IB Talk

Narrator: [00:00:02] Welcome to IB Talk, the leading podcast for the insurance industry across Australia, New Zealand and throughout the Asia Pacific region brought to you by insurance business.

Danny: [00:00:19] Hello and welcome back to IB Talk. I'm Danny Wood, news editor of Insurance Business Australia. Steadfast is Australia's largest broker network and the company just held its annual convention in Adelaide, a big event in any Aussie broker's calendar. Before the convention, IB talks sat down with Robert Kelly, steadfast CEO and co-founder. He's an industry heavyweight with an impressive 50 years experience and widely regarded as one of the most influential people in Australia's insurance industry. Robert joined us from his office in Sydney. I started by asking him how he got into insurance in the first place. It was over half a century ago, wasn't it?

Robert: [00:00:54] It's true. Back in February 1969 I just started to work for an Arnhem trading company called Nelson Robinson at that stage and they were sending me to operate in the Pacific area to operate our line and I went with their general manager and the Chief Clerk of bankers and traders, the B in bankers and traders being the B in QBE. Okay, so the QBE bought that company. Very quickly, I wondered what the Chief Clerk of bankers and traders did and he said, quite simply, your our agents over the Pacific and you sell out insurance and you bank the money to us and whatever your banker, each month we send you 33 or 30% back, right. So it's a commission. So I thought this is an interesting business, isn't it? You don't have to buy your stock stocks are unlimited. It's a capital lot to be in insurance broking. It's just basically your own resources. And so for the six weeks that we traveled through the whole of Pacific doing, which was my own training job, to go up there and operate out of line, I had a quick course in insurance, working, watching what we did, watching how our agency business worked, what's to happen. And I came back and resigned and said, I'm an insurance broker. So that's how I got into it. I chose to do it. I thought it was an opportunity to have a product that, as I said before, that you didn't have to buy and you only paid for it when somebody paid. Paid you for it. That was. Yes.

Danny: [00:02:42] The same age as me. It's 52, 52 years ago. Yeah, nearly 53. It must have been quite something traveling around the Pacific back back then. It's probably changed a lot. Have you been back there and visited these old places?

Robert: [00:02:54] Oh no I haven't, except that my, my recollection of what a magnificent place Papua New Guinea was and the Solomons actually were picturesque, beautiful, beautifully. But when I, when I was there, there was still a thing called a boy house, which was a a like a cubby house at the back of the. Why people's houses where they employed a local indigenous person who did everything around the house. And I could tell even then that there was dissension amongst the Papuans against the way the white people had, I guess, treated them up there. And then and then, of course, rather, in my view, stupidly, Australia gave them independence in the early seventies when they were not ready for independence. So we sort of almost did the punches pilot thing by saying, well, okay, you've been a territory, we've been looking after you, it will give you independence and off you go. They weren't ready for that and it seemed like a wonderfully appropriate thing to do. But I think time has proven that they were not ready for self-government at that particular time, so that it then deteriorated up there. So this is a long way of telling you. The reason I haven't been back there is it's quite dangerous in some areas because there's a great resentment that runs back over the 50, 60 years that the transition took place. And it's a case study. And when do you let go? I'd say there's a time to hold them and the time to throw them, as I say and so forth. And we throw them too soon.

Danny: [00:04:36] So let's flash forward 50 years and you're now running, I guess, one of the biggest, if not the biggest broker network in Australasia. And what do you enjoy about doing that? What keeps you keeps you doing it?

Robert: [00:04:48] The thing that keeps me intrigued by it is it's fascinating. We haven't varied from our original ideas of setting up the network and providing services that nobody could provide to the same degree as we could because of the actual cost of doing it. So we've had that dramatic change in regulation. You've got dramatic change in consumerism, you've got the insurers coming and going. And so it's what I like about it is that it's a fascinating business. It's an insurance is something you can't do without. It's not like it's not an optional by commercial. People have they have to get it. People that have got mortgages have to get it. So I still think that the proposition that we went out with in 1996, which basically was none of us will be as good as all of us if we pull together, still stays true today. So it's always challenging. It's it's always interesting. I mean, getting the capital as a public listed entity to be able to buy businesses and give people capital events and let them let them feel comfortable that if they do want to put their hand up and sell, they've got a friend there is or wonder what happens or how will this work. That's interesting. It keeps me going. And I think that the main thrust of this business was run the network with the, I guess, the epitome of excellence and everything we can do. So we are, I would say, more keen now today than what we were in 1995 when I struck when we first started doing this thing on making sure that if you're a steadfast broker, that you've got the best of every service that you can possibly have and you don't have to go out and buy that yourself. That's the fun part about it, is making sure that the product that you market as a steadfast network broker gives you your own autonomy. You're still you. You're still relatively limited, but you've got the strength of nearly $10 billion worth of GWP behind that. And with respect, I guess in some ways that we've gained over this 25, 26 years that we've been operating like this of of being reliable and doing the right thing. So it's where we're not hiding skeletons and we're not patching leaks and we're not going, oh, god, this is not we're actually working on the forefront all the time, the legislation and what the consumer should expect from us. That's the exciting part of it.

Danny: [00:07:33] Live entertainment, insurance, natural catastrophes in the northern parts of Australia, they're all kind of areas where insurers don't seem to have a big enough pool of money to pay what might happen.

Robert: [00:07:43] That's exactly the place. And I mean, there's a few competing areas here. Firstly, the consumer should have all their rights at law. It would be great if you could say if you want to go to that live venue where there's going to be 8000 people and you just and you just sign this, then if you get 30 or you get COVID or you get anything like that, you've taken your own responsibility. You might get that. If you could do that, then you could ensure those venues. But of course, I have empathy for the legal. Return or at least their jobs to protect the consumer's rights if something happens that's beyond their control. So it is very, very difficult. You've got the insurers who don't want to take the risk because they don't want to get a multitude of claims over something that's probably beyond their control. If somebody's spreading COVID through there, it's very difficult.

Danny: [00:08:41] Is the only option like with with the live entertainment some state governments have stepped forward and helped with the insurance. Is the only option with things like this government intervention to help?

Robert: [00:08:51] Well, the two things would be really good, as if there could be some simplification on the law that says, I realized I want to go and see the Rolling Stones line and I know I'm going to go in there and there's going to be a whole lot of people pushing against one another. But I want to take that risk if I get COVID because it's basically COVID, which is creating that problem now.

Danny: [00:09:16] I guess I'm thinking more from the point of view of the events organizers like having to cancel these huge events when there's a COVID thing. Is that possible.

Robert: [00:09:24] If you then step through and save the position like where? And we run, we run usually and we have in the past, but not for the last two years. We're having having an attempt next month to run our conference. So, for instance, our conference means that this organization has to commit somewhere, somewhere south of two and a half million dollars to run that conference. And we have to commit and we have to pay for that. We can't get insurance for that against if if the state government closes down, the state we've covered, breaks out and things like that. So it would be good to get some government help on that. But the reality is my experience, you've got local government, you've got state government and you've got federal government to get the agreement between the local council, the the incumbent state political party and then the feds to sort of recognize it. I think it takes a magician to be able to do that. My view is that it makes good press for journalists to write. Maybe the government should step in. Maybe they should do it. Like the biggest example you can see of that is that everybody's agreed to a reinsurance bill to help the people up in far north Queensland. How long ago was that? Now when you say let's run a reinsurance pool, the government will back it, it will be good. That makes great press. Then sit down with all of the complaining people and work out how it works, who does what, what the limitations are, what risks are taken, and then get the local government happy, the state government happy and the federal government happy and get it all signed off and done and put to bed. That's why things take a long, long time. Let's say government has the right to act on behalf of its constituents in a jurisdiction that it thinks is the best interest of the of the constituents, not in the best interests of the people risking capital to come and put in litigation or something like that. So it's it's very difficult when you get to that situation. But the government says, yes, we should we should do it. Do what? The government should help. How what's government going to do? Is the government going to say, look for live gigs, we'll shut down the rest of the state, but we won't shut down that live gig. Or when you ponder the variables in trying to do something like that, do you have social distancing? Do you have mandatory masks? The pragmatism of business, from my point of view, is to not make statements, but to come up with solutions. Then make the statement after the top, after the solution, which is that you never get around to do it with government, unfortunately.

Danny: [00:12:13] I guess the other thing you mentioned there was digital transformation and in all, the insurance companies now seem to have these great big, complicated digital transformation plans. They have their chief digital officers, so they seem to be trying. But what is it you think they're doing wrong?

Robert: [00:12:29] I can answer that question really well. The answer to that question is, look, I think they've got a lot of legacy systems and it's very difficult to change the legacy systems overnight. And I think that the allocation of capital to doing that is quite, quite high. And and although they may be able to capitalize some of that, I wouldn't like to be the first CEO to turn around and say, look, our systems that have been using are all shit and we spent no money on them. And we realize now that that we shouldn't spend money and that the digital transformation is overshadowing it. So why aren't they? There's so many people out there offering digital solutions, those digital. Solutions. If you make a decision to do it, do it. It's an 18 month lead time. Sometimes we ensure that get something done. I just can't go back. If you go back eight months now and have a look of digital transformation as opposed to what can be done today, it's like the moon and compared to the earth, it's changing all the time. And I think the reason there's hesitancy is that lots of the big insurers have spent considerable amount, hundreds of millions of dollars trying to get the solution. And then whenever they get something to roll out, it was great 15 months ago when we started the programme and I look at this now and I think the biggest thing that insurers have ignored is the incredible database and information base they've got about people and location and clients. And so you've still got a huge amount of structure in insurance companies about delegated authority. Who can who can set risk, who can't accept risk what they're going to do. So when are you going to change that structure through? And well, okay, we're not going to ask 50 questions. We're going to ask seven salient questions. We're going to pop those into our database, which is voluminous and see whether we should write that risk. That's what they have to do and it's really hard to do. Firstly, a lot of their databases are not don't talk to one another. They're the idea of having a big digital warehouse that you can pull out and go. Let's check whether we should write stuff in post code 2163 and it comes back. You've got a thing. There's all the clients you've headed to 163. Okay. Can we drill down to that, that the use of digital data is quite difficult. They don't have propeller heads sitting around in a dark room crunching the data we do our data warehouse can tell them everything. It's quite amazes me how far progress we are in having that information and having the having where the clients occur, having having the pricing mechanisms in various postcodes. And we can do a bit of streets as well. And also digital is a very difficult thing for them to do. If you're an advice type of underwriter as you're an advice broker, then you have to gather a lot of information, put that into your systems and and work out whether you want to write it or not. So it's not easy if you can just take data, put it through a thing and go, We're doing this and we're not doing that and don't have any argument about whether you're going to do well, why you're not doing that, but just concentrate on what your machine tells you, then you'll be able to make money. It doesn't happen that way.

Danny: [00:16:16] So. So how have you managed to do it? Sounds like you managed to do the data thing pretty well. What's your secret?

Robert: [00:16:23] We started 12 years ago. Okay. All right. We started getting information 12 years ago, and now we have we have a data warehouse which which has $1,000,000,000 a year of our own product information that we've got. So that's compounding. It's a build up. And then what we've done is we take the information that we want to know and that we need and we suck it out of what the insurers give us so that we can do clients analysis upon what have on what we don't have in our own digital environment, but in the environment they've got. So we back fill it from that point of view.

Danny: [00:17:07] I was talking to a big aviation insurance company and they were saying that the biggest the biggest discussion they have with all of the in the sort of aviation insurance industry is about the threat of climate change, which kind of surprised me. And I didn't think it would be. 

Robert: [00:17:23] Surprising because the biggest, biggest polluter. In in the world is the jet aircraft flying across? I subscribed to the NASA climate and climate change analysis that they do. It's not political. It's just a lot of data they collect. And when all the planes stop flying, it's had to drop dramatically. The coal powered fire stations were still belching out their perceived or real problem. You had the cars off the road because people weren't driving and you had the planes not flying and you had the CO2 dropping. So if you say that we cannot live without aviation in this modern world, I think that's a fair statement to make. Although the Zoom meetings or the team's meetings may have put paid to that, but still in all, I'm still I still have to go to London in ten days time. If you accept that aviation has to exist, then it cannot exist in the current system of propulsion. So what you've now got is the realization that smaller planes will come back. It's a complete paradigm shift. They've gone from we've got a big film up with people and flying. So you've got the aviation industry working on, believe it or not, going back to propeller based turbo jet engines that that push and don't have the have the burn rate that they have. So there's going to be a complete, complete epiphany by the. They have to change the propulsion mechanism. The the first commercial electric signs are flying at the moment in test. So the aviation industry is going to shift slow because you're going to have I mean, seriously a747 400 with four big jet. You can't give them away and go and buy up to $23 million United somewhere, you know?

Danny: [00:19:28] So where's all the pressure to do this coming from? Is it just regulation or is it it's regulation.

Robert: [00:19:33] There used to be a triple jet, a small plane. They were called fan jets here. They couldn't modify the engines to comply with the noise. So a lot of people had them and they lived in New Zealand and so they were registered in New Zealand and they could transit in and out of Australia but they couldn't operate in Australia, so they got around it. So those planes went from being worth a lot of money to being worth nothing. So if you if you think that the average price of a 380 is around around the 200 million mark, if they're guzzling gas and belching out CO2, that capital investment that you've made in them is going to be worth shit. So that transition from having big, powerful planes, that's got to change. You couldn't land noisy planes at airports. They said you can't land them. When are they going to say you can't land CO2 polluting all at our airports anymore? When that hits, then there's a huge depression. Now, what should the insurance industry do? Should do with what? It's what is going to be with coal is say you have to get your emissions down to X and we're not going to insure you if you don't give us a plan that says, hi, we're we're at this now. This is our stage to get down to this and you'll be able to continue to insure them. I think in many ways the aviation industry will get to that stage as well, where there'll be pressure to say, do not insure those those CO2 belting, big mothers only insure these eco friendly ones that are that that are doing the right thing. But again, like like coal, the insurance industry has got to accept that. Okay. We're going to do we're not going to stop insuring because of the problems of advance paper. We've got to stop insuring coal. I said, Yeah, let's shut the coal stations down. I said, Yeah, well, that's what we should be doing. I said, Well, how are you going to communicate? Because you won't have the electricity in Australia to be able to communicate.

Danny: [00:21:48] It's certainly a challenging issue. Robert, thanks a lot for sharing your thoughts on lots of topics.

Robert: [00:21:54] Thanks a lot.

Danny: [00:21:55] And Robert Kelly is CEO and co-founder of the Big Australasian Broker Network Steadfast. Thanks for listening. Bye for now.

Narrator: [00:22:05] Thank you for listening to IB Talk. For the latest episodes, be sure to follow us on SoundCloud, Stitcher and Apple Podcasts.