Celebrating 80 Years | Articles from the 1970s
By F.L. Wilkinson, Chairman of the Board, American International Underwriters Australia and New Zealand, Melbourne, Australia
From AA&B September 1971
When sophisticated travelers of the 1970's alright on our shores, they fully expect to be greeted by a vista of endless grassy plains peopled sparsely by aboriginal tribesmen and teeming with kangaroos and koala bears. Had these travelers arrived 200 years earlier with Captain Cook, this might very well have been their first impression of Australia. Today, however, visitors find bustling, modern metropolises engaged in all forms of national and international commerce and industry, and 12 million people striving to develop a country the size of the United States.
This is not to suggest that today's visitor will not find anything "unique" about Australia. This still is the country of the aborigine, kangaroo, koala and platypus, and there still are miles and miles of open plains. If the visitor happened to be an insurance man, there also are some unusual features of the Australian insurance landscape that would surprise him.
When I opened American International Underwriters' first office in Australia in 1957, the insurance market was controlled by approximately 150 British-domiciled insurance companies. Many of the large commercial accounts were tied up through either captive agency arrangements or director appointments. Most of the small business was handled through part-time agents. There were, and are, no legal requirements governing the qualification of insurance agents and brokers.
Our office deviated from these familiar patterns of marketing insurance. We became the only insurance company to accept business only from insurance brokers who were registered with the Insurance Underwriters Association. That innovation, 14 years ago, was the start of a complete transformation in insurance marketing in Australia. Now, most important commercial and industrial accounts are controlled by the increasing number of professional insurance brokers. Much of the smaller business still is handled by part-time insurance "agents" who have little training or know-how. These so-called agents normally rely entirely upon the assistance of their insurance companies to finalize and service their business. Almost without exception there is no comparison between the Australian agent and his U.S. counterpart.
Control of the Australian insurance industry by the British insurers now is being challenged by a number of newcomers, among whom are U.S. companies, and by the establishment of fire and casualty affiliates by Australian life insurance companies. As a relatively major international trader, Australia is unlikely to introduce legislation that would unfairly penalize foreign insurers authorized to write business in the country.
Regulation and Control
The Australian government is concerned primarily only with the solvency of insurers and maintains no particular supervision over fire, casualty and marine insurers except for requiring deposits. Except on the compulsory classes of insurance, and except in the State of Queensland, the six states and two territories exercise no control over insurance. In the State of Queensland, the Superintendent of Insurance maintains a statutory but "benevolent" control over all rates, insuring conditions and commissions paid. This has not caused any real problem for insurance buyers, brokers or companies.
In all states and territories, workmen's compensation and automobile bodily injury liability insurance are compulsory, with the states exercising direct or indirect control over rates and insuring conditions. Workmen's compensation business in Queensland is a monopoly of that state's government insurance office. Compulsory automobile bodily injury liability insurance in Western Australia is written only by the Motor Vehicle Insurance Trust, a pool formed by private insurers and the state government insurance office.
It is pertinent to point out that the compulsory automobile bodily injury liability insurance legislation includes:
(1) "The insurance follows the car." Therefore, it provides indemnity to any party for death or bodily injury caused by the owner, by any person driving with his permission, or by any authorized driver.
(2) The indemnity in favor of the owner applies not only to the original insured but also to any subsequent purchaser of the automobile. This can be avoided if, when the vehicle is sold, the vehicle registration is canceled. The compulsory insurance follows the registration.
(3) The insurer is liable to the injured party, "regardless." But he has rights of recovery against the owner or driver, should there be a breach of any warranty or violation of policy conditions; or if the driver was unauthorized; or, in some states, if the driver was drunk. There is freedom as to the choice of a licensed insurance carrier, except for the two instances mentioned above.
There are state government insurance offices in all states except South Australia. All of these offices write the two compulsory classes of insurance - workmen's compensation and automobile bodily injury. The state government insurance office of Queensland writes all classes of insurance. Elsewhere, the state government insurance offices' charters may permit them to write only certain classes of insurance or to write such business only for the state government and its instrumentalities. The only monopolies are the Queensland state government insurance office's monopoly of workmen's compensation business, and in certain states the insurance on property owned by the state, government or its instrumentalities, which must be insured by the state government insurance office.
Rate Control
Rates for the compulsory classes of insurance are controlled, directly or indirectly, by the state governments. Rates for all other classes of insurance, except in Queensland, are free from government control and, for most of the leading classes of insurance, are promulgated by the fire and accident underwriters associations for observance by the bureau companies. Competition and the influence of overseas insurance practices have weakened the control over rates and insuring conditions exercised by this rating bureau.
Insurers now are passing on to their insureds a part (but less than a third) of the contributions levied on insurers by the state governments as their share (nearly three-fourths) of the cost of the maintenance of the fire departments. The insured's contribution amounts to 5 percent of the fire insurance premiums.
Fire insurance, including extended coverage, is written on lines comparable to U.S. practices, although conditions are less flexible. Stocks of manufacture merchandise are normally insured only for manufacturing cost and not at the sale price. Buildings and plants can be insured on full-replacement conditions.
Inland marine is written freely on an all-risk basis, and ocean marine is handled along orthodox lines. Business interruption insurance is written according to the British formula, which is different from the gross earnings form and tends to require overinsurance in order to conform to the coinsurance requirements. The standard Australian use and occupancy policy is equivalent to the extended U.S. form insofar as it includes, within the indemnity period, indemnity for continued loss of business occurring after physical rehabilitation of the insured's property. There is an experienced local insurance market for builders all-risk insurance and for contractors all risk on civil engineering projects.
General and Auto Liability
The greatest dissimilarity between U.S. and Australian insurance practices is in the field of comprehensive general and automobile liability insurance. The equivalent Australian coverages are written under four separate contracts:
(1) The compulsory automobile bodily injury contract which, depending on the state legislation, covers all or part of the passenger liability.
(2) Other automobile liability, which covers primarily automobile property damage liability but picks up any passenger liability not covered by the statutory coverages.
(3) A general liability policy.
(4) A products liability policy.
The compulsory automobile bodily injury liability is purchased at the time the vehicle is registered, and the period of the coverage coincides with the vehicle registration. A separate certification of insurance is issued for each vehicle. Therefore, a fleet of 2,000 vehicles will have 2,000 insurance certificates. Unless there is a common registration period for fleet vehicles, there will be no common expiration date for the policies. If, through an oversight, the vehicle registration is not renewed, there is no bodily injury liability insurance in those states where this is effected as part of the registration renewal. And, if unlicensed equipment is used on public roads, there is no bodily injury liability insurance.
The gaps between these four Australian insurance contracts and their deficiencies have led to the availability of a difference of conditions coverage, underwritten by a U.S. insurer in Australia, that will elevate the local coverages to at least the standard of the U.S. comprehensive general/automobile liability form.
Workmen's Compensation
Large corporations interested in self-insurance for workmen's compensation will find that it is prohibited in the monopolistic state of Queensland, no longer permitted in the States of Victoria and New South Wales, and difficult to obtain permission for in the State of South Australia. As an alternative, at least one U.S. insurance carrier will provide a claims and fronting service on a claims-incurred-plus basis; and excess of loss and/or stop loss coverage can be obtained to ensure that the maximum premium is related to guaranteed cost insurance.
There is a separate law in each state and territory, but most have certain common characteristics. Compensation is payable if the personal injury arises out of or in the course of employment, except in the State of Tasmania, where the wording is: "arising out of and in the course of employment." Most acts cover a worker on his way to and from work, including minor delays or deviations on the journey - which would include a visit to the local tavern. The Australian worker has very favorable conditions for instigating an employer's liability suit, which is usually tried before a judge and a sympathetic jury. He can start collecting workmen's compensation benefits and then decide to sue at a later date. He will be successful if he can find any breach of regulations or any negligence, even to the point that he can claim the accident occurred because he was not properly trained; or he does can claim, if he is an immigrant who does not speak English, that he did not understand the instructions given in English.
Loss Services and Prevention
There are many excellent independent loss adjusters, but no bureau adjustment company in Australia. Those few insurance carriers who are alert to the value of loss prevention services and to safety engineering are handicapped by the virtual non-availability of trained safety or loss prevention engineers. The scarcity of loss prevention engineers is not caused by the lack of recognition of their value by insurers. The serious shortage of trained engineers throughout the country is the major cause. Only in the field of fire insurance does the rating bureau make any contribution, and its efforts are directed to the inspection of construction and of fire-fighting equipment. A few enlightened workmen's compensation carriers have recognized, through premium reductions, the value of such factors as a safety officer, a pre-employment medical examination and an industrial medical service.
Australia is an increasing outlet for U.S. investments, and it is leaning more and more to the United States for technical know-how. U.S. insurance underwriters operating in Australia have introduced certain U.S.-type coverages that are not only appreciated by U.S. corporations but are gaining a reader acceptance from Australian insurance buyers. The largest industrial insurance brokers in the world have officials in Australia. Other lending U.S. insurance brokers have established satisfactory relations with Australian brokers who act as their correspondents.
The corporate insurance buyer in the U.S. will have to make the decision on which insurances should be included in the world-wide package deals, and which should be written in Australia. With very minor exceptions the Australian insurance market is now equipped to handle all his needs, and many of the larger U.S. corporations favor local insurance placement for their Australian subsidiaries.
F.L. Wilkinson began his insurance career almost 35 years ago in England. He joined AIU in New York in 1945, and he worked for the company in Brazil and Cuba prior to opening AIU's first office in Australia in 1957. From one office and five personnel, the operation has grown to five offices and 90 employees in Australia and two new offices in New Zealand. He is past president of the American Club, director of the Australian American Educational Foundation and active in the American Field Service Scholarship Organization.
