Lambros Lambrou

Growth in capacity and increasing interest from international markets mean the recent run of reducing premiums in Australia may well continue, raising the question of whether insurers are prepared to meet the challenge and diversify by developing new products.

This is one of the key insights revealed by Lambros Lambrou, CEO of Aon Risk Solutions Australia, following the release of Aon’s Australian Insurance Market Update for Q1, 2014.

Mr Lambrou said that the data, gleaned from the Aon Global Risk Insight Platform (GRIP), the world’s largest proprietary database of insurance placement data, enables better analysis and more profound insights to support the insurance industry in shaping its future.

He also pointed out that insurance markets in general are becoming increasingly attractive investment opportunities for alternative capital, such as pension funds, which are actively seeking greater returns and further diversity for their investors.

“For buyers, this adds to an already competitive environment,” Lambrou said. “So for the insurance market, the big question becomes: when will it genuinely start using profits derived from the relatively benign claims environment to develop innovative products for traditionally uninsurable risks, rather than simply banking the difference?”

According to Mr Lambrou, future success for the insurance market lies in its ability to innovate by anticipating and meeting client needs in an ever changing risk landscape.

Mr Lambrou cited network security and privacy insurance policies as a recent example of product innovation: “Five years ago organisations were completely exposed to cyber risk. The insurance market just did not cater to this very real and constantly evolving risk. Now the market offers specialist cyber risk insurance policies to adequately mitigate risk; opening itself up to an entirely new segment of the market that was up until recently uninsurable.”

Mr Lambrou went on to outline some of the highlights from the latest update.

“The good news is that at a macro level, and despite some commentary to the contrary, commercial markets are in good shape and continue to return healthy profits, largely off the back of a year with fewer natural catastrophes and attritional losses,” he explained.

According to Aon, at the micro level, there are some marked variations in the profitability and outlook for different sectors. For example, despite intense competition and surplus capacity keeping premiums flat across the board in general liability, those with bushfire and offshore energy exposures are a marked exception. Rates in these areas have hardened in the last year, and this is expected to continue.

Mr Lambrou said that Workers’ Compensation was another line to buck an otherwise favourable claims trend.

“Both the volume and the value of Workers Compensation claims are on the increase,” he explained. “This means that clients with poor loss histories will inevitably be asked to take on more risk themselves.”

In the Directors’ & Officers’ Liability (D&O) space, supplementary traditional and non-traditional capital has created an oversupply, pushing premiums down, a trend expected to continue throughout 2014. On the other hand, the total amount of compensation claimed is on the rise. Of particular concern is the growing tendency for legal costs to outweigh settlement amounts.

Mr Lambrou commented that up-coming court cases in respect of whether directors can access their D&O insurance to fund legal costs will have potentially serious ramifications for Australian companies.

“Courts want the insured to have access to a legal defence, but whether or not this comes at the expense of those entitled to compensation from the policy remains to be seen. We may see a rise in the purchase of separate ‘legal expense only’ policies to complement traditional D&O policies depending on the way the decision goes,” he said.

While the majority of market commentary is focused on the large corporate space, this sector is becoming increasingly difficult to penetrate. As a result, there is a strong trend of insurers entering the small and medium enterprises (SME) market, particularly in the professional indemnity space.

“They believe that the fluid SME market provides more opportunities, and as a result, between 40 and 50 insurers are currently actively looking to provide professional indemnity cover to SMEs,” he said. “The one exception to this trend is financial planners, where poor loss histories across the board have resulted in rate increases.”

Mr Lambrou concluded by saying that Aon has been sharing deep data insights from the report with key clients in a series of boardroom briefings held in major capital cities around Australia prior to its more general release. The aim of the briefings is not just to share Aon’s insights, but for clients to contribute to the conversation by raising their questions and concerns.

“The response from clients has been overwhelmingly positive,” he said.

“Our clients are clearly keen to get the edge on their competitors by building their businesses on the back of hard data. We are really pleased to be able to share evidence and insights from GRIP to offer them the opportunity to do just that.”

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Lambros Lambrou

Aon Risk Solutions has integrated its existing financial businesses – including Aon M&A Solutions, Environmental Services Group, Trade Credit and Surety, and Financial Services Group – into an expanded segment, Financial Specialties.

This will deliver Aon clients the convenience and benefit of a single point of access to the company’s comprehensive, integrated technical and subject matter expertise.

Lambros Lambrou, CEO of ARS Australia, said: “The depth and range of solutions offered by the enhanced segment is a key differentiator for Aon Risk Solutions. The decision to bring these specialist teams together means we can leverage strength to maximise the value we provide clients, delivering growth and improving the scale of our technical and subject matter capability across key market segments.”

Jennifer Richards, the current Client Director of Aon M&A Solutions, will head up the division as Managing Director of Financial Specialties, reporting to Mr Lambrou. Ms Richards has been with ARS since July 2011, leading the AMAS team to significant growth and a number of key achievements.

Prior to joining Aon, she was Senior Vice President within AIG’s Mergers & Acquisitions and Financial Institutions group. Prior to AIG, Jennifer was a corporate/M&A lawyer at Sidley Austin in New York.

Ms Richards will be responsible for creating and implementing the Financial Specialties strategy.

“I am confident that Jennifer’s experience and strong leadership skills will ensure even greater success for our expanded segment and its clients. It’s particularly pleasing to be able to assign leadership of this important segment from within our own Aon ranks. It’s a real endorsement of the unmatched capability of our people and our leadership position in the market,” said Mr Lambrou.

Liz Botha and Stephen Trickey will continue to lead Trade Credit and Surety, and Financial Services Group respectively, reporting to Ms Richards.

The creation of the enhanced segment will see a team of more than 30 members from across Aon M&A Solutions, Environmental Services Group, Trade Credit and Surety, and Financial Services Group come together as Financial Specialties, effective immediately.

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Capital inflows affecting insurance markets: Aon

“An influx of capital from non-traditional sources is contributing to increased market capacity, lower premiums, and effectively enhancing competition in the global insurance industry.”

Commenting on insurance markets in 2013, Jason Disborough, Managing Director, Global, for Aon Risk Solutions, global provider of risk management, insurance and reinsurance brokerage, said that the market conditions that increased competition between insurers and lowered premiums across the board this year was likely to continue into 2014.

Mr Disborough said that increased capital flows into the industry from non-traditional sources has resulted in a convergence of traditional and non-traditional capital, translating into excess capacity which insurers have been unable to absorb through organic growth.

“Funds are flowing into the insurance sector from major pension and hedge funds as well as family trusts in a way we haven’t seen in the past,” he explained. “In the current low interest rate environment, these investors are seeking alternative sources of return. In addition, they have been willing to accept lower rates of return than have been usual in the industry. Because their investment has the potential to dwarf traditional sources of capital, it has the ability to fundamentally change market dynamics.”

Softening market conditions and increasing capacity have seen premiums fall almost across the board, with downward pressure on rates being experienced even in some of the poorer performing product classes.

Mr Disborough said that while this was great news for insured’s, it continues to present real challenges for insurers.

“Many are no longer able to rely on growth from their existing book of business, and need to look at new ways of maintaining profitability,” he explained.

James Baum, Managing Director of Broking & Chief Broking Officer, Pacific for Aon, also had some comments on the industry response to these changing financial dynamics, pointing out that when market conditions are challenging, it behoves insurers to innovate in order to maintain growth. And, he said, there are some key areas calling out for innovation in Australia.

“Australia is lagging behind the rest of the world in a number of areas. Network security and cyber risk, for example, have been seen as ‘emerging’ risks for far too long. The fact of the matter is that these risks are here now, and require a better and more coherent response from Australian insurers.”

Mr Baum went on to comment on the link between the themes emerging from Aon’s 2012/13 Australasian Risk Survey and the identifiable trends in insurance markets in 2013.

“Insurance exists to mitigate risk but at the same time, it is clearly not possible to insure against all risks,” he said. “We saw this very much reflected in the Aon risk survey. The number one risks identified by Australasian corporates, namely ‘brand and image’, and the ‘market environment’, are not risks that insurers can comprehensively address in the short to medium term.”

On the other hand, business interruption and human resources, which were ranked three and five respectively, are areas where insurance can offer real protection, and where insured’s and insurers alike need to concentrate their risk mitigation efforts.

“Workers Compensation, for example, is the single biggest insurance expense faced by businesses, so it’s no surprise that it ranked as the fifth highest risk concern. It really needs to be monitored and managed well on an ongoing basis.”

Mr Disborough concluded by looking forward to 2014, saying that he did not expect general economic conditions to pick up significantly, at least in the short term, and that alternative capital flowing into insurance markets would continue to keep competition alive and well.

“All in all, insurers and reinsurers alike are facing challenging times ahead, not just because of the ongoing impacts of natural catastrophes, but also due to less favourable operating conditions. On the other hand, their customer’s Total Cost of Insurable Risk will continue to benefit,” he said.

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Aon’s annual conference to assist businesses in assessing risk.

Aon Risk Solutions, the global leader in risk management, will be hosting its annual Advanced Risk Finance Conference in Melbourne next Wednesday, 9 October.

The conference, now in its ninth year, offers business and the insurance industry an opportunity to keep abreast of the risk financing needs of organisations from financial, regulatory and insurance market perspectives.

According to Steve Nevett, Chairman, Pacific Region, Aon Risk Solutions, this year’s conference theme ‘Risk Knowledge – Industry Advantage’ will offer delegates first hand insights into how risk management and risk financing techniques can create a distinct competitive advantage in their organisation’s given industry.

“Effective risk management has never been more important, especially in uncertain times, with factors such as major regulatory change, persistent global and local economic concerns and a degree of political disruption contributing to a less than positive business environment. The conference will provide invaluable insights into cutting-edge global risk financing trends and solutions – something that today’s business and risk professionals simply can’t ignore,” said Mr Nevett.

Key topics to be covered at the conference include:

The sessions will be delivered by key Aon executives from across the world, in conjunction with some of Aon’s major clients – including UPS and Coca Cola-Amatil – and a range of experts from academia, the insurance industry and  corporate world.

Incoming Aon Risk Solutions Australia CEO, Lambros Lambrou, who will be stepping into the role in January 2014, will facilitate the ‘Global Insurance and Reinsurance’ session, which looks at the effects of changes in these markets on major Australian corporates’ risk financing strategies – including the impact of recent global catastrophes. He will also facilitate the ‘Local Insurance Market Update’, which includes speakers from Australia’s major insurers.

Steve Nevett concluded: “There’s a very good reason that Aon’s Advanced Risk Finance Conference is recognised as the premier risk management event in Australasia. We’ve established a reputation for delivering a program that’s expert, relevant and valuable to the Risk professional and this year’s conference will be no different.”

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AON expands regional footprint.

Aon has announced plans to extend its regional presence – with three new offices planned for opening in Geelong, Springwood and the South Coast region by the start of next year.

The decision to establish a presence in these regions follows increased interest and demand from local clients and will enable Aon to provide its growing client base with more direct and specialised customer support.

Commenting on these growth plans, Steve Nevett, Chairman, Pacific Region, Aon Risk Solutions, said:

“Our regional branch network has long been a strong contributor to our profitable growth and growing our presence in regional locations is part of our core business strategy. We have confidence in the SME opportunities in these locations and we very much want to strengthen our market presence there.

It’s an exciting time for Aon as we continue to help our clients understand their unique challenges – providing expert, practical guidance on broking and insurance solutions.”

Aon’s branch network currently extends across every state and territory with 28 offices in capital cities and regional centres.

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Mr. Lambrou is Aon’s current Head of the London Global Broking Centre and Chief Broking Officer for Europe, Middle East and Africa (EMEA). He has worked across both complex client placements and structured portfolio solutions in a variety of roles and, having spent some 16 years of his working life here, has a strong understanding of the Australian market.

Mr. Lambros will report to the current Australian ARS CEO, Steve Nevett, who will step down from this role but continue as Chairman, Pacific Region. Mr. Nevett has been the CEO of ARS in Australia for almost seven years and Chairman of the Pacific Region since 2010.

“We couldn’t be happier about Lambros’ appointment, which will further strengthen our already successful Australian leadership team.  Our clients can expect to benefit from his outstanding understanding of global insurance markets and we’re very much looking forward to cementing his expertise into our business here,” said Mr. Nevett.

“Being able to fill this very important role internally is particularly pleasing: we know Lambros and he knows us, which means he can hit the ground running on behalf of our clients and colleagues.”

Prior to his current role in London, Mr. Lambrou was based in Chicago as Head of Aon Analytics and then as Chief Operating Officer, Aon Broking. From 1992 to 2008 he worked for Aon in Australia in roles that spanned reinsurance and retail broking.

Mr. Lambrou’s appointment will allow Mr. Nevett to focus on the execution of Aon’s broader strategy across the Pacific and work to further build a number of key client and market relationships.

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Aon named ‘Large Broker of the Year’.

Aon Australia has been named ‘Large Broker of the Year’ and has won the ‘Generation i Youth Development and Employer of the Year’ category at the Australian Insurance Industry Awards, held in Sydney on Wednesday night.

Hosted by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and founding partner Asia Insurance Review (AIR), these are the peak awards honouring achievements in the Australian insurance industry.

Commenting on the wins, Steve Nevett, Chairman, Pacific Region, Aon Risk Solutions, said: “These awards are all about industry recognition. The fact that the awards are judged by our peers makes them all the more meaningful and is a genuine sign that we are making real strides as leaders in delivering client value.

“I’d like to thank all those involved in the activities and initiatives that contributed to our achievements, especially the dedication and quality of our people whose efforts made every day on behalf of our clients and our business have been recognised,” he said.

On winning the ‘Large Broker of the Year’ category, ANZIIF cited Aon’s “ongoing commitment to providing excellent services to clients”.  The judging panel was particularly impressed with Aon’s measurement initiatives and the client satisfaction achieved through activities such as the Aon Risk Management Benchmarking Survey, the Aon Risk Maturity Index, quarterly Insurance Market Update and its corporate publication, Currency.

Later in the evening, Aon also received the inaugural ‘Generation i Youth Development and Employer of the Year’ award, in recognition of its continued investment in and support of the industry through its development of younger industry members.

Aon Risk Solutions boasts an impressive 82 per cent retention rate among young professionals, which Aon attributes to employee development initiatives such as the ‘Learning Standards Framework’ and ‘Momentum through Mentoring’, along with scholarship and leadership initiatives such as its  ‘Emerge Early’ career development program and the ‘Geoff Freeman Scholarship’ to support career development.

“Supporting our people by investing in career development programs, particularly for the younger generation, creates a positive internal culture that fosters a sense of loyalty and excellence which ultimately flows through to our clients in the quality service we provide.  We have invested heavily in creating useful initiatives for all our people, but particularly for our younger employees, and while we see they really appreciate it, it’s also immensely rewarding to have our commitments in this regard recognised by the wider industry,” said Mr Nevett.

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Communication is the key to managing insurance needs

A recent survey of medium-sized Australian businesses suggests that many can do much better when it comes to managing the relationship with their insurance broker – and are left unnecessarily exposed as a consequence. And step one in addressing that is to have clearer, more engaging conversations with their insurance broker.

“The strong theme to come out of several pieces of recent research is that businesses should have clearer expectations of the services they receive from their broker. And extracting the value they want means both sides should be investing more time in their commercial relationship,” said Andrew Gordon, Aon Risk Solutions, Head of Marketing, which conducted the research.

This included a survey of 100 businesses with turnovers between $15 million and $100 million, along with qualitative research into the relationship between business and brokers and how they interact.

The survey showed some concerning deficiencies in the way businesses seek information about their insurance needs, with recommendations from colleagues (50%) ranking highest. Sounder forms of information, such as from industry associations and broker recommendation, lagged well behind at 34% and 33% respectively.

“This is a worry given that more than two-thirds (71%) of businesses rate their insurance needs as complex,” he said. “It’s frankly unlikely that consulting with colleagues is going to provide the information a business needs to get the right type and level of insurance.”

According to Mr Gordon, typically businesses are underinsured to the tune of 25% to 45%. And reliance on incorrect advice, false assumptions, faulty self-assessment and incorrect valuations all contribute to this situation. The hotels / pub sector is one in particular that experiences this risk.

Despite this clear deficiency, responses from the survey suggest that many Australian businesses are not aware that they are underinsured. Fifty-five per cent of respondents said their program had been benchmarked in the past year; while 38% said it had been benchmarked in the past three. And almost half (47%) also rate ‘regular and effective benchmarking’ as the ‘most important’ feature of their program.

“What this suggests to me is that businesses may not be clear on what effective benchmarking entails – and that, anecdotally at least – it’s being mistaken for ‘shopping around’ for cheaper premiums,” said Mr Gordon.

So how should a business go about getting the insurance program it needs?

According to Mr Gordon, an effective program is dependent on a number of factors – but it all starts with having a robust and open conversation with a reliable information source.

“Many businesses report frustration with a number of elements of their broker relationship, including infrequent transactional style contact, when a full and frank exchange of relevant information between broker and business is required.”

To this end, and based on these and other survey findings, Aon has embarked on an education campaign that offers businesses more information about the kinds of questions to ask in order to get the best value from their insurance broker.

Stage one was the launch earlier this month of a website for medium-sized businesses that features Q&As, video interviews and case studies that provide practical guidance on making the most of the broking and insurance sourcing process.

“It’s not necessarily been standard in our industry to reveal this kind of information, but based on survey findings and other evidence, it’s an approach we need to take to turn our industry knowledge into an advantage for our clients. That way they can avoid being unprepared to recover from even relatively commonplace events,” said Mr Gordon.

“We see it as a strong start, in some ways, to a new kind of practice for our industry.”

The website is at www.aon.com.au/mybroker. In the first week of launch, over 1,000 businesses visited the site.

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These are the findings from Aon’s 11th annual Australasian Risk Survey, which provides a snapshot of the risk management practices of 133 businesses in 19 industries across Australia and New Zealand. The report provides a unique view of the key concerns of some of Australia and New Zealand’s largest and best known organisations – and offers some insights into upcoming business trends.

“What we look for in the survey responses are year-on-year changes that help us understand how business is faring, how it is seeing and responding to a rapidly changing environment and in turn, the kind of help organisations need to better manage their risks,” said Jason Disborough, Managing Director, Global, of Aon Risk Solutions.

The 2013 survey reveals that risk posed by the market environment (economic slowdown), while generally ranked between five and 10, has made its way up seven places in recent years to take equal first place with another risk constant: brand and image.

“This would suggest that despite relatively strong local performance, organisations now see the economy as a greater risk than they did during the GFC and its immediate aftermath,” he said.

“It’s likely that the sheer persistence of the sovereign debt crisis in Europe, slower than expected economic growth in China and India and uncertainty surrounding US fiscal policy is taking its toll. Underpinning this may well be concerns about our economy’s reliance on natural resources and the risk of lessening demand from emerging markets.”

Ranking at equal first position was risk to brand and image, with more than half (56%) of organisations surveyed saying that risk to brand and image had resulted in loss of income in the past 12 months. Technological innovation, the rise of social media and a number of recent well publicised brand scandals suggest that this risk is unlikely to lessen any time soon.

 Hard on the heels of the number one ranking – and potentially contributing to them – is risk relating to regulatory and legislative change. While ranked third overall, it is the number one concern for the banking and finance industry, the healthcare industry and not-for-profits.

“The concern surrounding regulatory change may be based to a large extent on continued political uncertainty with an election on the horizon, along with new legislation such as the Carbon Tax, the Mining and Mineral Resources Rent Tax and the harmonisation of the Occupational Health & Safety (OH&S) laws,” said Mr Disborough.

He also noted that despite the extensive media coverage, the reality is that these changes have, as yet, failed to materially impact the bottom line of most companies surveyed.

A steep rise in concern about business interruption sees it moving up two places to be ranked fourth, which can be attributed to natural disasters both in Australia and New Zealand, notably the Christchurch earthquakes and fires and floods in various Australian states.

“The effects of these disasters have been felt by many businesses, especially in terms of customer impact and there is a real understanding now that there is absolutely no room for apathy about business interruption risk – particularly in relation to supplier management,” said Mr Disborough.

On the human resources front, the survey found that a failure to attract and retain top talent ranked as number five, as it did last year. The skills shortages in many industries combined with cost reductions, significant restructuring and major organisational change, demonstrates that employers recognise the real challenges involved in building and maintaining a team that can effectively further the organisation’s business goals.

In addition to ranking the top five risks, the survey reveals a great deal about businesses’ sense of their operating environment in general. This year, for example, lack of innovation and increased competition made their way into the top 10 for the first time, while political risk and uncertainty was a first-time entrant into the top 20, as was lack of technology infrastructure to support business needs at 14, and failure to implement and/or communicate strategy at 19.

“The survey is an invaluable tool for companies seeking to improve risk management practices by enabling them to compare and contrast their own strategies, costs and management structures with those of their peers,” said Mr Disborough.

“Benchmarking organisational practices against the best in the industry offers a prime basis for improvement.”

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