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May-June 2014

Welcome message _____________________________________________

Welcome to the May-June 2014 issue of Insurance Insight.

There’s a truism that change is the only constant – and that’s

certainly been playing out in the financial sector over the past few

decades.

The Federal Government’s Financial System Inquiry is currently

urging Australian businesses and industries to help shape how our

financial system will operate in the future. In this edition, we

explore a couple of the changes insurance brokers would like to see

in critical areas such as workers compensation.

We also examine a Cyber Catastrophe scenario that wouldn’t be out

of place in a movie. Luckily it’s fictional!

I hope you enjoy this edition of Insurance Insight and look forward to

keeping you up-to-date with EBM and industry news.

Jeff Adams

Managing Director

If you wish to opt-out of receiving future newsletters simply click on the link at the bottom of this email.

News in brief ____________________________________________

Academics are testing the use of acoustic sensors

to create early warning signals of mudslides such as

the one in Oso, Washington, in March which killed

more than 40 people. The sensors have been under

development at the University of Loughborough,

UK, since 2006. They comprise a gravel-filled pipe

in a vertical borehole put into a vulnerable slope.

The sensors make noise if the surrounding soil

moves, and are being tested in Canada, Italy and

Germany.

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EBM has joined Club Red, an Australian Red Cross Blood Service initiative that makes it easy for

businesses and groups to give blood. A courtesy shuttle bus picked up our donors and dropped them back

at the office two hours later. Each donation is expected to save three lives. Congratulations to our Assistant

Account Manager Sophie Hall, who inspired the initiative to donate what she calls “life-saving/love giving

awesome juice” when her friend was diagnosed with leukaemia.

As Sir Richard Branson’s Virgin Galactic continues to take bookings for the first commercial flights into

space (at US$250,000 a seat), Allianz Global Assistance and the International Space Transport Association

have teamed up to offer the first insurance policies for space travellers. The packages – designed for space

tourists, space scientists and space liners – are still being determined but are expected to cover cancellation

fees, baggage loss, accidents and increases in fuel costs, with premiums likely to range from around $800 to

$11,000.

Unsolicited phone calls after a car accident, which attempt to refer motorists to a claims or compensation

service, should be treated as suspicious according to the Insurance Council of Australia and Australian

Competition and Consumer Commission. Anyone involved in an accident is advised to contact their broker.

MH370 Insurance under the spotlight ____________________________________________

Malaysian Airways is likely to have been paid

more than US$200 million – AUD $216

million – by insurers for the loss of MH370,

off the WA coast, according to an article in

Fortune magazine.

Although the airline refused to confirm the

claim, the figure is based on the usual industry

practice of insuring planes for full replacement

value, regardless of their age.

If the plane isn’t found, relatives often struggle

to get a court judgement against the airline

because of lack of evidence. However they

could be entitled to receive approximately US$175,000 under the terms of an international agreement on

liability for air carriers, called the Montreal Convention.

Fortune magazine cited a number of historic disasters and quoted their payout figures at today’s value ie:

sinking of the Titanic in 1912 – US$119 million

Hindenburg airship fire of 1937 – US$81 million

terrorist attack crash of Pan Am 103 over Lockerbie, Scotland – US$18.4 million.

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Call for third umpire body to cope with ageing population ____________________________________________

The Federal Government should establish an

independent body with a “third umpire” role

to help ensure the financial system delivers as

the population ages, according to the

Actuaries Institute.

In its submission to the Financial System

Inquiry, the group also urged a more

comprehensive framework for policy

formation.

“Changes to the retirement income system

should not be undertaken in isolation without

consideration of age pension costs, aged care costs and all sources of potential funding, including housing

wealth,” said Institute President Daniel Smith.

“Our view is that without public policy changes, demographic developments will adversely affect society’s

ability to finance a desirable standard of living during retirement.”

The Institute’s proposed Financial System Policy Commission or “third umpire” would balance the views of

multiple government stakeholders in policy debates, as well as clarifying or resolving policy positions

adopted by other regulators.

The submission said the group was not urging more regulation but more efficient regulation with a longer-

term focus.

In other news, the Institute launched an advertising campaign highlighting actuaries’ ability to provide

“clarity in a complex business world”. One advert positions actuaries as “rock stars” of the 21st century, able

to provide insights to change “businesses, industries and even countries”.

The Actuaries Institute submission – by the numbers

Ninety-six superannuation tax changes announced under the previous Government.

Over the next 30 years, the 65-and-over age group will double to seven million people outnumbering under-18 year-olds.

In the next 14 years, retirement assets are estimated to grow from $1.7 to $3.4 trillion.

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Business Bookshelf: Cyber Catastrophe ____________________________________________

An academic working paper is the unlikely

source of a story titled the “Sybil Logic

Bomb” – a plot about industrial sabotage

far more suited to a Hollywood thriller.

The Bomb is a fictional risk scenario

published by the University of Cambridge’s

Centre for Risk Studies’ in a working paper

on Cyber Catastrophe.

In the scenario, Sybil is a market-leading

relational database which is entrenched at

the heart of many business IT systems and

third-party software products.

In the story, an employee of the Sybil development company maliciously modifies the product’s source

code, knowing that the next upgrade will distort the “floating point” data used in design, modelling, and

decision support.

As the problems take hold, the performance of computer aided design systems starts to deteriorate;

modelling support systems lead to loss-making trades; reporting systems give bad data to boards who then

make incorrect decisions; process control systems problems lead to equipment malfunctions, industrial

deaths etc.

Clever features of the hack include a waiting period or “fuse” during which the change lies dormant, its

application only to certain types of company in the developed world, and the fact it is only activated when

any of the input variables match the last three numbers of the host computer’s serial number (making it

impossible to replicate the problem on another machine).

The academic paper suggests it would take 30 months for the compromised Sybil upgrade to be recognised

as the source of all the various problems – but that didn’t mean its damaging effects would end there.

An upgrade to fix the system would not cleanse data that had already been corrupted. Nor would it rebuild

lost trust with companies continuing to be suspicious of data integrity and customers wary of supplies and

products. The resulting malaise was likely to massively impact productivity reducing GDP figures for many

western nations.

What’s worse, the disgruntled Sybil employee was found to have left the company and gone on to work for

two more database vendors...

Although this particlaur case is fictional, the increasing risk of cyber attacks on businesses is very real and

growing. It is worth also noting that the loss of real funds and property shouldn’t be the only considerations

as the costs of identifying, investigating and rectifying are usually also significant.

For more information on cyber insurance please talk to you account manager.

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The case for insurance reform ____________________________________________

Taxes on insurance should be cut, workers

compensation standardised across state borders

and product disclosure measures re-examined,

according to the National Insurance Brokers

Association (NIBA).

Insurance is essential to Australia’s future

growth and prosperity providing the security

that individuals and businesses need to operate,

NIBA said in its submission to the Financial

System Inquiry.

While the insurance industry generally served the public well, NIBA identified a number of areas the

Federal Government could help improve including:

Workers compensation This area of insurance is highly-fragmented with different state and territory schemes, as well as

specialist schemes for some employees such as coal miners and sea farers. NIBA urged a system

under which all employers could choose their preferred insurer, and more effective and transparent

pricing should be used. The changes should be consistent around Australia enabling employers with

staff in more than one state to operate on a more efficient basis with one set of laws.

Insurance taxes The combination of stamp duty and GST adds 18-20 per cent to the cost of insurance. NIBA

called for leadership in reforming taxes so that state governments can meet their revenue needs

without an undue burden on those who take out insurance: “General government expenditure

should be funded by broad based taxation revenue, not by taxes and levies on specific products or

services which operate in the community’s interest.”

Disclosure NIBA argues disclosure obligations should be critically reviewed, as disclosure documents are not

being read and are not leading to more informed decision making. In order to achieve confident

and informed decisions, the focus should be on financial literacy followed by the need to seek

qualified, professional advice.

Piracy on the high seas ____________________________________________

Real life pirates are a lot less fun than their

fictional counterparts – and businesses involved in

the international shipping trade need to be

prepared.

The good news is that incidents of piracy are down

more than 10 per cent since 2012, according to the

International Maritime Bureau.

The bad news is that areas where there have been

increasing incidents of piracy are on our doorstep.

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Last year, incidents in South-East Asia accounted for almost half of the 264 attacks worldwide, with

Indonesia posing a growing threat.

Shipping between the Pacific and Asia needs to traverse Indonesian waters – where there has been a 700

per cent increase in piracy in the last five years, making it the world’s No. 1 piracy hotspot.

While chemical tankers, bulk carriers and crude oil tankers are the usual victims, any ship can be targeted by

pirates – both at sea and in port.

Different piracy models can be found in the different hotspots:

Somali pirates tend to capture the ship and hold the crew for ransom.

In the Gulf of Guinea, pirates are fond of kidnapping the crew and holding them for ransom or simply trying to destroy the ship (particularly oil tankers).

In Indonesia, pirates commonly steal cash and valuables from the vessels and crew.

The World Shipping Council is working with the International Chamber of Shipping, the International

Maritime Organization and various governments to reduce the risks to commercial vessels transiting the

Indian Ocean. However, businesses still need to be prepared.

Risk mitigation is an essential part of any ship’s anti-piracy strategy, and there are many tactics that can be

deployed. These include CCTV cameras, satellite tracking, razor wire, high pressure hoses and stowing

ladders on deck.

Preparing crews and having them trained in piracy responses is also invaluable. It’s also highly advisable to

notify the naval forces in the region that your ship will be transiting the high-risk areas.

It’s also vital to have all the right insurances in place – to not only cover your business against piracy, but

the specialised risks that confront those involved in shipping and marine industries (most losses are not

attributed to piracy, but to ships foundering).

Craig brings wealth of experience to EBM ____________________________________________

Craig Goodwin has joined EBM as Executive Account

Manager, after a decades-long association with the firm in his

former role as a senior underwriter.

“We’ve had a relationship of mutual respect over many years,”

he says. “I always said if I was ever going to join a broker, it

would have to be with a company which is not only good to

its employees but has really, really solid ethics and good

business practices. EBM fits that bill.”

Craig is looking forward to dealing directly with the business

people he’ll be assisting, and having access to a multitude of

specialist insurance options.

“When you work for an underwriter, sometimes that firm

might not have an appetite for a particular risk and you are

not always able to help, even when you might like to. As

brokers, EBM can access numerous insurers and specialist

markets to negotiate an appropriate insurance program for

clients,” he says.

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Formerly in a senior underwriting role with Allianz Australia Group, Craig’s first weeks on the job have

been spent meeting clients under the mentorship of veteran Executive Account Manager Lee Young.

Lee says clients can have full confidence in Craig: “He has vast experience handling insurance for large

corporate businesses. Technically, he’s very sound and well educated in insurance. He’s also conscientious,

attentive and efficient.”

Outside work, Craig enjoys spending family time with his wife and their two teenage girls – often at the

beach.

The AFL is Craig’s other passion. He is an assistant coach for Hammersley Carine. He also supports the

West Coast Eagles – which, he laughs, comes close to a job requirement at EBM.

Contact us ____________________________________________

EBM Insurance Brokers, with offices in New South Wales, Victoria, Queensland and Western Australia, delivers local expertise combined with the national resources of one of Australia's largest insurance broking companies.

Email us at ebm@ebminsurance.com.au or contact a local broker who can help you determine your insurance needs. Call 1300 INSURE (1300 467 873) for your nearest office:

Sydney Level 4, 151 Castlereagh Street, Sydney New South Wales 2000 Melbourne Suite 4/651 Victoria Street, Abbotsford Victoria 3067 Perth Office 105 Outram Street, West Perth Western Australia 6005 Gold Coast Level 8/64 Marine Parade, Southport Queensland 4215 Bunbury 4 Victoria Street, Bunbury Western Australia 6230 Kalgoorlie 47-49 Boulder Road, Kalgoorlie Western Australia 6430 Geraldton 65A Forrest Street, Geraldton Western Australia 6530 Karratha Suite 122, The Pelago West Karratha Western Australia 6714 Sale 1/396 Raymond Street, Sale Victoria 3850 Important note: Our advice is provided for your general information and does not take into account your individual needs, you should read the respective insurers product disclosure statement which we can provide upon request before taking out cover.

All Enquiries: 1300 INSURE (1300 467 873) | ebm@ebminsurance.com.au | www.ebminsurance.com.au Sydney | Melbourne | Perth | Gold Coast | Bunbury | Kalgoorlie | Geraldton | Karratha | Sale Affiliated Offices: China, Hong Kong, Indonesia, Macau, Malaysia, Philippines, Singapore, Taiwan, Thailand, Lloyd’s at Coverholder Elkington Bishop Molineaux Insurance Brokers Pty Ltd | AFSLN 246986 | ABN 31 009 179 640 | Est 1975