The current situation
Today’s competitive pressures are forcing businesses to scrutinize the price they pay for all products and services and to evaluate their professional relationships like never before. Property and casualty insurance and risk management services are no exception.
Traditionally, many midsize companies have held the belief that the best way to drive down their insurance costs is by conducting a “bid” process in which multiple insurance brokers are invited to compete and submit quotations.
Competition is an essential tool in helping buyers evaluate professionals and establish price/value relationships. However, in today’s insurance marketplace, the bidding process is no longer the best way to achieve the optimum results and can often even be counterproductive.
Inherent weaknesses in the bid approach
Companies that rely on a bid process seldom achieve optimum results for their efforts because the system simply works against them. There are a number of reasons why.
Like most businesses, insurers are looking for ways to increase productivity and decrease transactional costs. As a result, underwriting departments have cut staffing and increased workloads. The reality is the underwriters who decide whether or not to write your business and at what cost simply don’t have time to give every account their best effort. Therefore, they choose the new business opportunities they work on very carefully.
If underwriters see a particular account is being shopped throughout the insurance marketplace by multiple insurance brokers, they feel the chances of obtaining the business are slim. As a result, they have little motivation to give that account their best effort.
Also, insurers will only work with one broker on commercial property and casualty business. The broker they deal with is the first one who contacts them about a particular account. This takes control out of the insurance buyer’s hands and leaves it up to the system that rewards the broker who “blocks the market” first rather than the broker who can deliver the best result.
To avoid the appearance that their business is being shopped throughout the marketplace, some buyers opt to assign specific brokers to specific markets. While this does reduce market chaos to a certain degree, there are drawbacks to this approach as well.
By assigning insurers, the buyer may not match the brokers with the markets with which they have the strongest relationships. Dividing the markets limits the brokers’ ability to communicate with all of the insurers and thus negotiate the best terms possible. When insurance markets are allocated, the brokers lose the ability to leverage the most aggressive quotes against each other.
When brokers are asked to bid, coverage is often compromised in favor of price. All too often, it is incumbent upon the insurance buyer to pinpoint potential coverage deficiencies. To compound the problem, proposals are typically presented in a way that makes it difficult for buyers to make an “apples-to-apples” comparison between programs.
In competitive bid situations the emphasis is typically on the lowest premium. While it is important to take premium into consideration, it is critical for insurance buyers to understand and stay focused on the “total cost of risk”.
“Total cost of risk” takes into account all those costs associated with a company’s insurance and risk management program. These expenses include losses that fall below a company’s deductible or within a self-insured retention; uncovered losses; and the administrative costs required to manage the program. It also encompasses lost productivity and retraining expense. The reality — the premium is only a small percentage of a company’s total cost and often the lowest premium can result in the highest total cost.
When most midsize companies buy insurance they combine the choice of the broker and the insurance carrier into a single decision. As a result, they often end up compromising one or the other.
Can businesses obtain better results by doing things differently?
In today’s insurance marketplace, the best way to ensure optimum results is to “unbundle” the buying process. That means separating the broker decision from the insurance company decision. This gives the company the opportunity to ensure it has the freedom and flexibility to choose the best possible broker and, subsequently, the best possible insurer for its particular needs.
Businesses should look at the selection process in two steps. The first step is choosing the insurance broker; the second is picking the insurer. Some buyers may have concerns that the sequential approach slows and complicates the process. In reality, however, it streamlines the process. By selecting a broker first, the broker handles much of the fact gathering, coordination and analysis that would normally fall to the buyer.
Choosing the right insurance broker
All insurance brokers are not created equal and are not necessarily right for you. To help obtain the optimum results from broker competition, there should be a structured evaluation process. This helps create a level playing field and facilitates a fair and thorough comparison of the brokers’ capabilities. These should include, but not be limited to, a broker’s expertise, accessibility, depth and quality of services, and proven results with your size and/or type of business.
Once a broker is selected, the broker can then work with you to conduct competition among various insurance carriers. In that marketing project, it is the broker’s responsibility to:
- Orchestrate the competition and design the Requests for Proposals (RFPs)
- Structure the proposal and evaluation process in a manner that facilitates an “apples-to-apples” comparison of carriers
- Make sure all markets receive the same information
- Present the client’s business to insurers in the most effective way
- Use their marketplace knowledge and relationships to negotiate the optimum terms and conditions from each carrier
- Provide additional insight on carriers’ financial service and capabilities, strength and past performance
- Deliver a comprehensive proposal with recommendations
- Once a selection is made, design a tailored risk management and service plan for the next contract period
- Provide ongoing critique and executive communication on the value and effectiveness of that plan
Competition between brokers and among insurance companies is an essential tool in helping businesses learn what is available in the marketplace. However, properly-managed competition is the best way businesses can assure they receive optimum value for their insurance program. Choosing a trusted broker partner First and insurance company Second can help you gain the competitive edge.
from EHD Insurance, USA 2015
A popular Christchurch blogger has resurrected his weblog in order to run a series of posts giving an in-depth critique of the revised Fair Insurance Code, which he says puts customers at risk.
Lawrence Roberts, author of the Avonside blog, had put the site into recess in August 2013.
But after a number of insurance related developments this month, the most significant being the new Fair Insurance Code, he felt there were a number of issues that needed to be addressed, and ignoring them would be ‘a dangerous oversight'.
“Dangerous because post-earthquake insurance claims created an environment which highlighted both new and existing problems, and these have not been dealt with,” Roberts said.
“There is a continual stacking of the document with content that favours insurers and puts customers at risk,” he continued.
For example, Roberts dismissed the industry’s use of the phrase ‘utmost good faith’, calling it a one way street in which customers are obliged to act in this way, but not insurers.
“So, if you, the customer, fail to disclose or understand something, that action is likely to be held against you and jeopardise your claim.
“What if you didn’t know something was important, might cause the insurer to alter the terms and conditions of the contract, misunderstood or just didn’t know?
“You are at the mercy of the insurer who, in signing up to the Revised Code, now agrees to being ‘reasonable’ when dealing with you. As there has been an absence of reasonableness with many claims to date this is not a cause for optimism.”
Similarly, he took issue with the reference to insurers ‘treating you fairly’.
“An insurance policy is a legal contract and, whenever a claim is made, what follows is determined by the legal meaning of the contract.
“The use of ‘fairly’ is somewhat cynical and could be considered calculated to create a confused mindset that in some way insurance claims are now about what is fair, and not driven by upsetting legal interpretations. Puffery with dire consequences?”
Roberts also pointed to Section 8 of the FAQ accompanying the Code, which, he said, ‘excuses insurers’ from making an effort to provide lists of required information or summaries of policy wordings.
“In the absence of suitable lists and explanations, customers, who are not experienced with insurance contracts, are being put at risk,” he said, adding that those not proficient in English would be even worse off.
He said there was no mention in the Revised Code of the insurer’s obligation to act in the best interests of the customer.
“Where is the commitment to ensuring that, in fulfilling a claim through to completion (eg repair or rebuild), the insurer will protect the interests of the customer by ensuring the whole process is efficient, of a satisfactory specification and quality, and does not put the customer to unnecessary delay, expense or stress?” he said.
“The Revised Code is superficial, creates the appearance of fairness, but does nothing to ensure that the customer is informed, empowered, or protected to any useful degree. The Revised Code is motivated more to stave off any legislation of insurance activity than correcting the shortcomings of insurers and protecting customers.”
To follow Roberts’ study of the Code, which continues today, visit http://avonsidechch.blogspot.co.nz/
by Maryvonne Gray, Insurance Business NZ, 25th February 2015
An Australian brokerage is promising to rattle an American "duopoly" in New Zealand insurance with a $20 million acquisition.
ASX-listed Austbrokers Holdings has bought all of NZ-owned and operated BrokerWeb Management and half of BrokerWeb Risk Services.
The "equity ownership" agreement would create greater competition among New Zealand's biggest insurance brokers, Austbrokers chief executive Mark Searles said.
Austbrokers had bought into BrokerWeb through its 80 per cent subsidiary, NZ Broker Holdings.
The consolidation would immediately give Austbrokers' "cluster network" $350 million of gross written premiums and more than 120,000 clients, Searles said.
American-owned Aon and Crombie Lockwood had a combined market share in New Zealand of more than 50 per cent, he said.
The expanded entity would be linked to more than 70 brokerages and authorised representatives.
Austbrokers' share as a third new "force" could potentially be 15-20 per cent, Searles estimated.
The BrokerWeb acquisition was based on an "owner-driver model", which meant Austbrokers did not have direct control of the brokerages within its circle. This meant brokers could choose to join the Austbrokers "cluster" without losing their independence.
"As a group, we enter into partnerships and invest in companies rather than owning them outright. But as a group there are over 2700 people working within group-related entities across Australia and New Zealand now."
Austbrokers would provide its cluster members with support and access to capital, Searles said. He hoped Austbrokers' new scale would allow it to "leverage conversations" with independent brokers, without those talks necessarily leading to mergers.
"If you look at the cluster group at BrokerWeb Management, it's basically a group of independent brokers - a buying group providing services. People can join that group and share in the benefits of the scale that we provide."
The broker's clients should benefit too, he said.
Brokers normally charged commission set within the product price but they could also charge a fee. Insurers created policies, terms and conditions but brokers had a duty to act in their client's interests, he said. "Fundamentally, if you're widening the service provision and widening the offering, then clearly the client is going to benefit from that."
He expected the enlarged entity would give members of other broker clusters a choice to "create something new in another organisation" and for users of broker services to switch allegiance.
Austbrokers Holdings came to the New Zealand market in 2006 through a partnership and "effective 38 per cent equity stake" with broking group Insurance AdviserNet NZ. AdviserNet had 32 authorised representatives and more than $70 million in gross written premiums.
Austbrokers would sit "shoulder to shoulder" with the existing BrokerWeb management to expand the business, Searles said.
Tim Fulton - The Press, 2nd December 2014
The Canterbury earthquakes and subsequent legal wrangling over claims sent a shockwave through the New Zealand court system and brought about a new way of doing things.
In his NZILA conference presentation, Reflections on the earthquake litigation, Justice Forrest Miller spoke about the hundreds of claims the High Court suddenly faced and the corps of judges he at one time led to hear earthquake cases.
Justice Miller, now sitting on the Appeal Court, said the legal system was sorely tried after the quakes and continued to be tested. While the High Court was “making a good fist” of the substantial work load that had been sent its way and engendering a spirit among the legal profession to seek settlement between insurers and insureds rather than litigation, the fact that substantial cases had yet to be dealt with four years on indicated problems remained.
“Plaintiffs have engaged constructively in the process and behaved with dignity, despite all that has befallen them. They have been treated respectfully by the insurers’ representatives. Many cases settle without much fuss and without the cost of a defended hearing,” he said.
“It is quite evident, though, barriers to justice remain. The very existence of a class of unsettled claims that have not found their way to court after all this time tells us that. The judges have done their best to lower the barriers, but we cannot eliminate them.
“I am not arguing for a different system. I am not arguing the system we have is meeting all the community’s needs either. Rather, I am offering a report on experience; experience gained when trying to make the system we have work as well as it can.”
Justice Miller said since the earthquakes, 359 cases had made their way onto the Earthquake List to be settled or adjudicated. While that was a substantial number, it clearly represented only a small proportion of householders and property owners affected by the quakes. A significant number of claims remained to be settled.
“Just how many is unclear, but some estimates suggest 10,000,” he said. “Four years on, it seems reasonable to ask why the people involved haven’t sued.”
Residential cases did not begin to arrive in numbers until late 2012. “No doubt there were many reasons for this. One is that the quakes kept coming. Another is the time taken to process Earthquake Commission claims. Another is that insurers’ claims handling processes have clearly been under pressure.”
Justice Miller said a reason people were hesitant to force their claims was the high cost of litigation, especially where expert evidence was in dispute. The only way to address it was to put people whose integrity was being challenged into the witness box, so the court could satisfy itself of their qualifications as both experts and independent analysts.
That would inevitably come at a cost, in time, money and reputation, for the party that “comes off second best” in such a challenge.
Justice Miller said the claims handling process was important and could substantially delay cases if it was inadequate.
“Time and again, we hear from plaintiffs who say they have had no real dialogue with the insurer, which is not interested in what they or their experts have to say. It does seem often there has been no conversation with a decision maker, and no meeting of experts as equals.”
He said those failures weren’t always the fault of insurers and there were many instances where plaintiffs filed without having obtained reports or engineering surveys, and occasionally without having tried to engage the insurer in dialogue.
Justice Miller said no class actions had been filed, although there was publicity about two that may progress. “But inquiries of the solicitors indicate they may be filed as separate but parallel proceedings, because of perceived risks associated with class actions. In sharp contrast to other common law jurisdictions, New Zealand lacks a true class action regime.”
Christchurch needed a robust mechanism for forming classes quickly around any given issue, but there may be other reasons for the absence of class actions.
“For example, it may be difficult to isolate issues that lend themselves to a collective approach. And there may be coordination problems among potential plaintiffs.”
Generally, however, the experience in NZ had been positive, while not perfect, and Justice Miller was pleased it continued to progress forward successfully after he had moved to the Appeal Court.
“I hope a spirit of co-operation will survive. The judicial system is being tested, and the testing has some time to run. As lawyers, we are all participants in the system and as participants we should all feel a responsibility to ensure it performs well,” he said.
“The final judgement will be left to history. It is not a judgement to be made by lawyers alone. Other people are better equipped to assess the social costs of insurance disputes. Evaluating the impact of our decisions on the nature and cost of cover available to New Zealanders is a job for an industry insider, or perhaps an economist.”
Justice Miller administered the Earthquake List in the High Court, assigned other judges to hearings and sat on the Full Court in the Earthquake Commission case. He is now a judge in the NZ Appeal Court.
from RESOLVE, John Reynolds, KT Journalism
The Canterbury earthquakes stress tested NZ’s fair insurance code (FIC) and it was “found wanting”, ICNZ CEO Tim Grafton told the NZILA Conference.
He had been initially optimistic a new FIC would be released last July, but it would now be delayed at least until after ICNZ’s November board meeting.
The revised code would replace a very short document that established a “high-level set of responsibilities for insureds and insurers”. It was binding on ICNZ members, but few in the public were aware of its existence.
The code was scheduled for review every three years, but there were “more pressing reasons” for the 2014 review in the wake of the Canterbury quakes.
The review had to consider issues like the meaning of “quickly” for claim settlements. “There is no benchmark for what ‘fast’ means [in the context of] the immensity of the Christchurch situation.”
It was fundamental for insureds to have trust and confidence in the industry, but the industry’s reputation was affected when insureds thought they had been treated unfairly. “There is always disenchantment if claims are not paid or settled fast.”
NZ legislators had made “a hash” of insurance legislation, “because they don’t understand the industry”. There was “a near-disaster” with unfair contract terms and the Fair Trading Act offered lower standards that the industry had already set.
Mr Grafton said fairness was about good faith, honesty, transparency and the ability for someone who thought they had been unfairly treated to be heard.
He likened creating a FIC to the theory of justice – “If you didn’t know if you were to be an insurer or an insured, what would you design?”
“Fair does not mean equal. Insurers pay for dispute resolution systems and decisions are binding only on insurers, but that’s fair, because it restores balance.”
The review began in November 2013 when ICNZ sought submissions, but it received only 10 from organisations and three from individuals. There was no submission from the NZ Law Society or some of the industry’s “most strident critics”.
Former Labour cabinet minister and lawyer David Caygill oversaw all stages of the review and iterations of the code.
While Mr Grafton said he could not reveal what the revised code would include, he outlined some areas of concern, not all of which had been accepted.
- Should the FIC be broadened to include all dealings, not just claims;
- An obligation to keep insureds updated regularly on their claims’ status;
- A need to be clearer about insurers’ obligations to insureds and avenues to pursue disagreements;
- Qualified, independent assessors and builders;
- An external body to review code breaches;
- Insurers’ communications to be clearer on critical elements like disclosure and coverage;
- Clarity of communications, particularly for online acceptances;
- A deeper understanding of customers’ perspectives;
- Should utmost good faith be specifically included; and
- Should there be time frames for parties’ responses.
Mr Grafton said time frames were problematic, because “informing a homeowner of progress with their claim is vastly different from a long-tail liability claim for a corporate customer. Perhaps we should focus on the most vulnerable?”
The argument for change to non-disclosure requirements in NZ was “compelling”, and the review examined the different regimes in Australia, the United Kingdom and north America. But the FIC review was not charged with changing NZ law or “parachuting in another country’s legislation”. “What is fair under the circumstances? Should we align NZ with international practice?”
Mr Grafton said the special circumstances of major disasters and catastrophes needed acknowledgement. “Insurers rely on other agencies to progress claims, so you can’t set time frames in concrete.”
While insurers should strive to meet business-as-usual standards, a prolonged recovery meant prioritising those most vulnerable.
from RESOLVE, Kate Tilley, Editor
Respected insurance law authority Professor Rob Merkin has criticised the New Zealand Appeal Court’s decisions in a trio of earthquake cases, saying “I don’t know which is worse”.
Appeal Court Justices John Wild, Christine French and Forrest Miller heard QBE v Wild South Holdings and Maxims Fashions; Peter and Eunice Marriott v Vero; and Crystal Imports v Lloyd’s underwriters and Sirius International together.
Prof Merkin, a special counsel with DLA Phillips Fox in Auckland, told the NZILA conference the cases were “a heady cocktail of problems therefore it’s no surprise people are confused”.
But he said it seemed the result was “a situation where if you pay one premium and have successive losses, you get the lot. If you have automatic reinstatement and pay more premium for that, you don’t”.
Justice Forrest Miller’s judgement said the policies at issue in the appeals all concerned commercial buildings. Each policy provided full replacement cover subject to a sum insured, and each provided for annual aggregate with automatic reinstatement of cover upon loss. One policy was renewed between earthquakes.
The successive losses raised two distinct questions which divided the owners and their insurers: what was the limit of an insurer’s liability in the circumstances and for what losses may an insured claim indemnity?
He said the three issues at the heart of the appeals were:
- What do the automatic reinstatement clauses mean; in particular, is cover continuous, or does it reinstate only when depleted by an insurer’s payment?
- Whether the marine insurance doctrine of merger applies to material damage policies.
- When is a building “destroyed”?
Prof Merkin said NZ Supreme Court Justices John McGrath, William Young, Susan Glazebrook, Peter Blanchard and Andrew Tipping’s Ridgecrest decision was definitive until the Appeal Court handed down the trio of judgements.
While the decisions were favourable for policyholders, the Appeal Court construed partial losses followed by a total loss from successive earthquakes occurring in the same policy period in “an odd way”.
“The word that struck me was ‘sneaky’. “It’s plausible if you redefine the policy to have three separate losses.
“The Supreme Court looked at the doctrine of merger and seized on something I had written that they didn’t like. The Supreme Court was wrong. They said marine insurance was different because you only get paid at the end of the year ... while a property claim accrues on the date of the peril.”
But Prof Merkin said the Supreme Court had confused accrual of the action with the right to be paid. The Appeal Court said merger applied only to total loss “and they are right”.
However, Prof Merkin predicted further appeals were likely.
QBE Insurance (International) Ltd v Wild South Holdings Ltd , NZCA 447, 10/09/2014
Ridgecrest NZ Ltd v IAG NZ Ltd , NZSC 117, 27/08/2014
in RESOLVE, Kate Tilley, Editor
A perception NZ’s insurance industry lacks competition is “curious”, a senior executive told the NZILA conference.
Lumley GM Lumley Business Solutions Toni Ferrier said the market responded to changes in the environment. New entrants, offshore underwriters and capital providers had entered the market. “The market takes care of any gaps that exist. Is the market functioning effectively? Yes. Sometimes there’s excess capacity. There’s no right number of insurers; the market will tell us.”
QBE’s General Manager NZ Operations Ross Chapman agreed. “It’s not a problem. Yes there’s been a reduction in underwriters through mergers and acquisitions, but we operate in a global market. Some of our biggest competitors are in Australia, London and Singapore.” Youi and Chubb had applied for licences in NZ. “I don’t see the market shrinking that much.”
Vero NZ chief risk officer Nigel Edmiston said there was “aggression” in the marketplace and other insurers reacted on price and product, so having fewer underwriters, particularly with the IAG-Lumley merger, was “not an issue”.
He noted, though, 50% of the NZ market was government owned, through the Earthquake Commission and the Accident Compensation Commission.
Panel chair ICNZ’s Samson Samasoni asked panelists about the impact of NZ’s regulatory framework. Mr Chapman said the current regime was relatively light, but that would change. Now that NZ’s Reserve Bank had ensured all insurers were licensed it would move to the monitoring phase. “They are taking a lot of advice from APRA and the APRA model is over-the-top regulation. Compliance will become a bigger part of our role.”
Mr Edmiston said NZ had “nothing like APRA”, nor Australia’s DOFI legislation that protected the domestic market. It was “easy” for offshore insurers to operate in NZ.
On offshoring claims, Mr Chapman said QBE had established a back-office operation in Manila and NZ claims “went live” the week before the conference. It was staffed by graduates who were “keen to learn and speak good English”. It had been “very positive so far” and service levels were improving. “There will be more of this. We are getting consistency and driving some cost savings.”
Ms Ferrier said IAG did not currently offshore claims and it was not being considered in the short term. Since the Canterbury quakes the underwriter was “insourcing” more claims because capabilities and skills had improved and NZ may process some Australian claims. “Customer views will ultimately decide how successful or otherwise those models are,” she said.
Mr Edmiston said Suncorp offshored “a lot of banking, but not claims, as far as I’m aware”. Staff retention was not an issue, Suncorp was ensuring challenging careers were available and upskilling.
Mr Samasoni questioned whether the industry did enough to promote the employee value proposition. “The short answer is no,” Mr Chapman said. “We must do it individually and collectively.” The industry needed to do more to train leaders of the future.
Ms Ferrier said no one saw insurance as “a sexy, exciting industry but, once people are in it they understand the diversity. We don’t sell that story to young people or those at universities”. As a university law graduate she had no idea insurance was a viable option. “We must position ourselves differently at the starting block.”
Mr Edmiston agreed. “The insurance industry has never done a good job in selling itself as a career. It’s been good to a lot of us, and not just financially. There are opportunities to work overseas. I am now the chief risk officer and developing new skills that are transferable. There are a lot of new, exciting career challenges as the industry changes and we have a new regulatory regime in NZ.”
He agreed the challenge was retaining good people, not just attracting new blood. Vero had begun implementing three-day weeks for those who wanted to stay in the industry but reduce their hours.
In the Q&A session, a Massey University representative criticised the industry’s lack of cultural and ethnic diversity. The lack of diversity among conference delegates contrasted with participants in a typical university lecture.
Ms Ferrier also identified there was a low percentage of women on boards across New Zealand.
Asked about the industry’s reputation in the aftermath of the Canterbury quakes, Mr Chapman said the industry had become “a whipping boy” and there were “a lot of prejudices”. Mr Edmiston said media coverage was “not always fair”. “We have a lot of stakeholders to work with. We probably didn’t do a bad job, faced with a unique set of circumstances.”
Ms Ferrier said “the dinner party test” identified the industry had suffered damage and “people don’t know the facts”. But, regardless, “we have no problem filling vacancies”.
“Are people proud to say they work for an insurer? To me, that’s the true test. Our people are proud of what they do and making a difference in people’s lives, especially in Canterbury.”
from RESOLVE, Kate Tilley, Editor
Christchurch, New Zealand, will never be the same again.
That was the message Peter Townsend, CEO, of the Canterbury Employers’ Chamber of Commerce, delivered to the NZILA Conference.
But far from it being a negative message, Mr Townsend’s take was very positive. Dispelling a myth the Canterbury region was well-advanced in its post-earthquake recovery, he said: “We will never be back to normal. But we can’t return to yesterday. We are recreating Christchurch to be something else.”
Canterbury did not want NZ to “feel sorry for us, just to know where we’re at”.
He said the website www.futurechristchurch.co.nz showed plans for the city’s key projects, stressing they were solid plans, not speculation. The rebuild was only 10% completed, with a $NZ4.5 billion spend so far, but it was a 15-to-20 year project.
Mr Townsend said once the turmoil and tragedy was put aside, it was exciting to be part of a city being reborn.
The successive quakes caused about $NZ40 billion of damage and the rebuild would cost up to $50 billion because of cost escalation, including betterment. “Sometimes I think, man, this is big. But big doesn’t mean bad, it means opportunity.
”People don’t understand the scale of what we’re doing.”
The damage bill included about $20 billion in housing and $10 billon in horizontal infrastructure.
Mr Townsend dispelled what he called “some urban myths”, which were “dangerous, because they screw the scrum”.
He argued Christchurch had no population flight, with the availability of accommodation for tradespeople moving into the city to assist with the rebuild a major constraint. The city needed another 20,000 ‘tradies’ to help.
He also argued there was no capital flight. “People are not taking their insurance money and leaving. Capital flies, but it will land in Christchurch,” he said. Cash settlements were being invested back in housing, which reflected in property and rental prices.
Mr Townsend said there was no economic downturn. Unemployment in the region was low and the business failure rate was “normal”. Most businesses forced to shift out of the CBD had relocated elsewhere.
For example, a cheesemonger had rebuilt his business on the back of a truck, collecting customers’ email addresses so he could notify them where the business would be because it had become mobile. Turnover was now 20% higher than before the quakes. “Businesses are reinventing themselves; creating success from misery.”
NZ Government assistance, with $210 million injected immediately to help businesses pay wages, had ensured the business fabric was “in good shape”. “It was a huge support mechanism because it kept cash flow going.”
Business owners’ “sheer bloody mindedness” helped. “Businesses were smacked around, but they kept going.”
After the February 22, 2011, quake there had been some “stupid behaviour”, with business owners risking their lives to go into the red zone to collect records and equipment required to help them continue operating their businesses. “That’s part of who we are. A limited liability company can be part of your soul, your being, your fabric.”
Mr Townsend rejected claims the CBD would become a desert or a donut. “It was that before the quakes. We had a lot of shonky buildings, but [the quakes] got rid of them. From an insurance perspective, we’re now the best risk because buildings are reinforced to earthquake standards.”
Canterbury faced cascading constraints on the rebuild. Initially seismic activity was one. “Things were still moving around.”
The complexity of the insurance system and scale of the disaster meant settlements were taking a long time. The Earthquake Commission was “overwhelmed and had to reinvent itself”. Insurance was no longer a constraint, but there was a long tail and a lot of litigation still to come.
The consent process for rebuilds was slow; and builders were constrained by human resources and material supplies. “We were well insured, but people are putting betterments into their rebuilds.”
Christchurch of the future would be well laid out, respect its river and be a city with “amazing designs” and “the best airport in NZ”. There would be no cheap concrete-slab replacements.
Quizzed on building quality, Mr Townsend said the city could not afford any “shonky” rebuilds, but agreed there were always exceptions.
The Canterbury region had 70% of NZ’s irrigated land, but used only 4% of its available fresh water. Mr Townsend said the region had a future in more than dairy, with the ability to harvest water. It grew 42% of the world’s carrot seeds and a similar amount of the global radish seed supply.
“Our grandchildren will see we have created a city that people want to live in and work in and that’s the ultimate reward,” he said.
from RESOLVE, Kate Tilley, Editor
One of the biggest mistakes a broker can make is underestimating the importance of feeling and emotions in buying, says marketing expert Robert Limb.
The managing director of RAPP – The Customer Experience Agency – spoke to Insurance Business
ahead of his appearance at this year’s Insurance Brokers Association of New Zealand (IBANZ) Forum.
Limb says he surveyed brokers to find out what their fears and expectations for the future are and found direct entrants and online purchasing to be one of their top concerns.
But, he says, this is an opportunity for brokers to play to their strengths more than ever.
“Banks and direct competitors may be able to deliver sharper price, and yes, they may use technology and data to deliver personalised service and communications.
“But there is a world of difference between ‘personalised’ service, which is automated, directive and one way, and ‘personal’ service, which is based on listening, human understanding and regional and industry insights.
“The great brokers can deliver to that far better than newer and bigger direct competitors.”
Limb says four characteristics that make a great broker are those who can:
- Get under the skin of their client’s business
- See their clients as real people, not simply people in a role and who run a business
- Pre-empt issues and then follow up more than the rest
- Love what they do and believe that what they do is really important and not just a way to make a buck.
Limb says the decision makers within the business will be weighing up numerous other factors as well as price.
“In business there is often a lot at stake for the decision makers personally, for their careers and reputation.
“Those people are often making decisions about relationships as well as services that they will need to live with for a long time.”
He said when it comes to a business owner insuring their own business there is a great depth of emotion present.
“The questions a broker needs to ask about risk often get to the heart of why people are in business and what matters most to them.
“And time and time again I hear the reason for appointing a company to be ‘they really understood me and my business.’”
Limb will also discuss customer trends and behaviours in his presentation, one of which is the difficulties of retaining customers and acquiring new ones.
“Most sectors are obsessed with acquisition. And so much poor retention comes from thoughtless acquisition of the wrong customers.
“By and large it’s a short term numbers game for many whereas customers should be for life and not the end of year bonus.”
Now, with customer expectations climbing higher and higher, Limb says brokers need to work out their value proposition.
“I don’t know how many brokers have really got a strong sense of their own value proposition – even my biggest clients have struggled with that. And I think it’s going to be very important in the future to understand what you’re offering and also what you don’t offer as well.
“I would say that ‘marketing as a service’ or ‘help before selling’ are much more than catchphrases and that I am seeing the results of a more focused help then sell approach.”
Maryvonne Gray - Insurance Business NZ on 1st October 2014
Giant South African insurer Youi is tipped to launch in New Zealand in a bid to exploit what Insurance Council figures suggest is weak price competition in the car, house and contents insurance markets.
On Wednesday, the Commerce Commission gave the green light to Australian insurer IAG to take over Lumley General Insurance as part of a A$1.85 billion trans-Tasman deal, saying it did not believe it would cause a "substantial lessening of competition".
But figures released by the Insurance Council imply that even before the merger, competition in the house, contents and car insurance sectors is not delivering lower prices for consumers.
And sources say Youi, part of the Johannesburg Stock Exchange-listed Rand Merchant Insurance group, is attracted by the profits to be made in New Zealand.
After launching in Australia in 2008, it boasts that: "Our customers could fill Eden Park five times, with over 500,000 policies open with Youi."
The company opened a call centre in Auckland last August and its website says it has "big plans" for its business here.
Spokesman Trevor Devitt said the company was looking at opportunities, but its plans for New Zealand were subject to "detailed investigations and board approval".
IAG, which owns the NZI, AMI and State brands, has a market share of just over 40 per cent of the entire general insurance market, but the Lumley deal, will see that rise to just over 50 per cent, giving this country a level of insurance concentration far beyond that in other developed countries (see chart).
Its share of the home and contents and vehicle insurance market will rise to 66 per cent from 60 per cent.
It protested that competition was strong when seeking the commission's approval for the deal.
But the Insurance Council's annual release of statistics shows that the ratio of claims to premiums paid for car insurance has been falling.
In the 12 months to the end of September 2008, private and commercial vehicle insurance paid out $73.68 in claims for every $100 of net earned income. The following years saw it fall to $70.08, then $64.17, before in 2011 going up to $65.16, dropping again in 2012 a new low of $63.52, before rising to $68.11 in the year to the end of September 2013.
Safer cars, and the insurers extracting better and better deals from collision repairers have been behind that shift, but in a highly competitive environment, it might have been expected to see premiums falling as the claims ratio fell.
There has been a similar pattern for domestic building and contents. The Insurance Council
splits out the earthquake cover associated with those policies, and with that removed, the loss ratios have dropped from $82.33 in 2008, to just $59.33 in 2012, and $58.11 in 2013, painting a picture of people paying much more for getting the same non-earthquake risks covered.
Tim Grafton, chief executive of the Insurance Council, denied that competition was weak and said focusing on individual loss ratios was misleading, especially at a time when the insurers were being required to hold more capital by the regulators.
"There are a number of providers for motor insurance out there," he said, adding: "People do shop around and they can get better deals by shopping around. Our observation would be that the market is working. There is plenty of advertising of motor insurance and no barriers to switching."
Grafton said the bigger picture of the total loss ratio across insurers' entire lines of business, including all commercial insurance, marine, cargo, director liability and earthquake, showed a flatter line, with the loss ratio of $68.46 in 2008 having fallen to $62.03 in the latest figures.
He also pointed out that once payments to staff, and other business costs, including payments to overseas parent companies, were included, the net profit was just $3.73 for every $100 earned.
IAG said in a statement: "IAG believes its premiums are very competitive and reflect good value for the risk cover they provide. While claim costs in some categories have fallen other costs in our business remain stubbornly high and we must price for long term sustainability."
Gary Young, head of the Insurance Brokers Association, said households were being told to brace for further premium rises, while corporate insurance premiums were level or falling as reinsurers soften their stance on New Zealand.
Richard Conway, a British expat trying to launch an online insurance comparison service called iCompare with former Vero chief executive Roger Bell, said he was not convinced competition is particularly strong in the house, contents and car markets.
Neither IAG and Suncorp's New Zealand businesses will deal with iCompare, which is designed to make shopping around for insurance easier.
Conway, who is expecting Youi to launch here soon, said the big insurers were very focused on not allowing prices to "erode".
"It doesn't seem like there's a huge amount of competition."
Grafton, who also expects a launch by Youi, said: "If premiums in any line rise then the natural counter to that is aggressive business plays in those lines."
In fact, just the kind of move Youi, which has opened a corporate office in Auckland and is hiring staff, appears to be planning.
Grafton said Youi's planned move "indicated we have got no barriers to entry and people can provide a level of competition, if there's seen to be money to be made."
The public has to wait for the Commerce Commission's detailed report on why competition is not necessarily reduced by its decision, as it works to "redact" parts of the document which are not for the premium-paying public's eyes.
"There's a confidentiality issue and some material has to be redacted from the public version and then that must be signed off internally," the commission said.
- Sunday Star Times