1. Strategically managing your insurance
program
Mikaela Reynoldson
Moray & Agnew Lawyers

2. Agenda – morning session
Time Action Who
9 – 9.15am Introduction and welcome MJR
9.15 – 10am What is insurance and its intersection with risk management?
State of the insurance market – a few facts and figures
Why is a strategic insurance review important?
MJR
10 – 10.15am Break All
10.15 – 10.30 Tools for assessing risk and implementing the insurance program MJR
10.30 – 11.30am Types of insurance cover applicable to govt departments & agencies MJR
11.30 – 12.15 Triggers for cover and general duties MJR
12.30 – 1.30pm Lunch All

3. Agenda – afternoon session
Time Action Who
1.30 – 2.15pm Scenario 1
Break into small groups
Select scribe and spokesperson
Review scenario and apply risk and insurance content to the scenario
All
2.15 – 2.30pm Debrief All
2.30 – 2.45pm Break All
2.45 – 3.15pm Scenario 2
Break into small groups
Select scribe and spokesperson
Review scenario and apply risk and insurance content to the scenario
All
3.15 – 3.30pm Debrief All
3.30 – 4pm Concluding remarks, summarise findings and observations, follow up
activities
MJR

4. What is insurance?
•Lifeblood of capitalism
•based on the principle of the Law of Large Numbers
•Contract facilitating the transfer of risk and loss
spreading for a fee
•The insured risk is then redistributed through a network
of reinsurance and investment
•4 main players – underwriters, reinsurers, insureds and
intermediaries
•Regulatory framework in Australia (APRA; ASIC)
•Legislative framework – Insurance Contracts Act (1984)

5. More about insurance – some history
• Hammurabi Code (1790BC) earliest form of insurance
• (Easrly form of builders warranty - If a builder builds a house for
someone, and does not construct it properly, and the house which he
built falls in and kills its owner, then the builder shall be put to death.
(Another variant of this is, If the owner's son dies, then the builder's son
shall be put to death.)
• Coverage for transport of traded goods – Silk Road, Genoese
traders and rise of industrialisation in Europe meant increased
supply of resources from the colonies
• 1688 – Edward Lloyd’s coffee shop and circulation of the “slip”
• Passage of Marine Insurance Act (1745) and Life Assurance Act
(1774)

6. State of the market
Net premium revenue to 30 June 2010 $25.4bn (up 4.8% on last year)
Net incurred claims to 30 June 2010 $16.3bn (down 8.2% on last year
Loss ratio for the industry 64% (down from 73% last year). (deterioration may be
due to rising claims costs and falling investment
returns)
Overall industry underwriting result $2.5bn (up from a loss of $0.1bn for the previous year)
Industry expense ratio to 30 June 2010 26%
Total industry underwriting expenses $6.7bn (up 5.6% on last year)
Net after tax profit for the industry $4.6bn (up from $2.6bn the previous year)
Total assets for the industry in Australia $99.2bn (up 4.2% on last year)

7. What is risk management?
• ISO 31000 sets out the risk management framework
• Replaces AS/NZ 4360
• Based on 11 guiding principles
• Process for managing risk is the same – Establish the
context, identify, analyse, evaluate and treat the risk,
communicate, monitor and review.
• Categories of risk within an organisation – operational,
regulatory/legal, financial, environmental, strategic,
political/economic

8. Process for managing risk
(Clause 5)
Overview of AS/NZS ISO 31000 & AS4360
11 Principles for managing
risk
(Clause 3)
1) Creates value
2) Integral part of
organisational processes
3) Part of decision making
4) Explicitly addresses
uncertainty
5) Systematic, structured &
timely
6) Based on the best
available information
7) Tailored
8) Takes human & cultural
factors into account
9) Transparent & inclusive
10) Dynamic, iterative &
responsive to change
11) Facilitates continual
improvement &
enhancement of the
organisation
Framework for managing risk
(Clause 4)
Attributes of
enhanced risk
management
(Annex A –
Informative/
optional)
Risk Assessment
Establishing the Context
Risk Identification
Risk Analysis
Risk Evaluation
Risk TreatmentCommunication&Consultation
Monitoring&Review
AS4360 – Implicit, to some
extent; HB 158:2006 –
Covered partially (8.2)
AS4360 – Covered partially in
Section 4 “Establishing
effective risk management”
AS4360 – Fully covered in
Section 3 “Risk Management
Process”
AS4360 – Not
covered
Mandate &
commitment
Continual
improvement
of the
framework
Design of
framework
for managing
risk
Monitoring
& review of
the
framework
Implementing
risk
management
(Source: AS/NZS ISO 31000:2009 Risk Management – Principles and Guidelines; AS/NZS 4360:2004; HB 158:2006 Delivering assurance based on AS/NZS 4360:2004)

9. Organisational overview
Mandate And
Commitment
Design of
Framework For
Managing Risk
Monitoring &
Review of The
Framework
Implementing
Risk
Management
Continual
Improvement of
The Framework
Risk
Management
Policy
Risk
Management
Plan(s)
Risk Register/
Risk Profile
Risk
Reporting
11
Principle
s
Risk
Management
Process(es)
Assurance/
Attestation
Plan
Organisational
Strategy &
Objectives
(Measures &
Targets)

10. What does risk management mean in an
organisation?
• Risk management objectives
(i) embed a risk management culture
(ii) Continuously identify, manage and resolve material risks
(iii) Identify, prioritise and allocate responsibility for mitigation and
treatment of the key risks
• Risk Documentation – RMS, Treatment Plans, DRP and Register
• Compliance program
• HR process
• Business Plan
• Appetite and risk tolerance of the Board
• Responsibilities – Board, Risk Committee, insurance manager,
operations staff

11. Risk Transfer Decision Making Process
Catastrophic
Loss
Major threat to organisation
Rare & difficult to predict
Transfer most of the
risk but retain some.
Purchase insurance
protection
**some risks can’t be
insured (war, nuclear)
Large Loss Significant impact
Infrequent & difficult to predict
Transfer most of the
risk but retain some.
Purchase insurance
protection
**some risks can’t be
insured (war, nuclear)
Moderate Loss Moderate frequency &
severity
Reasonably predictable
Retain risk and self
fund any losses
Purchase insurance
for any sum in excess
of predicted loss
Minor Loss High frequency
Easy to predict
Retain risk and self
fund any losses
Uneconomic to insure
– cost of doing
business

12. Intersection between risk and insurance
• The purchase of insurance is one of the treatment
options available under the risk management plan
• Other options are accept, avoid, reduce or transfer.
• Tools to identify risk
• (i) interviews and discussion
• (ii) historical claims experience
• (iii) SWOT analysis and self assessment
• (iv) discussion with peers and benchmarking
• (v) Checklists, scenario planning and flowcharts
• (vi) RFQR and Questionnaire

13. Risk treatment options
Accept
Reduce
Avoid
Transfer
risk not acceptable with current
controls – additional controls to
reduce either Likelihood or
Consequence or both
risk acceptable with current
controls (or cannot be reduced
further and accepting risk)
with current
controls – cannot be reduced
do not want to accept risk
options include insurance
contract outsource *never really
transfer all risk!

14. Why is a strategic insurance review important?
• Risk is dynamic and emergent
• Essential to identify insurable risks as and when they
arise
• Effectiveness of control measures means that risks
reduce or disappear and are replaced by others
• As the business and the environment changes, so do
the risks
• Need to ensure adequacy of sum insured and
deductibles are appropriate
• Attestation to the Board – corporate responsibility

15. Integrated risk management
CEO
Corporate
Services
Client
Services
Operations
Governance
Structure
Board
Strategic
Objectives &
Indicators
Operational
Objectives &
Indicators
Strategic
Risk (Risk
Register)
Operational
Risk (Risk
Register)
Strategic & Operational
Planning Process
Risk Management
Process
Aligned &
Cascaded
Down
Cascaded
Down Escalated
Up
Reporting
Process
CEO/ Board
Report
Operational
Reports
Evaluated & Reported
Evaluated & Reported
Consolidated
& Escalated
Up

16. Need to understand the organisational context
• Organisational objectives
• Legislative framework
• Organisational structure
• Strategic direction and possible changes
• Financial position
• Operational deliverables
• Claims history
• Current insurance program
• Post loss response
• Contracts with customers, suppliers and service providers
• Uninsured risks

17. Tools for assessing risk - Risk rating scales
(likelihood)
L
I
K
E
L
I
H
O
O
D
Score Detailed description
5 Frequent The event is very likely to occur within 3 months
4 Likely The event will probably occur within 1 year
3 Occasionally The event could occur between 1-3 years
2 Unlikely The event could occur between 3-10 years
1 Rare The event may possibly occur, but unlikely at a frequency less
than 10 yearly

18. Risk rating scales: consequence
Score Description
The categories below are possible categories only
Financial Service
Delivery
Reputation People &
Knowledge
Health
and
Safety
Legal and
Regulatory
5 Catastrophic
/ Extreme
4 Major
3 Moderate
2 Minor
1 Insignificant

19. CONSEQUENCE
LIKELIHOOD
Insignificant
1
Minor
2
Moderate
3
Major
4
Catastrophic
5
Almost
Certain
5
5 10 15 20 25
Likely
4
4 8 12 16 20
Possible
3
3 6 9 12 15
Unlikely
2
2 4 6 8 10
Rare
1
1 2 3 4 5
Risk matrix

20. Risk appetite and risk rating
Large Appetite for Risk
Standard
Plan for All Extreme
Risks
Risk Averse
Increasing Likelihood  Increasing Likelihood 
Increasing Likelihood  Increasing Likelihood 
IncreasingImpactIncreasingImpact
Board
CEO
Manager
Staff
IncreasingImpactIncreasingImpact

21. Risk Type of Action Risk/ Audit Committee
oversight
Extreme Immediate action required Direct
High Senior management attention needed Monitors
Moderate Management responsibility must be
specified
Ensures sign offs and is
advised of changes up or
down
Low Manage by routine procedures Ensures sign offs
CEO/
BOARD
GMs
Risk response and escalation

22. Control effectiveness scales
1 Effective Indicates minimal uncontrolled risk, due to excellent risk
management/controls in place, tested and monitored
2 Good Indicates good risk management and control system, but an
opportunity for refinement exists to reduce risk further.
3 Fair/ Partially
Effective
Indicates a need for improvement in controls, increased adherence
to controls or that controls are being developed, but are not fully in
place and tested.
4 Poor Indicates effective risk controls have not yet been developed and a
significant lack of risk control exists – additional risk management or
treatment is a matter of priority

23. Some of the types of insurance cover
• Property - Industrial special risks (“ISR”)
• Liability – (i) Public and product
• (ii) Professional indemnity
• (iii) Directors & Officers (“D&O”)
•
• Contractors – Principal controlled contract works

24. Industrial special risks
• What is it?
• protects the organisation in the event of physical loss destruction or
damage to the insured property, loss of gross revenue and costs incurred due to
the interruption of your business activities
• Exclusions
• Land, Rail, Watercraft eight (8) metres in length, Aircraft and Property
undergoing construction, wear and tear/insects & vermin, Failure of computers or
any electronic equipment (loss of data), War and terrorism and faulty materials
and workmanship
• Things to consider
• Declared values v professional valuation; additional locations,
customer/supplier dependencies, indemnity periods, review of sub-limits
(accidental damage, removal of debris, extra costs of reinstatement, any others
per the policy), review the excess and business interruption review of operations
including payroll and claims preparation costs.

25. Public and Products liability
• What is it?
• covers the Insured for their legal liability arising out of Injury to
Persons (death, sickness, disease) or Damage to Property. The VMIA
will indemnify for all amounts legally liable to pay as compensation and
reasonable costs incurred in the defence of a claim. Extends to
Directors, Officers, Employees and Volunteers
• Exclusions
• Gradual pollution, Personal injuries sustained by employees
(workers compensation), Personal injury or property damage arising out
of the ownership of or use of aircraft, motor vehicles and watercraft,
Terrorism and damage to property owned by the insured
• Things to consider
• Contractors responsibilities (general and specific, maintenance,
security and fire protection) limits of indemnity (public/products liability,
goods in care custody and control) excess levels

26. Professional Indemnity (“PI”)
• What is it?
• Indemnity for insured required to pay damages for breach of
professional duty, act, error or omission Misleading or deceptive
conduct or libel, slander, defamation
• Includes costs incurred to investigate, defend or settle any
claim
• Exclusions
• Fines, penalties, punitive or exemplary damages; Claims in
United States or Canada and medical malpractice.
• Extensions
• Property damage and personal injury, Loss of documents,
Fidelity.

27. PI - Claims made policy
• During the policy period - The policy only responds to claims
first made against the organisation during the policy period
regardless of when the actual act of negligence was committed.
When policy expires, so does right to make the claim unless
notified during the currency of the policy
• During Extended reporting period - Provides coverage for
claims made during any extended reporting period (usually 12
months if additional premium paid) otherwise 90 days after expiry

28. PI – Adequacy of the sum insured
• Calculate - highest potential financial loss that could be claimed
by a third party based on the value of the contracts and the
potential impact on future earnings of the business
• Identify - What the policy limit will be in respect to any one claim
in the aggregate. The sum insured must be sufficient to respond
to the largest claim and the total number of claims in any one
year.
• Document – all conversations and instructions from the insured
• Consider – limit is inclusive of legal costs so ensure sum insured
sufficient to cover combined total legal costs of all anticipated
actions and potential damages
• Reinstatements – negotiate at inception, automatic
reinstatement and unlimited

29. PI Wording – issues and considerations
• Retroactive cover (beware “known circumstances”)
• Civil Liabilities basis (for innocent acts)
• Defence costs (in addition to the limit)
• Endorsement for libel/slander
• Description of “professional activities” (draft widely)
• Duty of UGF and disclosure (covers all interaction up to inception
of policy and re-emerges on renewal)
• Other umbrella liability cover (check for ambiguity or overlap)
• Include cover for TPA breaches (and State fair trading Acts)
• Jurisdiction or territorial cover (world wide v USA/Canada)
• Dishonestly (excluded)

30. PI – things to think about when placing riskPI – things to think about when placing risk
• Detailed descriptions of the business and the professional
activities conducted (client to sign off prop)
• Qualifications of Directors including experience in the specific
professional activities,
• Quality controls, risk management framework , audit procedures,
peer reviews, training programs or monitoring tools employed
within the entity (obtain copies if necessary)
• Analysis of claims experience and treatment regimes employed
within the entity

31. PI – Typical Extensions, conditions andPI – Typical Extensions, conditions and
exclusionsexclusions
Conditions Extensions Exclusions
The senior counsel clause Intellectual property Aircraft and watercraft
Assignment of interest Defamation Bodily injury
Cancellation Outgoing Directors Asbestos
Policy construction and
interpretation
Retroactive cover Jurisdictional limits
Limit of indemnity Trade Practices and related
legislation
Fines and penalties
Reporting and notice Fraud and dishonesty Obligations to employees
Defence and settlement Loss of documents Terrorism
Subrogation Severability Pollutants
Fidelity Known circumstances

32. Directors & Officers (“D&O”)
• What does the policy cover?
• Protects insured from defence costs, legal costs, damages and
awards associated with legal action arising from a claim
• Why?
• Mistakes made when managing an organisation (“wrongful act”)
• When?
• Act or omission including error, misstatement, misleading
statement neglect, breach of trust or duty. It needs to be committed,
attempted or allegedly committed or attempted by an insured person
in the position or capacity of Director or Officer of an organisation.

33. D & O – DefinitionD & O – Definition
Definition of Director – appointed to position of Director
or alternate director and acting in that capacity
regardless of the name given to the position
Definition of Officer – company secretary or person who
makes decisions that affect whole or substantial part
of the business of an entity or who has the capacity to
significantly affect the entity’s financial standing
Duties – include at common law and those imposed by
the Corporations Act (2001). Can be civil or criminal
33

34. D& O – insuring clause constructionD& O – insuring clause construction
Side A - Directors and officers of the company covered for their
personal liabilities (legal costs to defend an allegation plus
judgment for damages and costs awarded against them) as a
result of wrongful acts for which they are not legally allowed to be
indemnified for by the company.
Side B – Company is reimbursed for any cost that legally incurs in
reimbursing the director or officer. Does not cover its own liability
if joined as a defendant
Side C - Entity Coverage - provides coverage to a company for
claims made in connection with the offer, sale or purchase of the
company securities or its employment practises
If no Side C, then self-insure
34

35. D & O – Claims MadeD & O – Claims Made
During the policy period - The policy only responds to claims first
made against the organisation during the policy period
regardless of when the actual act of negligence was committed.
When policy expires, so does right to make the claim unless
notified during the currency of the policy
During Extended reporting period - Provides coverage for claims
made during any extended reporting period (usually 12 months if
additional premium paid) otherwise 90 days after expiry
35

36. D&O – Adequacy of sum insuredD&O – Adequacy of sum insured
Calculate - types of actions taken against the directors and officers
and size of damages awards, regulatory powers, the duties and
responsibilities imposed by law on the directors, the rights and
appetites of the shareholders or investor to take action and the
state of the market.
Identify - the organisation’s size, capital base and ownership
structure; its business activities and objectives; level of risk
transfer, qualifications of Directors and Officers, information flow
between management and the Board
Consider - aggregate amount of cover provided by the policy limit
including whether it will be exhausted by any claims made during
the policy period. Note the limit is inclusive of legal costs
36

37. D&O Wordings – issues andD&O Wordings – issues and
considerationsconsiderations
One policy limit - applies across both sections in the aggregate for
any period of insurance although can have dedicated additional
limit for Directors and Officers
Allocation - An entity claim can exhaust the cover available for
protection of Directors and officers and lead to a fight between
the company and the Directors for the allocation of protection
How to address - Purchase stand alone side A or Side A excess /
DIC policy , renegotiate excess layers or have dedicated
coverage available for the Directors
37

38. D&O – Extensions and ExclusionsD&O – Extensions and Exclusions
Extensions Exclusions
Advancement of defence costs Prior notice
Pecuniary penalties Claim brought in the USA
OHS defence costs Bodily injury
Pollution defence costs Pollution
Spouses, Heirs and Representatives Professional services
Retired Directors and Officers Dishonesty
Continuity of cover Side C – contractual liability
Outside directorships Side C – organisational dishonesty
Emergency defence costs
Extended reporting period
38

39. D&O – things to think about when placingD&O – things to think about when placing
riskrisk
• Run off cover
• Severability and non-imputation
• Priority of payments
• Claims settlement clause
• Investigations and Enquiries
• Acquisition or Cessation
• Offering of securities
• Prior insurance
• Duty of disclosure and utmost good faith
39

40. Contractors – Principal controlled contract
works
• What is it? –
• Cover during construction/installation/erection of
new assets, or the refurbishment/upgrade of existing
assets. Cover provided for all parties to the contract –
the principal, contractors and subcontractors and any
other parties by agreement.
• Things to consider –
• Limits of indemnity, description of works, scope of
works, excesses, review of contractual terms, details
of contractors and their own levels of insurance cover,
estimates of capital expenditure budget.

41. Specialised policies
• Fine Arts,
• Non Owned Aircraft Liability,
• Marine Hull,
• Port Authority/Marine Liability,
• Aviation/Airport Owners & Operations Liability,
Employment Practices Liability,
• Fidelity and
• Motor Vehicle

42. Triggers for cover
• (i) occurrence
• (ii) claims made and notified
• (iii) other matters
• (a) period of cover,
• (b) amount of cover,
• (c ) deductibles and aggregates
and
• (d) limits of cover

43. General Duties – Duty of Disclosure
• The law imposes a duty of disclosure on policyholders when they
seek to take out new insurance cover or to renew existing insurance
cover.
• Under section 21 of the IC Act a consumer is required to disclose
every matter known to them that they know to be relevant to the
insurer's decision to accept the risk, or that a reasonable person in
the circumstances could be expected to know is relevant to insurers.
• The test of what a consumer knows to be a matter relevant to the
insurer is often determined by what the insurer indicates is relevant
to it. For instance, if the proposal questions a consumer about
previous criminal convictions, then the consumer knows that this
issue is relevant to the insurer's decision to accept the risk.
• At common law and under the IC Act, both insurers and
policyholders have a duty to act towards each other with the utmost
good faith.
• s12 of the IC Act states that this duty of utmost good faith does not
place a higher duty on a policyholder in respect to disclosure made
to insurers

44. Duty of Utmost Good Faith
• Uberrimae Fides
• The Duty requires each of the parties to the contract of
insurance to act honestly, openly and fairly towards the other
• Lord Mansfield:
• Insurance Is A Contract Upon Speculation. The Special
Facts Upon Which The Contingent Chance Is To Be Computed,
Lie More Commonly In The Knowledge Of The Insured Only; The
Underwriter Trust To His Representation (Sic) And Proceeds
Upon Confidence That He Does Not Keep Back Any
Circumstances In His Knowledge, To Mislead The Underwriter …
Good Faith Forbids Either Party By Concealing What He
Privately Knows, To Draw The Other Into A Bargain … To Protect
Both Parties By Requiring Each Of Them To Exercise, As
Between Themselves, The Utmost Good Faith In Their Dealings.
(Carter V Boehm [1766] 3 Burr, 1905)

45. Non-disclosure
• Good faith – focus principally on issues of disclosure and
misrepresentation.
• During the negotiation of a contract of insurance both parties are
required to voluntarily disclose all facts of which they are aware
which are material to either the risk or the computation of the
premium.
• A failure to disclose, even though it is not fraudulent, allows the
innocent party to avoid ab initio the policy.
• During negotiation Applies to both parties
• Voluntary disclosure Avoid ab initio
• Material

46. Misrepresentation
• An incorrect statement of fact which induces or helps induce one
party to enter a contract.
• Per Hardy Ivamy:
• In order for a misrepresentation to be actionable at common
law it must be untrue or inaccurate and one of fact and not a
statement of intention or opinion or law (page 173)
• Innocent
• Fraudulent made with an absence of an actual and honest belief
in its truth: a deliberate decision … to mislead … or recklessness
amounting to indifference (NRG Victory v Hudson (2003) WASCA
291)

47. Role of the VMIA
• Functional areas -
• 1. Client Services
• - Client Relationship Manager
• - Account manager
• - Insurance Advisor
• - Risk Management Advisor
• 2. Claims
• 3. Risk Engineering
• 4. Client Learning Services
• Who is your contact?
• Teams - (i) General Government (client service and risk management)
• (ii) Health Care and Community Services
• (iii) Public Health Care and DHS
• (iv) Health care and medical research
• Navigating around the VMIA website - www.vmia.vic.gov.au

48. Scenario 1

49. Scenario 2