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Zurich Claims Quarterly JournalFocus – Property and Energy
Autumn 2017
Get started here
Welcome 3
Our customer proposition 4
Our Zurich UK Claims Commitment 4
Our area of Expertise 7
The future of energy risks at Zurich 7
Defect or damage? Conceptual challenges on construction claims 8
Could fracking contribute to UK energy needs? 12
Reading the Riot Act 14
A focus on Australia’s mining industry 16
Can the claims process be more user friendly for customers? 19
Contents
2Zurich Claims Quarterly Journal > Contents
Welcome
James NicholsonHead of Commercial Insurance Claims
+44 (0) 207 648 3910
+44 (0) 7841 562840
I am delighted to be able to launch our inaugural Zurich Claims Quarterly Journal.
Zurich is committed to working with our customers in order to find the right solutions to your insurance and risk management needs. We offer our customers a unique proposition across our underwriting, risk engineering and claims functions, including relationship management service, ensuring that you have a dedicated point of contact at Zurich.
Over the course of the past 18 months we have been working with our customers and brokers to further enhance Zurich’s claims proposition. We recognize that in a market which is facing a challenging time our claims offering is seen as a significant differentiator in the market place. Our Claims Commitment, with four pillars at its core; personal, clear, effortless and collaborative, enables us to successfully work with our customers meaning you can remain competitive in your own business sectors.
Charles BushHead of Property and Energy Claims
+44 (0) 207 648 3221
+44 (0) 7875 888 039
I want to add my welcome, and hope that you enjoy digesting our Zurich Claims Quarterly Journal, focusing on our Property and Energy claims division which includes Construction. This was felt an appropriate starting point given the recent exciting announcement that we will be expanding our Property, Energy and Technical Risks division.
Having spent a lot of this year in the company of Zurich customers it is clear that they value our ability to serve them far beyond what might be described as the traditional claims approach of simply engaging with the customer following the notification of a loss.
The contents of this Journal brings together some of the work of our claims division and evidences the fact that we are committed to assisting our customers pre, during and post loss; from ‘Thought Leadership’ on topics such as The Riot Act, and Defects or Damage, the delivery of Large Loss Scenario Workshops, and presenting at numerous industry conferences. Through this work, as well as the management of large and complex losses, we see ourselves as being instrumental in determining the future of claims in the insurance market.
We very much look forward to continuing to work with you and thank you for your support.
3Zurich Claims Quarterly Journal > Welcome
Our customer propositionOur Zurich UK Claims Commitment
Protecting your ability to compete
At Zurich, our claims service is a priority, that is why we continually strive to provide a market leading claims proposition that reflects our customers’ changing requirements.
Working together for the best
The claims service is an integral part of the Zurich proposition and we are renowned for offering reliability, speed of service and expertise when a claim happens, to get you back on your feet and to stay in business.
That’s why we make a commitment that our claims service will be:
• personal to each customer, working closely with you using our combined knowledge of your organisation, people and business
• effortless, as we know the easier it is to claim, the more content you will be
• clear, so you know exactly what you need to give us to progress your claim. Straightforward communications are vital to settling claims quickly and smoothly
• collaborative, working together, sharing a common goal to conclude the claim as quickly as reasonably possible and to keep you in business.
Our Claims Commitment ensures that you know where you stand every step of the way. It involves us working closely with you and supporting you all the way through a claim.
4Zurich Claims Quarterly Journal > Our customer proposition > Our Zurich UK Claims Commitment
It’s here in blue and white
Whatever the size of the claim, our Claims Commitment ensures that we will work closely with you and settle accepted claims (building upon our 99% claims paid record), as fast as possible whilst robustly defending you against unwarranted claimants.
In respect of the larger and more complex claims
When you claim:
• a dedicated claims expert will contact you as quickly as possible and within 24 hours
• if appropriate, we will appoint a dedicated third-party expert as quickly as possible and within 24 hours.
If it is clear what caused the incident, we will provide our initial view on policy liability within 48 hours.
If Zurich and your business agree the claim will potentially cost more than £250000, we will:
• arrange and hold a conference call or meeting within 5 days of the claim being notified. This call or meeting will include you and relevant stakeholders, such as your broker and any third-party experts. We will discuss and agree a claims strategy which includes the communication plan and our combined agreement on how best to resolve your claim.
• let you know the additional documentation and/expert evidence we need to assess your claim, no later than 7 days after you first notified us.
• give you an initial view about paying your claim within 72 hours of receiving all the information we need.
• pay you an interim amount, if required or requested, within 72 hours of us agreeing to pay the claim. We will always try to put you in the best financial position possible.
• pay the final amount within 72 hours of us receiving the documents we need, unless we’ve agreed and documented otherwise in release or settlement papers.
For all claims we will:
• respond to all communication from you and your broker promptly
• give specific customers access to our claims relationship team to assist you generally on all claims matters
• once coverage is confirmed, pay the claim promptly upon receipt of supporting documentation
• work with you to produce the accurate claims information and the data you need
When making a claim you also have access to:
• Our award winning fraud protection team
• In house claims inspectors to investigate EL claims on site
• In house pre and post loss rehabilitation team
• In house forensic motor engineering team.
Why choose Zurich?
Zurich is a leading multi-line insurer that serves customers in global and local markets. With over 55,000 employees, and a wide range of general insurance and life insurance products and services, we have the size, strength and scale to support you. We serve individuals, small businesses, and mid-sized and large companies, including multinational corporations, in more than 170 countries.
To find out more about our Claims Commitment, speak to your Zurich contact today.
5Zurich Claims Quarterly Journal > Our customer proposition > It’s here in blue and white
Large Loss Scenario Workshop
Large Loss Scenario Workshops help protect our customers’ ability to compete.
Certainty is the number one priority for any customer responsible for insurance procurement. Certainty of the skills and expertise of individuals responsible for underwriting their risk and handling their claims. Certainty on the nature and extent of policy coverage and programme structure. Certainty of the roles and responsibilities of key decision makers throughout the duration of their partnership with an insurer. Certainty that Zurich will deliver on its commitment and protect their ability to compete.
By using Case Studies that are bespoke to the challenges a customer may face; Zurich, the broker and the customer will jointly agree a defined set of workshop objectives in conjunction with other critical service providers such as loss adjusters and lawyers.
A Large Loss Scenario Workshop is an essential element of pre-loss planning that ensures all parties are fully prepared in the event of a loss affecting our customer’s business.The workshop provides you with the opportunity to engage proactively with Zurich and your broker in a interactive and engaging way.”
PERSONALFully tailored workshops will enable Zurich, the broker and customer to develop a more intimate understanding of how specific events affect each other’s business
EFFORTLESSDefining transparent communication channels to be utilised throughout a claim and understanding the expectations and requirements of a customer’s business
PERSONALOpportunity to build and enhance the tripartite relationship between Zurich, the broker and customer
CLEARStress testing policy wording to gain confidence on the nature and extent of policy coverage and clarifying the essential steps for Zurich to determine policy liability
6Zurich Claims Quarterly Journal > Our customer proposition > Large Loss Scenario Workshop
Our area of ExpertiseThe future of energy risks at Zurich
In the past, we have looked at many of these industries in isolation, which has at times led to displacement of our capacity. By combining all of these more volatile industries together, and managing capacity in a consistent fashion globally, we will allow ourselves to build critical mass across the globe, without getting too overweight in any one account, industry, or geographic territory.
What that means for you, our clients and brokers, is a much more predictable Zurich. Our aim is to provide competitive, stable, long-term capacity to quality customers around the globe, providing Zurich with balance to the remainder of our portfolio. This will place Zurich in a strong partnership position to be a true, multi-line leader in servicing your needs.
We are actively involved in underwriting each of these industries across the globe, including via our London hub. The exception has been the Downstream and Midstream Energy industries (outside of North America) for the past 1-1.5 years. We are very pleased to say that we have renewed our treaty capacity for Downstream and Midstream Energy, and have begun executing our business plan. Our initial focus is on renewing quality business in the short term for Downstream and Midstream Energy, while simultaneously seeking an expert to run our new business strategy in London.
Of course, for all of the other industries shown, it is Business as usual for us.
Upstream Exploration & Production
Downstream Energy
Midstream Energy
Chemicals & Pharmaceuticals
Mining & Related Industries
Power Generation
Molten Metals
Pulp & Paper
We are also actively reviewing possible strategies to ‘hub’ some of this business. For instance, Upstream Energy is already ‘hubbed’ in London, Houston, Dubai and Singapore. It is highly likely that Zurich will follow the same strategy for Downstream & Midstream Energy. As such, London will most likely be one of a few hubs, and the only hub with truly global remit. Please reach out to our London leadership team for updates as our hiring process comes to a close, and our hubbing strategy gets formalised.
Rob KuchinskiGlobal Head of Property & Energy
+44(0)20 7648 3292
+44(0) 7875 886 927
Robert A. Kuchinski joined Zurich in February, 2017 as Head of Global Property, Energy & Construction. Mr. Kuchinski is responsible for the leadership, strategic planning and profitability of these businesses worldwide.
7Zurich Claims Quarterly Journal > Our area of Expertise > The future of energy risks at Zurich
Chris LynchSenior Claims Adjuster – Construction Property & Energy Claims Zurich Insurance plc
+44 (0) 207 648 3450
+44 (0) 7875 886600
Bernadette HackettGlobal Relationship Leader Head of the Global Construction Industry Community Zurich Insurance plc
+44 (0) 207 648 3906
+44 (0) 7812 265379
Whether resulting from design, plan, specification, materials or workmanship, defects can result in damage to project assets and have a range of associated costs.
While material damage cover – such as that found under a Contractors’ All Risks (CAR) policy, or similar – will protect a project’s physical assets against unexpected harm, the original intent of this wording was not intended to guarantee quality of work by covering losses resulting from defects.
Issues caused by defects are instead primarily a contractual issue, or one for the responsible party’s professional indemnity insurer. Distinguishing between defects and damage is therefore important for determining whether, and the extent to which, there is recourse under a material damage cover.
However, the dividing line between these concepts is not so easy to draw in practice and often presents complex challenges on construction claims that involve defects.
Not an absolute exclusion
While the theoretical starting point for material damage cover is that anything resulting from defects is excluded, in practice this is very rarely the case, and policy wordings are regularly amended to broaden the coverage under the CAR policy.
Instead, a policy’s defects exclusion is typically incorporated by inserting a clause from one of two established sets of London Market wordings – the London Engineering Group Defects Clauses (LEG) or the London Market Design Exclusions (DE). Whilst these are written as exclusions, there are important ‘write backs’ in each wording set to address how the policy will respond to a defect.
Both the LEG and DE wording sets offer the opportunity for policyholders to purchase incremental cover for instances involving defects, with LEG offering three levels of cover and DE offering five.
The narrowest clauses within each set (LEG 1 and DE 1) are absolute defect exclusions, while the widest clauses (LEG 3 and DE 5) will cover all resultant damage, excluding only any costs that improve upon the original design, plan, specification or materials (see Cover Summary section for an illustration of the different cover available via the DE clauses).
Defect or damage? Conceptual challenges on construction claims
The dividing line between defects and damage is an important, but difficult, line to draw on some construction claims. We look at the challenges this distinction can present and how they can be overcome in practice.
8Zurich Claims Quarterly Journal > Our area of Expertise > Defect or damage? Conceptual challenges on construction claims
“In the large project and major contractor insurance market few, if any, ever choose to completely exclude defects,” says Christopher Lynch, Senior Claims Adjuster at Zurich. “I have personally never seen a policy that offers narrower cover than LEG 2 or DE 3. Most will at least buy cover for consequential damage to non-defective property with the option to elect for LEG 3 or DE5 (or maybe DE4) coverage in return for an enhanced excess and additional premium.”
Please see Cover Summary section at the end of this article.
Difficult distinction to draw
Defects often occur within the insured property – for example, a defective mix which results in below strength concrete within a pile. This makes notions of defect and damage difficult to completely separate in reality, as they are often so closely intertwined.
Furthermore, with each increment of the LEG and DE clauses introducing further distinctions to be drawn, it can demand a very complex factual analysis to establish the extent of recovery available.
“You need to first separate out and attach costs to a number of distinct concepts. These might include: defective property; property free from defects; constituent part deemed to be defective; consequential damage; and aspects that might be considered improvements,” explains Lynch.
“While this is relatively simple on most claims, circumstances can easily arise where these distinctions are not so easy to make, often creating great uncertainty over what is and is not covered under these clauses.”
Concrete – a common challenge
Unlike, for example, a piece of machinery, where a defective bolt and its resultant damage are easily distinguishable, concrete can prove especially challenging.
Concrete defects can stem from a huge range of sources (many of which can remain unidentified without first breaking out) and its resultant structures frequently intertwine with other insurable property. This can make it particularly difficult to distinguish the key concepts necessary for determining extent of cover.
Using this example of concrete, the following scenarios demonstrate what cover would be available under the various clauses, and how uncertainty can easily arise for even the slightest variation in circumstances. All are based on the premise that the policyholder, a contractor, is building a large warehouse. The floor is a raised concrete slab on a base of aggregate. They are erroneously supplied with an aggregate that expands rapidly when it comes into contact with moisture.
Scenario 1 – excluded, no damageAs the finishing touches are being applied to the floor slab it is discovered that the aggregate fill is not fit for purpose and needs to be replaced.
As no damage has occurred to insured property, the CAR Policy will not respond.
Scenario 2 – clear on coverageAs the finishing touches are applied, cracking and heave occurs throughout the entirety of slab due to the expansion of defective aggregate when it has come into contact with moisture.
Once the cause is established, the policyholder must replace the entire slab and the aggregate with a suitable material before re-laying the concrete.
Costs of breaking-out and relaying the damaged slab are covered under the widest clauses, DE5 and LEG3. Only the increased cost of replacing the aggregate with one that is suitable is excluded, as this would constitute an improvement. An enhanced excess would typically apply if there is a higher excess in respect of LEG 3/DE5 on the policy wording.
No coverage would be afforded if LEG 2 were to operate in this scenario, as immediately before the loss occurred the Insured would have had to have broken out the slab to rectify the defective aggregate.
DE3 would exclude the cost of breaking out, and replacing the aggregate, but would cover the Insured for resultant damage to the slab. A lower excess would usually apply to this exclusion than to DE5.
DE4 would cover the costs of breaking out and replacing the slab, but would exclude the cost of replacing the defective fill, on the basis that the defective fill was the ‘defective part’.
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Scenario 3 – extent of recovery unclearThe aggregate comes into contact with moisture, causing cracking to discrete areas of the slab which is capable of being repaired in sections.
The contractor will need to break out the entire slab, replace the aggregate, and lay a new slab.
It is likely that insurers will be presented with a claim from the Insured for the entirety of the rectification works, but the Policy is unlikely to cover all of the costs incurred. Whilst it can be said with confidence that the costs of replacing the discrete, damaged areas are covered under a CAR Policy, undamaged areas will not be. Additionally, the Contractor is obliged to mitigate any future damage at their own cost.
But what if the Insured advances an argument that the defective fill was discovered to be damaged in its entirety when the slab was broken out and they are therefore entitled to an indemnity under DE5 or LEG3/06? Insurers would usually resist this on the basis that the defective fill was always going to react to groundwater in the manner it did, and as a result is not fortuitously damaged. Furthermore, the Contractor may argue that once part of the slab has been replaced, the remainder must also be replaced and this is due to damage and this is an indemnifiable cost under the Policy. Factual considerations will be key here, but it is important to distinguish between parts of the slab replaced due to damage, and parts of the slab replaced due to the discovery of the defect to satisfy contractual requirements.
Lack of judicial scrutiny
Scenario 3 shows the kind of challenges that can easily arise when applying the LEG and DE clauses. However, despite difficulties in their application commonly occurring, very few judicial decisions actually exist to offer any meaningful guidance.
“While lack of litigation is usually an indication of clarity, the opposite is actually true for the LEG and DE clauses,” says Lynch “In fact, because such ambiguity exists there is, understandably, a preference to settle claims on a pragmatic basis in order to avoid the uncertainty of litigation.
“It would take cases at Supreme Court level to deliver ultimate clarity, which looks to be an unlikely development. In the meantime, it is therefore down to insurers, brokers and policyholders to work together and find appropriate solutions when challenges do arise.”
A pragmatic approach
Brokers and their customers use the LEG and DE clauses to secure a certain level of protection against damage caused by defects. Zurich will therefore always work with you to recover costs where possible and achieve the best outcomes for your project.
“When the situation is clear cut, and recovery is not available under material damage cover, we will always be open with the customer and broker about this from the outset,” says Bernadette Hackett, Global Relationship Leader at Zurich.
“It can be the case that there may still be other sources of recovery available – perhaps in contract, or via other insurance covers such as professional indemnity – and we will prompt our brokers and customers to consider these and take further advice where appropriate.
“Crucially, when circumstances are such that the coverage position is unclear, and the application of these clauses presents challenges, we stand out from others in the market due to our desire to work collaboratively and find a solution.
“Zurich, are in the business of paying claims, and we always start from that position. We work hard to form genuine relationships with our brokers and customers so that when such challenges do arise we can work together to find a constructive solution.”
For more information on insurance cover for defects on construction projects, or to discuss anything else, please speak with your local Zurich account executive.
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Cover summary – London Market Design Exclusions (DE)
DE 1 – Outright Defect Exclusion – Excludes any and all damages due to property in a defective condition.
DE 2 – Extended Defective Condition Exclusion – Excludes damages to property that is in a defective condition, or property that relies upon it for support. Covers consequential damage to any other property free of defective conditions.
DE 3 – Limited Defective Condition Exclusion – Excludes damages to property that is in a defective condition. Covers consequential damage to any other property free of defective conditions.
DE 4 – Defective Part Exclusion – Excludes damages only to the constituent part of the property that is deemed defective. Covers consequential damage to any other property free of defective conditions.
DE 5 – Design Improvement Exclusion – Covers all damages resulting from the defect, excluding only the additional costs of improvements to the original design, plan, specification or materials.
Cover Summary – London Engineering Group Clauses (LEG)
LEG 1_96 – Model ‘outright’ Defects Exclusion – excludes loss or damage due to defects of material workmanship design plan or specification.
LEG 2_96 – Model ‘Consequences’ Defects Wording – excludes all costs rendered necessary by defects of material workmanship design plan specification and should damage occur to any portion of the Insured Property containing any of the said defects the cost of replacement or rectification which is hereby excluded is that cost which would have been incurred if replacement or rectification of the Insured Property had been put in hand immediately prior to the said damage. For the purpose of this policy and not merely this exclusion it is understood and agreed that any portion of the Insured Property shall not be regarded as damaged solely by virtue of the existence of any defect of material workmanship design plan or specification.
LEG 3_06 – Model ‘Improvement’ Defects Wording – covers damages resulting from the defect, excluding the cost of improvement to the original workmanship, design, plan or specification.
Zurich are in the business of paying claims, and we always start from that position.”Bernadette Hackett, Global Relationship Leader at Zurich
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Could fracking contribute to UK energy needs?
John ConnaughtonSenior Claims Adjuster – Energy
+44 (0) 20 7648 3478
We live in time of increasing prosperity, with many individuals having money to splash on luxury items such as property and motor vehicles. This however comes at a cost with an expediential increase in the use of fossil fuels.
Fracking allows drilling firms to access difficult-to-reach resources of oil and gas. In the US it has significantly boosted domestic oil production and driven down gas prices. A study conducted by the Oslo based Rystad Energy Group estimates that reserves accessible through fracking has propelled the US to have the largest Oil Reserves in the world which has in turn presented an opportunity to generate electricity at half the CO2 emissions of coal. The extensive use of fracking in the US, where it has revolutionised the energy industry, has prompted environmental concerns.
The industry suggests fracking of shale gas could contribute significantly to the UK’s future energy needs. A report by the Energy and Climate Change Committee in April 2013 stated shale gas in the UK may help to secure energy supplies, but may not bring down gas prices. In the 1990’s the UK was virtually self-sufficient in energy as a result of North Sea oil and gas deposits, however the UK is growing increasingly reliant upon imports of hydro carbons especially gas from Qatar and Russia. Negotiations are always in hand with the oil rich Middle East in an effort to secure supply well into the future.
Estimates of how long the UK’s existing reserves will last range from between 25-50 years depending on how much more the technology will be developed to allow operators to extract increasingly more difficult and expensive deposits. What is not in dispute is that current reserves will soon be exhausted and the burning question remains “what happens when the lights go out?”
Drilling technology has come a long way since the early days of the late 1800’s and now with the advent of horizontal and multi directional drilling there is now the ability to tap once uneconomic deposits of oil and gas. In time, previously uneconomic wells may become economic to exploit again due largely to the ongoing developments in drilling techniques. One day it may even become economic to exploit offshore shale gas deposits, though generally these are located in very deep water.
The British Geological Survey has estimated the cost of extracting offshore shale gas in the UK could be as high as US$200 per barrel of oil equivalent (UK North Sea oil prices were about $120 per barrel in April 2012). No cost figures were made public for onshore shale gas.
Due to advances in technology, the once defunct Cornish tin industry is seeing old mines reopened and mined once again, demonstrating that the world continues to develop and we get wiser as we get older.
The industry suggests fracking of shale gas could contribute significantly to the UK’s future energy needs.”
John Connaughton is a senior claims adjuster in our Energy Practice focusing largely on liability and casualty claims. We asked John to give his thoughts on the topic of fracking, from his own research and experience. If you would like a full copy of this paper please contact John at [email protected]
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There are rich deposits of shale gas in the UK and at various locations worldwide. Revised conservative estimates by the British Geological Survey put the UK deposits as being sufficient to last for the next 400 years, with global deposits dwarfing the original deposits of oil in the Middle East.
However, if we all think that we will see a dramatic fall in energy prices with the advent of shale gas drilling sadly, in my opinion that is not likely to happen. While the discovery of shale material which can be fracked may provide an answer to the world’s energy crisis, it does not automatically follow that energy costs will fall, as this is dependent on the supply and ultimately the cost per barrel incurred by the oil companies.
The UK energy price will therefore remain high but we have the opportunity to secure the UK’s, indeed the world’s, energy need for future generation to come, if we chose to exploit the reserves that we have.
13Zurich Claims Quarterly Journal > Our area of Expertise > Could fracking contribute to UK energy needs
Reading the Riot Act
Paul RedingtonSenior Claims Adjuster – Property
+44(0) 208 212 4103
+44 (0) 7875 887245
Background
The Riot Damages Act had been in existence and largely unaltered since 1886, and provided compensation to victims for material losses sustained in a Riot, as designated by local Police authorities. It also allowed Insurers to recover claims payments in a similar manner. The Act was however archaic in nature. This, combined with pressures relating to the Police’s own administration of claims, led to delays, uncertainty and legal challenge, following the widespread Riots of 2011. Reform was needed.
Following the 2011 events the Government commissioned an independent consultant, Neil Kinghan, to conduct a review which included the prevailing legislation. Paul Redington, Senior Claims Adjuster in Property was asked to meet with Mr Kinghan and present Zurich’s views. Paul was also handling our largest claim from the 2011 Riot.
The Kinghan report was published in 2013 and was followed by a public consultation. Zurich were able to provide input with the help of Colin Prince from our Commercial Underwriting team.
It was clear that a key driver for the Government was to protect the public purse. They did however wish to continue to compensate individuals and ensure that SMEs were not discouraged from trading in high risk areas. A proposal was
therefore presented to allow only businesses with smaller turnovers to recover compensation from the Police.
Paul comments, “It was clear that the turnover cap originally proposed would have prevented many of our customers from claiming compensation for future riots”.
Representation by Zurich helped quash these proposals, and led the Government to look at alternative options as it considered repealing the original legislation and introducing a new Act.
The Riot Compensation Act 2016
New legislation was eventually announced in 2016 and formally introduced on 6 April 2017, together with the accompanying Riot Compensation Regulations 2017 which clarified the operation of the revised statute.
The key aspects of the new legislation are:
• The principal of recovering compensation for property losses from the Police following a designated Riot is maintained
• Police & Crime Commissioners will be responsible for deciding whether an event constitutes a Riot, and according to a revised definition
• The original turnover proposal was dropped in favour of a new £1 million per claim cap
It was clear that a key driver for the Government was to protect the public purse and to restrict the ability of Insurers to recover large sums.”
Paul Redington is a handler in our major loss team. Paul has managed numerous large and complex claims matters including multiple losses arising out of the London Riots. Following the resolution of these claims, Paul has worked closely with the government in shaping the new Riot Act. He sets out his work below.
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• Only one claim per postal address is admissible
• A claim must be made within 43 days and supporting evidence presented to the Police within 91 days
• Consequential losses (such as business interruption) are not recoverable
• Replacement property will be compensated on a new for old basis, with the exception of motor vehicles, and stock
• There is provision for alternative accommodation for individuals displaced from their homes subject to a 132 day maximum period
Certain aspects of the Act are subject to some interpretation and further clarity, but it is widely acknowledged that new statute is a marked improvement in most areas.
Fortunately, riots are rare, but as we saw in 2011, they can be incredibly damaging to businesses and communities when they do occur. In the aftermath of those costly events, there was a real risk that the original Act would be swept away and not replaced. The new provisions mark a real step forward in modernising the legislation whilst, crucially retaining the right to compensation from the responsible authorities.”
Riot Claims Bureau/ Compensation Procedures
The new legislation also introduced a provision for the Secretary of State to put in place a Riot Claims Bureau (RCB) to handle riot compensation claims if widespread civil disturbances occur in the future. The CII New Generation Group including further Zurich Claims expertise from our own Gavin Strathern have helped with the production of a compensation handling guide which can be used by a future Bureau, or by the Police themselves in the event of further Riots.
In the meantime, Paul Redington has continued to liaise with the ABI, the Home Office, and Police authorities as further consideration is given to compensation handling processes and to help ensure that any future event may lead to swifter compensation to Riot victims.
The willingness of the Government and the Police to consult with Insurers has been admirable. Ultimately a common driver has been to ensure that future compensation processes are improved for the benefit of all, but most importantly for the victims of Riots, many of whom are and will be Zurich customers”.
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A focus on Australia’s mining industry
Richard ConacherSenior Claims Adjuster – Energy
+44(0) 207 648 37296
+44 (0) 787 588 8225
Mining has been a feature of man’s activities ever since civilization began. The earliest examples of mining were stone, ceramics and later metals, all found close to the Earth’s surface. This mining was used to make early weapons and tools particularly using flint.
Mining on the industrial level that we know today really began in the early part of the 20th century with the gold and silver rushes in Australia, California and parts of Africa.
This article examines the current strengths and weaknesses of the mining industry in Australia, concentrating on four of the minerals and metals that are the most important to Australia’s mining industry.
Mining in Australia has always been a significant industry and has driven waves of immigration during various mining booms.
We explore the problems that the industry is experiencing such as exhaustion of supply in some cases, as well as oversupply in others that have led to falling prices, environmental issues and objections and workforce issues. The impact of the slowdown in the global economy post 2008 is also examined as is the rise (and to an extent) the fall of the Chinese economy.
The importance of mining in Australia is on the wane as the country has switched focus to other industries such as wholesale, retail, tourism and communications.”
Richard Conacher is a senior claims adjuster in our Energy Practice. Richard’s portfolio consists primarily of Power and Mining claims. The below executive summary sets out Richard’s thinking around the direction of the mining industry. If you would like a full copy of this paper please contact Richard at [email protected]
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CoalProduction and exports of Australian coal have grown substantially since 1980 and are forecast to continue to rise over the next few years. The labour, infrastructure and electricity problems that are present in, for example, South Africa’s coal industry are largely absent in Australia.
Beginning in the 1980’s Australian coal has been supplying the great demand for electricity from Asia where 35% of the electricity is produced by coal. In later years Australia has received competition in this supply from China and Indonesia but the real question mark for Australian coal is the extent to which China and other Asian nations will adopt renewable energy sources.
The Australian resources minister is bullish about the future of the industry with or without China saying that China is “not the only game in town” and pointing to India as a growing market for coal.
This is, however, at odds with India’s stated aim of reducing imports of coal and also BMI Research feels that the immediate future for Australian coal is bleak with lowering prices and increased competition from South America meaning that production growth will remain weak for the next two years at least.
GoldThe majority of Australian gold is mined in Western Australia where it is the fourth largest commodity sector. The peak of gold mining in the state was between its discovery in the 1880’s and 1903 by which time the majority of the shallow gold had been exhausted. The industry received a great boost in the 1980’s by the discovery of nickel. The associated new technologies allowed for the reopening of many gold mines as gold was now profitable at much lower yields.
Gold is still seen as a cornerstone of the Australian mining industry owing to its huge remaining reserves, however, its share of global gold production has fallen in recent years.
The difficulty is that the remaining gold is deep and so the volume actually produced is falling in comparison to countries such as those in South America where gold mining is a newer industry. Being able to identify and mine the deep gold profitably is proving to be a challenge as investors are choosing to invest more in coal and iron ore exploration in order to satisfy Chinese demand.
Complex regulatory burdens also discourage investors and if the industry is to do more than survive up to and beyond 2020 it will have to do more to enhance its position in capital markets.
Iron OreIron ore is a fairly new industry within the history of mining with commercial production not beginning till the 1970’s. As at last year Australia is the second biggest producer of iron ore with only China ahead of it. 98% of iron ore is used to make steel and so the fortunes of the industry are largely dependent on global demand for steel therefore are very vulnerable to global recessions and reductions in global construction projects and other industrial developments.
Although Australian exports of iron ore have been growing over the last fifteen years the price peaked in 2011 at approximately USD 180 per tonne and has been falling since, it is currently approximately USD 65 per tonne resulting in the Australian economy pivoting away from iron ore.
The industry however feels that demand will catch up with supply and is in fact ramping up production; despite concerns that this strategy will flood the market and drive prices down further and force smaller firms out of the industry.
The lower prices are expected to be compensated from higher export volumes to China and India. It is anticipated that as these countries still have some way to go on the journey to full urbanisation that demand for steel will stay strong.
CopperAustralia, which has been mining copper in Queensland since the late 19th century, is the fifth largest producer of copper and once again it is China that is driving the demand.
Volumes of copper export increased substantially in 2005 following which volumes have fluctuated greatly although the general trend is upward. Copper is used in so many items concerned with infrastructure and transport that the industry is very optimistic for the medium to long term future, this being based on the premise that demand for copper evolves with economic development.
The main challenges for the industry are twofold:
1. Is there is enough copper of sufficiently high grade to be able to satisfy demand at a profitable margin
2. If so can they mine it at a profit before countries such as Chile with newer and less depleted reserves become greater suppliers of world demand?
With the better quality copper reserves becoming more and more depleted efforts are being made to increase margins by improving efficiencies through technologies such as continued improvements in the process of economic leeching and electro winning of copper from low grade ores.
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The road ahead
The long term forecast for mining in Australia is not entirely favourable, as it continues to evolve away from the mining industries that were so important to the early European settlers. Australia has, to a large extent, been built on the back of mining but now coal suffers from the effects of global over supply, and gold from the dwindling supply still being economically reachable. The future is perhaps brighter for iron ore and copper, although both of these products have their viability and future linked to the emerging economies, particularly China. The general consensus of economic analysts is that the Chinese economy is slowing but what is much more debatable is if China will continue a gradual slowdown or suffer a hard landing. A hard landing will have repercussions far beyond China’s borders and there are calls for Australia to become less dependent economically on mining.
Australia is not immune to the environmental issues that so many other counties also face and mining firms are increasingly under pressure to reduce their environmental footprint. This is of course particularly so in the non-renewable sector and finding ways to do this without seeing profits fall is going to be a challenge.
The longer term prospect of mechanical and automated enhancements in the industry, including driverless trucks which are already in operation at some mines, will assist in cutting costs, even if at the cost of jobs.
The question then of what Australian mining will look like in a few years from now is therefore a difficult one to answer and research will lead the reader to different answers depending on whether the article is written by an economist, an environmentalist, an industry insider,
or a mining company itself. We should remember that the industry has weathered storms before and has survived through previous periods of global recession.
Therefore, it is my opinion that the industry in Australia is not likely to look fundamentally different in the medium term. In the longer term the question that will need to be answered is how much longer the ever increasing costs of reaching the deeper seams will remain a profitable exercise.
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Can the claims process be more user friendly for customers?
Charlie BushHead of Property and Energy Claims
+44 (0) 207 648 3221
+44 (0) 7875 888 039
I want to start with a thought provoking comment; in my opinion there is an issue of trust in our industry, and specifically a lack of trust between the customer and their insurer.
I want to provide my views on the subject of moving to a customer centric claims process by addressing 3 areas:
• To briefly return to my opening statement around Trust.
• To talk about how Zurich deliver a customer centric claims process.
• Finally to talk about a London market initiative designed to enhance and expedite the claims process.
In October Charlie was asked to present at the European Intelligent InsurTECH Conference. Below is a curtailed version of the key messages that he delivered on the topic of ‘Moving to a Customer-Centric Insurance Claims Process’.
We need to change the customers perception of insurance which is that insurers are there to drive down the value of claims, and that is only after the inevitable battle of coverage.”
19Zurich Claims Quarterly Journal > Our area of Expertise > Can the claims process be more user friendly for customers
Let’s start with Trust
Insurance is purchased by customers who want reliability from their insurers to agree to pay valid claims, as well as the management of claims through behavioural excellence. This is not only achieved by buying trust in a brand, or a company’s financial stability, but also in its people and their behaviours.
Based on a number of newspaper headlines and industry reports it would appear that some carriers are falling short of this mantra – the very mantra that insurance was founded upon of utmost good faith. The industry report I would like to dwell on is the Global report by Ernst and Young, “Reimagining customer relationships. Key findings from the EY Global Consumer Insurance Survey 2014”.
It is pretty damming that their research shows the percentage of consumers who cite ‘complete trust’ and ‘moderate trust’ in the insurance sector is in the bottom two of the six industries surveyed in all but two of the eight territories, which includes being rated lower than the banking sector. If you consider this report was commissioned in 2014 whilst there was a banking crisis it makes for even more depressing reading.
The report goes on to state that, ‘consumers are telling us that stronger, two-way relationships may be the key to future market leadership in insurance. Certainly they would not mind hearing from their insurance providers more often.’
I agree with the statement from EY, and believe that customers having purchased an insurance product expect an open, reliable, honest, and transparent service which is founded upon strong relationships.
I’m painting a slightly bleak picture, but let’s not beat ourselves, as we know that this is not always the case and there will be countless fantastic examples you will have been involved with where the opposite of the picture I am painting is true. My personal view is that in the right hands our insurance industry can absolutely deliver for our customers, however, for me it is about doing it consistently, which leads nicely in to my second point.
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How have Zurich sought to deliver a customer centric claims process and, in turn, build trust with our customers?
From the outset we looked to create our Claims Commitment with the customer in mind, and following a formal working session with a number of our closest customers, combined with large amounts of ad hoc feedback on what an excellent claims experience looked like our Claims Commitment was created.
Whilst it sets out a number of operational indicators such as mile stones and response times, what I believe to be even more valuable is our behavioural approach towards working with our customers.
At the core of our commitment are four pillars which set out the principles of how Zurich will engage with a customer. These are that the claims experience will be:
• Clear: we want our engagement and our communication with the customer to be clear, and to avoid ambiguity.
• Personal: there is not a one size fits all approach. Simply put; insurance as a product is personal to the buyer, and therefore requires a tailored service.
• Effortless: we want the claims experience to be effortless on the part of the customer.
• Collaborative: we want to engage with the customer at the earliest possible opportunity. For instance on large claims we will arrange a conference call with the customer, the broker, and the appointed experts. This will be led by Zurich. On the topic of collaboration it is worth pointing out that many of the commercial claims we manage involve other subscription market insurers, and also an intermediary, such as the broker, so working together is particularly important.
In order to deliver a claims journey in line with the commitment it requires robust leadership where the claims handler is able to form a strong and agile team, giving clear instruction which in turn leads to a prompt assessment on coverage. Key to achieving this is the effective and transparent approach to communication with the broker and customer.
Aside from the four principles of our commitment, the area that I would like to touch on briefly as to one way I believe we can restore trust in our industry is through Large Loss Scenario Workshops and pre loss customer engagement.
It is my belief that the various parties to an insurance contract need to engage with our customers directly pre loss.
By working through hypothetical loss scenarios it enables all stakeholders to develop a mutual understanding of how the policy would respond in the event of a claim.
Furthermore, such engagement enables the parties to understand one another’s businesses, for Zurich to learn the customer’s emergency response measures and their business continuity plans, and also an opportunity for us to set out the various roles and responsibilities of individuals in the claims process including our approach to claims management.
We have received numerous pieces of feedback from our customers to say that this approach has without question enabled Zurich to win and retain business.
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Change in the London insurance market
There has been a recognition that in order for London to remain competitive and be the go to market place for complex insurance risks we need to modernise and enhance our claims operation.
The London insurance market is seeking to modernise and streamline existing claims practices for non-complex claims through the introduction of a collaborative cross-market programme known as the Single Claims Agreement Party initiative or SCAP.
I am fortunate enough to be the Chairperson of the Inter Carrier Agreement work stream, one of three overall work streams, and whilst the workings of SCAP are complex the underlying objective is simple.
Current claims practice is that company market insurers such as Zurich agree all claims for their own interest irrespective of quantum and whether or not we are the lead insurer. Lloyd’s is different in that they have the Lloyd’s claims scheme and whilst this is better it is still by no means seamless.
The introduction of SCAP will mean that for London Market non-complex low value claims under £250,000 for the slip interest, the Inter Carrier Agreement will introduce a delegation of claims handling authority to the slip leader. In practice, this means that where, for instance, Zurich are the leading insurer on an in scope claim the decisions made by them will be binding on all the following insurers irrespective of whether they are a company insurer or Lloyd’s syndicate.
Likewise, where Zurich are a following insurer the decision of the slip leader will be binding on Zurich, irrespective of whether the leader is a company insurer or a Lloyd’s syndicate.
This customer centric initiative was established to enhance the London claims service with the aim of streamlining and simplifying the claims agreement model for the benefit of our customers. It is intended to promote a quick and efficient claims process thereby improving and reinforcing the attractiveness of the London market.
So to summarise, I have set out what I believe the challenge is between the customer and the insurer, and how Zurich have sought to address this, as well as the wider London Market improvement initiative.
There is plenty more that could be discussed; around how we can provide an improved customer centric claims journey including new enabling technologies such as applications, drones and the use of social media. Also the implications of what I believe will be an inevitable widespread change in approach to underwriting, including parametric insurance and Blockchain driven solutions. What this means not only for our claims market, but also our insurance industry as a whole is unclear, although the words of Peter Drucker strike a chord with me; ‘the only thing we know about the future is that it will be different’.
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Zurich Insurance plcZurich Insurance plc is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. These details can be checked on the FCA’s Financial Services Register via their website www.fca.org.uk or by contacting them on 0800 111 6768.Our FCA Firm Reference Number is 203093.
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Protecting our customers’ ability to competeOur Claims Commitment
23Zurich Claims Quarterly Journal > Protecting our customers’ ability to compete