Chairman's report20104112139

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					6                                                                                                                    Chairman’s Report

      Chairman’s report
      At the VMIA, we understand that the business of insurance and risk management is unlikely to capture
      the imagination of most Victorians. However, the work we do in helping our clients to protect the State’s
      most valued assets and services, means that all members of our community can continue to enjoy the
      things they love about Victoria, like visiting Federation Square or attending an art exhibition at the
      National Gallery of Victoria. It also means that vital services such as transport networks and hospitals
      are protected, and that when bushfires or floods devastate our bridges, national parks or roads, the
      VMIA is there to give much-needed financial relief.

      Our captive insurance model                Now in our second decade of operation,       Providing risk management
      is our strength                            it is prudent for us to review how we can    expertise at all levels
      The VMIA is a captive insurer with         extract the best results from the captive    During 2007/08, we adopted a multi-
      coverage of about $96 billion of State     model to benefit clients and the Victorian    layered approach to risk management.
      assets managed by Victorian                community. Risk management and               At an agency level, we are assisting
      Government departments and entities,       insurance is a logical partnership.          the Victorian Public Sector to build their
      public hospitals and a variety of          In a commercial market, the effectiveness    cabability to identify and manage risk.
      community service organisations. As a      of the pairing is evidenced in claims        Our clients are obligated to attest their
      captive insurer, our clients benefit from   incidence and ultimately, relative premium   risk management practices to the
      economies of scale and we are able         allocation. In our captive insurance         Government and we play an important
      to insure risks that the commercial        environment with smoothed premiums,          role in assisting them to understand their
      market often avoids, or does not fully     our goal is for clients to recognise the     obligations. At an inter-agency level,
      underwrite. This allows us to provide      value of good risk management and            we are facilitating the sharing of
      insurance products that benefit the         apply it, in the absence of commercial       knowledge, tools and methodologies.
      entire community, including:               market imperatives to do so. We have         The enduring value of our work, however,
                                                 made significant inroads, and it is clear     is to take all our clients on the journey
    – critical assets and services, such         through our many interactions with clients   with us, and evolve risk management
      as public hospitals, rail networks and     during the year that there is a growing      from an exercise in compliance, to a
      regionally based doctors                   appreciation of the need for effective       culture of “that’s how we do business”.
    – major events and exhibitions that benefit   risk management.
      the Victorian economy, including Art                                                    At a whole-of-Government level, our
      Deco 1910-1939 at the National             Building our internal capability             challenge is to identify, manage and
      Gallery of Victoria                                                                     mitigate risks that transcend individual
                                                 Our Corporate Plan is built on the four
                                                                                              departments and agencies. Such risks
    – national parks and regional areas that     themes that guide our operations: Alert,
                                                                                              include climate change, people and
      are vulnerable to natural disasters like   Prevent, Protect and Enable. During
                                                                                              infrastructure, each of which is of a
      bushfire and flood.                          the year, we launched our new value
                                                                                              magnitude and complexity that compel
      The VMIA’s risk management services        proposition – Protecting the State
                                                                                              collaborative thinking and action.
      are included in the cost of our            through risk management and insurance
                                                                                              We continue to work closely with the
      commercially competitive insurance         services – setting organisational values
                                                                                              Department of Treasury and Finance to
      premiums and represent a unique            and behaviours, which better align
                                                                                              report on whole-of-Government risks and
      service offering for our clients.          what we do and how we do it.
                                                                                              to scan the global insurance marketplace
      The strength of the captive model was      We also introduced a new governance          for emerging risk and claims trends.
      demonstrated during 2007/08 –              structure for the Board. This included
                                                                                              In June 2008, we launched our Clinical
      a turbulent year in global investment      establishing a Capability Committee to
                                                                                              Risk Management Strategy. It is a
      markets which saw an increase in           focus on our people and services, so
                                                                                              partnership with the Department of
      claims relating to the Gippsland flood      that we build capability to better meet
                                                                                              Human Services and other stakeholders,
      and 2006/07 Victorian bushfires. While      the needs of our clients. The Audit
                                                                                              aimed to contribute to improved patient
      we suffered investment losses and a        Committee was expanded to include
                                                                                              safety in Victorian public hospitals by
      subsequent reduction in our solvency       risk and is now called the Audit and Risk
                                                                                              identifying and mitigating circumstances
      levels, our captive client base meant      Committee. We created a new Strategy
                                                                                              that put patients at risk. This is a good
      that the impact of these events on our     Committee, which is focused on our
                                                                                              example of the depth of collaboration
      core profitability was lessened. With a     future development.
                                                                                              that can be achieved with clients as a
      $55 million catastrophe reserve, our                                                    result of our blend of insurance and risk
      solvency level at 113% remains within                                                   management services.
      the preferred range of 105-125%.
VMIA Annual Report 2008                                                                                      7

  Funding Ratio in Excess of
  $55 Million Catastrophe Reserve                                    2003/04                 107%
                                                                     2004/05                   118%
  Shaded area indicates preferred
                                                                     2005/06                    122%
  range 105%-125%
                                                                     2006/07                          134%
                                                                     2007/08                  113%

We are contributing to the acquisition         Acknowledgements
and sharing of risk management                 Thank you to my fellow Board members
expertise across the public and private        for their contributions over the last year,
sectors. This is an exciting development       and to the Minister for Finance and his
and reflects the growing awareness of           office. I am fortunate to work with such
our reputation in risk management. We          a forward-thinking, committed team
are pleased that this year, the VMIA’s         of professionals.
General Manager, Strategy and Risk
has been appointed Chair of the State          Thank you to CEO, Steve Marshall,
Emergency Mitigation Committee. The            who continues to approach his role
Committee brings emergency services            with passion as we set our foundations
and relevant Government departments            for the future. Thank you to Steve’s
together to provide advice to the              executive team and each member
Coordinator-in-Chief of Emergency              of the VMIA’s staff.
Management on emergency mitigation             A special thanks to Ron Farrell who
in Victoria.                                   retired from the VMIA Board having
The VMIA also accepted an invitation           been a member since its inception.
to become a member of the Victorian            Ron was initially appointed to the
Quality Council, which is responsible          Managed Insurance Fund Advisory
for fostering better quality health services   Panel (the precursor to the VMIA) and
in Victoria, by developing tools and           appointed to the VMIA Board as an
strategies to improve health service           inaugural Director in October 1996.
safety and quality.                            Ron made a significant contribution
                                               to the development and growth of the
Risk management – a maturing                   VMIA. He is a very special Victorian.
discipline                                     A warm welcome to Doug Kearsley,
Risk managers and insurers have                who brings to the VMIA a wealth of
traditionally looked to the past in order      insurance, financial and actuarial
to forecast the future. We are now             experience after 25 years in senior
challenged to think differently. Many          roles in the Government sector.
of the extreme future risks may have
                                               Finally, I would like to acknowledge the
no historical point of reference, which
                                               sad passing of Deputy Board Chairman
compels us to continue to refine our
                                               Ron Champion. Ron passed away
risk management approach. We must
                                                in December 2007 at the age of 69.
be vigilant to ensure that risk
                                               As one of the VMIA’s inaugural directors,
management is not a fad or reduced
                                               Ron brought 40 years experience
to a set of rules and processes.
                                               in finance, liability management and
Our role is to help our clients and            actuarial valuation. He had a warmth
Government understand the risks,               and humility that touched everyone
and leverage the opportunity to work           who had the pleasure of working with
together to ensure our State’s cherished       him at the VMIA. He was a mentor to
assets, and its most critical services,        me and many others working in the
are there for all Victorians to enjoy in the   Victorian community.
future – hence the theme of this report –
We love Victoria.

                                               Adrian Nye
8                                                                                                                            CEO’s Report

    CEO’s report
    The theme for this year’s annual report ‘We Love Victoria’ reflects the sentiment that the work we
    undertake at the VMIA is more than simply providing risk management and insurances services for
    our clients. It reflects the pride we take in our role of protecting the State’s assets and critical services.
    The ‘we’ in ‘We Love Victoria’ applies to all Victorians and visitors, whose lives are enriched by sharing
    and experiencing what the State has to offer.

    In the 2007 Annual Report the focus was      A solid insurance result in a                  Managing risk effectively requires
    on change, establishing the foundation       challenging year                               organisations to integrate risk
    for our future through the creation of       The downturn in global investment              management into their culture, and
    our client-centric business model. In        markets in 2007/08 directly impacted on        not treat it simply as another compliance
    2007/08, the emphasis has been on            our financial performance. Our operating        obligation. The true value of risk
    refining the way we work in the delivery      deficit for the year was $143.9 million,        management is when it is used to
    of our risk management and insurance         compared to a surplus of $113.6 million        ensure business success. Without it,
    services. Our challenge is to continually    in the previous year. Whilst this is a         organisations are unlikely to effectively
    review and improve our processes             disappointing result, we have a long-term      manage the uncertainties they face
    and resources to meet changing client        investment strategy which recognises           or capitalise on the opportunities
    needs. Our business initiatives support      there will be fluctuating investment            that are presented.
    the four strategic themes of Alert,          returns on a year-by-year basis. Our           The VMIA, in collaboration with our
    Prevent, Protect and Enable. We have         investment objective of CPI plus 4%            clients, works to ensure that existing
    used these themes to categorise the          over the rolling five years was achieved.       and emerging risk issues are identified,
    year’s activities in this 2007/08 Report.    Our solvency remains strong with a $55         discussed and mitigated. Assistance
    A successful organisation requires a         million catastrophe reserve and funding        to clients is offered through our advice,
    strong set of values and behaviours          ratio of 113%.                                 support and education services.
    to underpin its culture. In 2007/08 we       It is pleasing to report that our              Emerging critical risks such as climate
    introduced the VMIA value proposition        Performance from Insurance Operations          change, the skills shortage and ageing
    – Protecting the State through risk          (PFIO) remained strong and ahead of            infrastructure all highlight the challenges
    management and insurance services.           budget, with a $35.8 million surplus.          that will require risk management
    The value proposition is supported by        This was achieved in the context of            responses at a whole-of-Government
    our four corporate values of Customer        significant claims arising from the             and inter-agency level. Non-insurable
    Focused; Passion for Excellence;             Gippsland floods in June 2007, and              risks such as business continuity planning
    Respect and Integrity; and Working           a strengthening of provision for the           and reputation risk management are
    Together. Our aim has been to embed          devastating fires in the Great Dividing         only two of the current issues facing
    these values and associated behaviours       Range over the summer of 2006/07.              organisations.
    into our daily activities.                   We were able to continue to assist the
                                                 vast majority of our clients by providing      In an effort to support risk management
    Our credibility as a value-add provider of
                                                 a 10.3% reduction in the technically           capability development in the Victorian
    risk management, insurance and claims
                                                 rated premium. Such outcomes reinforce         Public Sector, the VMIA increased the
    services has been acknowledged at a
                                                 the value delivered through a captive          number of training programs, education
    variety of levels. We received invitations
                                                 insurer model. Despite the volatility in the   workshops and seminars offered in
    to participate in key Government
                                                 market globally, we delivered our fourth       2007/08. This intensive effort resulted
    groups such as the Victorian Quality
                                                 consecutive year of premium reductions         in over 1,900 people attending in excess
    Council and the State Emergency
                                                 and exceeded our PFIO target.                  of 80 individual programs during the
    Mitigation Committee. We were also
                                                                                                year. These face-to-face sessions
    invited to conduct a number of external
                                                 The risk management message                    were supported by practical online
    presentations to share our knowledge
                                                                                                guides and tools.
    and experience of Victoria locally,          The VMIA provides risk services in
    nationally and internationally.              a decentralised risk management
                                                 environment. This requires us to
                                                 understand our clients’ individual risks
                                                 and proactively assist them in managing
                                                 those risks. It also requires us to
                                                 operate across agencies, assisting in risk
                                                 mitigation at the inter-agency and whole-
                                                 of-Government level. We are continuing
                                                 to work hard to significantly improve and
                                                 maintain our dialogue with our clients and
VMIA Annual Report 2008                                                                                         9

  The VMIA Rolling 5 Year                                 June 2004
  Investment Return vs CPI
                                                          June 2005
  % per annum
                                                          June 2006
  VMIA                                                    June 2007
                                                          June 2008
                                                                  0%         2%            4%   6%   8%   10%

Client satisfaction and                      Throughout 2007/08 we continued
engagement                                   to enhance our internal capability
During 2007/08 we saw an increased           through a strong program of recruitment.
level of appreciation by our clients for     The professional development of our
the value and competency of our risk         staff was also a priority in building our
management expertise. Our client             internal capability.
satisfaction score increased from 91%
to 92% which reflects the significant          Looking ahead
amount of work by our team over              The VMIA is in a strong financial position
the last year to raise awareness and         as a captive insurer of the State. We
build capability in risk, insurance and      are confident that we have an operating
claims management.                           model in place that enables us to deliver
                                             a compelling service offering to our
Whilst there is improved satisfaction with
                                             clients that is equal to, or better than,
our performance, our clients indicated
                                             commercial alternatives.
they wish to be more engaged with us,
which is a very positive outcome. On         Thank you to the VMIA Board and
the measure of client engagement, the        Chairman for their vision and inspiration
result dropped from 57% in 2006/07 to        in supporting our goal of helping make
47% in 2007/08. This means less of our       Victoria the place that we - the collective
clients rated our engagement with them       ‘we’ - all love.
at the top end of the scale (a score of 8
                                             Thanks to our staff for their enormous
or above out of 10). As with any major
                                             contribution during a major transition.
change program, the implementation of
                                             Through their efforts and dedication,
our client-centric model necessitated
                                             we have the emergence of an exciting
a period of adjustment, for both clients
                                             culture that will ensure we make a
and staff and this is reflected in the
                                             difference in the future.
lower engagement score. Improving
our service delivery and level of client     Our clients are embracing a risk
engagement are priorities in 2008/09.        management culture and are working
                                             with us to deliver improvements in both
Building our capability and staff            our risk and insurance services. I thank
engagement                                   them for their support and acceptance
The staff engagement survey result of        of the new VMIA.
67% is a 10% improvement on last year.
The higher level of engagement is driven
by a greater sense of role clarity in the
new client-centric model and the belief
that personal and professional needs
are met in the changed environment.
The executive team is committed to           Steve Marshall
building a high performance culture          CEO
which supports the achievement of our
ambitious business and corporate plans.
Our challenge is to continue to create
an environment where staff feel proud
to be part of.
10                                                                                                             Board of Directors

     Board of directors

                                             Adrian Nye, Chairman
                                             BA (Hons), Dip.Ed., MBA (Melb), FCPA,
                                             Appointed 2004
                                             Chairman, Remuneration Committee        Member, MAV Insurance Committee
                                             Member, Strategy Committee,             Independent member of
                                             Audit and Risk Committee and            the Broadmeadows Schools
                                             Capability Committee                    Regeneration Project Board
                                             President, Metropolitan Fire and        Associate Consultant, HLB Mann Judd
                                             Emergency Services Board                Fellow, Certified Practicing Accountants
                                             Deputy Director, Emergency Services     Member, Australian Institute
                                             Superannuation Board                    of Company Directors
                                             Chairman, Adult Community and           Member, Risk & Compliance Committee,
                                             Further Education Board                 Parliament of the World’s Religions

     Joan Fitzpatrick, Director              Ian Gaudion, Director                   Doug Kearsley, Director
     BA (Hons), LLB, ANZIIF (Fellow), CIP    B.Comm (Melb), B.Ed (Melb), MBA         B.Sc (Hons), Grad. Dip. Ops. Research.
     Appointed 2005                          (Monash)                                Appointed 2008
     Chairman, Capability Committee          Appointed 2006                          Member, Audit and Risk Committee and
     Member, Strategy Committee and          Deputy Chairman                         Strategy Committee
     Remuneration Committee                  Chairman, Audit and Risk Committee      Executive Director, Capital Management
     CEO and Director, Australian and                                                Transport Accident Commission and the
                                             Member, Strategy Committee
     New Zealand Institute of Insurance                                              Victorian WorkCover Authority
                                             Member, Audit Committee of
     and Finance                                                                     Director, Personal Injury Education
                                             Department of Transport
     Member, Advisory Board for Economics,                                           Foundation Limited
                                             Director, Advantage Consulting
     Accounting and Law Faculties of RMIT                                            Affiliate, Institute of Actuaries of Australia
                                             Alliance Pty Ltd
     and Deakin Universities
                                             Associate Consultant, HLB Mann Judd
     Member, Victorian Finance
     Industry Council
     Member, Australian Institute of
     Company Directors
     Board Member, Create Foundation
VMIA Annual Report 2008                                                                                          11

Susan Moffatt, Director                Henry Pinskier, Director        Suzanne Roberts, Director
LLB, MBA (Melb), AICD graduate         MBBS, Williamson Fellow         Bachelor of Applied Science, MBA
Appointed 2006                         Appointed 2005                  (RMIT), AICD graduate
Member, Audit and Risk Committee and   Chairman, Strategy Committee    Appointed 2004
Strategy Committee                     Member, Capability Committee    Member, Strategy Committee,
Independent member of the Audit        Director, Alfred Health         Remuneration Committee and
Committee of the Fawkner Crematorium                                   Capability Committee
and Memorial Park Trust                Director, Yarra Valley Water
                                                                       President, Kindergarten Parents’
Member, Australian Institute of        Director, Karmelsonix Pty Ltd   Association of Victoria
Company Directors                      Director, Pulmosonix Pty Ltd    Director, Ideas to Action Consultancy
Member, Law Institute of Victoria                                      Member, Australian Institute of Company
Associate, Australasian Compliance                                     Directors.
12                                                                      Executive Team

     Executive team

     Dana Argyropoulos, Corporate Secretary
     Andy Johnston, General Manager Strategy and Risk
     Steve Marshall, Chief Executive Officer
     Peter Ryan, General Manager Insurance Services
     Patricia Quigley, General Manager Finance and Corporate Services

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