12 July 2006

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Business Today

Brokering the deal

The general public does not trust insurance companies and AON Insurance Brokers managing director JOE CUTAJAR knows this full well.
He concurs that the perception among private individuals and commercial clients is that insurance companies are there to get you but insists the perception is borne out of the fact that insurances are continuously juggling between honest, genuine claimants and fraudulent ones.
While some insurance companies give the claimant the benefit of the doubt, others adopt a more cautious approach, which is probably what gives rise to the general negative perception.
Cutajar says that his company’s role as a broker is to get the best deal for its clients from insurance companies.
“We are wherever our client is. For us it is not a question of a small market like Malta or a huge market like the US. We are on the ground wherever our client is,” Cutajar says.
He heads the largest insurance broker in Malta and also has at his disposal the expertise and knowledge of the international AON network.

How big is Aon in terms of client base and portfolio?
On an international level Aon is one of the two largest players in insurance brokerage. Aon employs nearly 50,000 professionals out of 120 offices around the globe and is in a perpetual competitive game of international stature.
Aon definitely has the biggest network and client spread. The philosophy of how Aon runs its business internationally is one based on the notion of interdependence and entrepreneurship.
The entrepreneurship philosophy means that people down the line are empowered to service their clients the best way they deem fit. Nobody comes here from Chicago to interfere in the way we manage our clients in Malta. They are behind us all the way, trusting our 30 years experience on the island. We are independent of any central control and Aon’s strong resource gives us an edge over the rest of the market. On top of that our Malta team brings to the table the expertise of the 40 professionals – an impressive team by any standard.
Interdependence features when we require support on tailoring a specific policy or insurance programme of a high level of complexity such as in marine, industrial, aviation, big construction, shipping, film productions, etc., we simply tap into the expertise offered by the group thus being able to offer solutions to our clients, based on the knowledge and experience of Aon colleagues overseas.
In Malta, The Team (Malta) Limited, which is the local exclusive correspondent for Aon, is the undisputed larger local insurance broker on all counts whether it is client base, turnover , team of specialists or people employed. No less than one third of our employees are trained insurance experts. Our nearest competitor in Malta is significantly smaller than us.
Size does matter in our business because it can advantage clients. In the insurance industry the fact that we have the largest client base and the fact that we handle most claims means that we can find solutions to the problems of our individual clients. It’s the bare basics of experience build-up. But other than that as brokers there are numerous instances where we would need to use our numbers strength to win the day for our clients when dealing with insurance companies.

Why should a commercial company or a private individual come to a broker instead of going directly to the insurance company? What advantages do you offer?
There is an extensive list of added values amongst which, a broker is the one-stop shop concept whereby a client that comes to us has immediate access to all the services offered in the insurance market. We can issue quotations based on policies of different insurance companies making it very convenient for the client not to stay fishing around for the best deal.
But more important is that the people drawing up the different estimates are knowledgeable in the insurance business and know what to look out for.
Insurance is the business of ‘small print’. All insurance policies are called insurance but there are different policies that range from appropriate cover to less desired policies.
When buying an insurance policy it is important to have an expert who can guide you, explaining the potential pitfalls in the different policies available.
To top it all, the added value of using a broker does not come at an extra cost for the client. Buying an insurance policy directly from an insurance company or buying that same policy from a broker will cost the client the same amount of money.
As brokers our margin is not made from charging our clients more but made from the insurance companies for administering their accounts and handling their claims for which otherwise they would have to employ more people.

Given the current climate where by a number of international insurance companies have recently pulled out of the Maltese market, what intention does Aon have of doing?
Aon’s primary focus is the client. We are wherever our client is. For us it is not a question of a small market like Malta or a huge market like the US. We are on the ground wherever our client is, including Malta, bringing with us the knowledge of the whole Aon international network.
This year Aon marks its 30 anniversary in Malta and this is proof of how important having a wide as possible network is to Aon.
As for the insurance companies that have pulled out of the Maltese market, size was probably a factor although it might not have necessarily been the single most important factor. The Maltese market does not have the critical mass required by insurance companies to justify premium volumes and massive insurance companies require critical mass to make it feasible for them to operate in any market.
But there have been other reasons why some international insurance companies have withdrawn from Malta. Some made losses, others withdrew because they went bust and others simply changed their international policy.
We, as The Team for Aon in Malta pride ourselves in line with our international policy of “insure your vision”…and I will add, “anywhere you are no matter how small or big your insurance requisites are”.

The popular perception is that insurance companies are there to get you with their fine print and intricate policy clauses. Clients’ trust in insurance companies is very low. Where is this perception derived from?
As a broker, I personally believe that the perception is right. It is derived from the fact that it is very difficult for any investigative ability to determine between a legitimate genuine claimant and a fraudulent one. There are clients everyone would want to have since their claims are 100 per cent genuine and I would want them to be paid the moment they step into our offices. But there are also potential clients who are only interested in making a buck out of insurance. The difficulty the insurance industry faces is how to make that distinction. There are insurance companies that give the benefit of the doubt to the client and take the primary presumption that the claimant is honest. But others operate on the presumption that the claim may not be genuine and so adopt a very cautious approach. The fact that the general public can be put into one basket by some insurance companies acting very cautiously, could give rise to the perception you referred to.
But the general public has to appreciate that if an insurance company is paying a fraudulent claimant, at the end of the day the honest claimant is being prejudiced as much as the client who is not even making a claim since premiums would need to go up.
But why are insurance premiums on the rise year in year out?
What’s not on the rise? Insurance premiums are a reflection of the general inflation and the general increase in costs of everything. The increase in the cost of service of a panel beater, or the increase in prices of spare parts or the rising cost of medical care all have a ripple effect on the rising cost of claims. An increase in claims means that premiums would need to go up.
A peculiarity of the insurance industry is also the losses made on an international level. These losses would need to be paid by the insurance companies but they would also have a ripple effect on premiums charged by insurance companies in other jurisdiction.

How does a natural disaster in the US like hurricane Katrina translate into increased premiums in Malta?
Natural disasters have a lot of impact. Insurance companies are themselves re-insured with re-insurance companies. If a particular insurance company in the US has to pay out hefty claims to clients who suffered heavy losses during a hurricane, that insurance company would turn to its re-insurer to recoup those losses or part thereof.
As a result the re-insurance companies will increase their own premiums to ensure their kitty remains solvent and any insurance company in Malta purchasing re-insurance would have to face higher premiums. That is an increased cost, which would have to be made up for by charging higher premiums.

How has the domestic market evolved in its insurance needs?
The market has changed. It has evolved and matured. Clients today are more inquisitive and sophisticated in their demands on insurance companies. And this has put the onus on us as an industry to invest in continuous training of our employees to be able to provide the highest level of expertise possible.
Continuous and persistent training is a must. This is identified with the Aon family to the extent that Aon has its Aon University. This is there solely to train, from top to bottom, its staff.
Out of Malta we are too proud to say that with the Aon training programme out of the team from this Island we rank amongst the best. We already hold no less that two top marks records within the Aon University training programmes. The last of such achievements was in the marine master class programme held last May in London.

Insurance is one aspect of the financial services industry, which has experienced substantial growth over the years. What can attract foreign insurance companies to use Malta as a base for their operations?
There is a growing sector of captive insurance management which can be of vital importance to the economy. The client can be anybody who opts to use Malta as a domicile for his captive company. Generally these are massive international companies that as part of their risk management strategy, instead of going to the conventional insurance market decide to set up their own insurance company, called a captive, which will be managed by people like us.
Such a set up for large multi-national company makes sense since if the mother company makes no claims and the captive declares a profit, the company would benefit from the dividend declared. If claims are made, it is up to the captive managers like us to obtain the best re-insurance programme for the captive.
Aon has its own subsidiary management company, called AIM (launched in Malta last year), on which I am also a non-executive director that is involved in managing captives.
Malta is attractive for this business on a number of counts but it does not mean that what is attractive to one captive is necessary attractive to another.
As a financial centre Malta is still relatively inexpensive and competitive when compared to other European countries in terms of labour costs, office space and other business-related costs. And cost is one of the factors captive managers look at when deciding where to domicile the company.
The MFSA’s efficient set up also ensures that financial services companies are not caught up in unnecessary bureaucracy when deciding to set up in Malta. This is also a plus point for the industry.
The third attraction is the good infrastructure in terms of established auditors, legal firms and banks that are required to run an insurance captive.

All this boils down to one thing; human resources. It is often mentioned that there needs to be more linkage between education and industry. What about the links between education and the services sector? Is the former responding to the needs of your sector?
Yes and no. We have seen a very upmarket move of trained personnel coming into the industry both from the micro point of view in insurance and the macro level in the financial services sector as a whole. But the Japanese have a saying; when it’s perfect, make it better. It’s never good enough and we still find ourselves in situations where we want more quality people than one can get.
And by quality people I am not referring to the A-class girl or boy, or the honours degree student. My definition of quality people are those who do not just have the right educational level and training but above all, people that embody a positive go-get-it instinct, and that are genuinely business minded. Quality people are those who know how to use their brain cells, are motivated and pro-active on their job. These are qualities that need to be nurtured outside the strict academic parameters of education.

Joe Cutajar was interviewed by Kurt Sansone

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