure to come and say hi.
More info and tickets for the awards can be found on the Fintech Business Awards website.