Prof. Allan Manning

Blog Question on insuring outgoings # 2 is a follow on from yesterday’s post with a question on the same issue but with a difference. I end with a warning on the current, ‘computer says no!’ approach to underwriting.

Question 2

Hi Allan,

I just have a quick question in relation to Business Expenses necessary incurred. E.g. rates, water and sewerage rates, insurances, accountants fee etc. under the [insurer’s name withheld] Business Interruption section.

Our client has a [X] Business policy wherein he is Insuring his Gross Rentals.

Gross Rentals is defined as “The amount by which the gross rentals earned during the indemnity period fall short of the standard gross rentals”.

He is also looking to insure for lost Business Expenses incurred should a claim arise.

The [X] Business Policy indicates additional expenditure incurred to avoid or minimise a claim and deduction from payment of expenses and charges reduced as a consequent of the damage.

When I contacted [X] to ask the question, they responded by advising me ‘Why should we pay for clients ‘Outlays/ Additional Expenses’.

Thought there would be a freeform section to include can you let me know whether the intention of Gross Rentals is to e[n]compass not only Rental Income but also Expenses/ Outlays the insured is responsible for and why the policy reduces the payments at time of claim should those expenses reduce as a result of claim.

Eagerly await your earleist advises and should you have any queries, please do not hesitate to contact this office


Stuart[surname and email provided]

Answer 2

As with most forms of insurance, the business interruption policy is at its heart a policy of indemnity. That is, it is designed to put the insured back in the same position as they enjoyed, as near as money will allow, as if the loss or disruption did not occur.

The coverage is for Gross Rentals.

When a landlord rents out the premises they have 2 options. They can either collect the rent from the tenant and then pay all the outgoings such as rates, insurance etc. Here of course the landlord needs to charge a high enough rent to cover the rates insurance and other outgoings and perhaps a fee to manage all of this on top of the net rental return they seek to obtain from their property.

The other alternative is to collect the net rent and have the tenants pay the outgoings direct. That is pay the rates, insurance etc direct to the supplier.

In the event of damage to the building by an insured peril and the tenant exercises their right to rent abatement or they terminate the lease due to the said damage, not only is the landlord short of their net rental income but, where the tenant has been meeting the outgoings under the terms of their lease, they now also have to fund the outgoings.

To put them back in the same position they would have enjoyed they need to be able to insure the Gross Rental Income, that is net rentals plus outgoings paid by the tenant. This is completely within the principle of indemnity that I mention above.

In your case you are right and show professionalism in clarifying this with the insurer in advance and not after a loss/disruption has occurred.

In my view this is something that the insurer should ideally spell out in the policy and or the underwriter have a basic understanding on.

If not, then it is best to move the account to someone who does “get it” as it is there to fully protect their premium paying insureds.

I have been travelling for a month now speaking in 8 different countries in Asia and Europe. Speaking to brokers everywhere I go, they express the same sort of frustration that I sense in your email.

Yesterday I saw a very informative and well thought out promotional video for the new player Lemonade.

This presentation focused my mind to the fact that if we as an industry do not continue to provide solutions for clients genuine needs we do not have much of a future. In your case, it is not like you are asking for something for free, something new or something out of the box. You and your client are simply trying to protect a potential financial loss under a policy format that was designed to do just that.

If the sum insured includes the outgoings and the insurer is paid the premium for the risk that is being transferred to them I struggle to understand the issue other than it is a computer says no issue without sufficient training or basic understanding.

Perhaps I need more sleep but this sort of problem is keeping me up at night.

Good luck with it.


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Blog Question on insuring outgoings # 1

For Rent Red 3D Realistic Paper Speech BubbleI have had two questions this week on the insurance of outgoings. I share my answer to Question 1 today and Question 2 to follow in the coming days along with a bit of an outpouring of concern I have at present:

Question 1.

Hi Allan, hoping you can help me,

I know you have addressed previously the need for a landlord to include outgoings when setting the gross rental figure in the business interruption section.  Should this only be included when the tenant pays the outgoings as per the lease, or should it also be included if the landlord pays these outgoings (albeit rare).  In the later example, it is an expense of the landlord, however does this make any difference.

Regards Andy [surname and email provided]

Answer 1.

If it is an expense that the landlord meets themselves out of their rental income for the property, it is already included in the gross rentals paid by the tenant and so you do not need to add it again.

What is an outgoing that is clearly not being included in the landlords gross rental is the cost of the insurance on the building which should be added to the gross rentals as if the tenant exits the lease the landlord will now be up for it.


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Blog Question on Landlords seeking the tenant to arrange the building insurance

Risk Management.Over the past week I have had two similar questions on how to name the landlord on a policy of insurance where the tenant is required under the lease to arrange the insurance.

Before I answer this particular question, I would like to share my views on the approach by landlords to not just have the tenant pay for the building insurance but arrange it.

To say I really do not like this approach is an understatement.

The idea came about under the guise of risk management. The typically larger organisation, often on the advice of their legal department or external legal advisers, seeking to transfer risk from their organisation onto someone else.

Having been involved in many claims where this arrangement has been in place, I have grave concerns for both the tenant and the landlord with it.


The major concern for the tenant is if the lease requires that the building be insured for full value. This pushes the risk of under-insurance onto the tenant which can create a genuine personal risk.

I would always have the landlord confirm the sum insured is adequate to try and avoid this issue.

Still on the adequacy of the insurance, if the building, typically a big value item, is under insured under an Industrial Special Risks Policy (“ISR”) it could adversely affect a claim for contents or stock for the tenant due to the application of the co-insurance clause which under an ISR Policy or some quality business pack policies is tested against all assets at the “situation and/or premises”.

Another question is, who is responsible for the policy excess/deductible in the event of a claim under the policy? This is rarely spelt out anywhere and often leads to disputes particularly if there is damage to both building and contents. Is this just another hidden risk the tenant is taking on?

In one claim I am involved in all the proceeds of the claim went to the landlord and the landlord is “slow” to pay over the amount owing to the tenant. This was due to a mistake but the insurer has walked away from the problem forcing the tenant to take legal action against the landlord, insurer, loss adjuster and broker involved. How long this will take to sort out I am not sure but it has of course left the tenant in a terrible financial position without funds to reinstate their business and now forced to fund the litigation.

Landlord/Property Owner

Turning now to the landlord/property owner.

The whole idea of the landlord abrogating the insurance protection to the tenant is quite frankly stupid. When it is not their property, most tenants seek out the cheapest possible cover without thought of the quality of the coverage or claims service. Where does this leave the landlord who typically has no relationship with either the insurer or the broker who arranged the insurance?

Flood is just one area where consideration needs to be given as to the extent of coverage required for the particular building.

Who ensures that the insurance is paid each year and that that sum insured/limit of liability, sub-limits for things like removal of debris, extra costs of reinstatement etc are reviewed regularly and are correct?

If there is a dispute between the landlord and the tenant who is there to look after the interests of the landlord?

I have seen far too many landlords, including solicitors who were the landlords themselves be left out of pocket after a fire as a result.

You can have all the directors guarantees in the world but if the tenant(s) has no funds they have no funds so the risk goes back to the landlord.

What of the loss of rent. Most landlords forget this. If they do think of it, most leases stipulate 12 months cover. This is often completely inadequate.

I spoke early about risk transfer. The best way to transfer risk is not to the tenant but to an insurer. That is their role in the economy and in society. To my mind it is far better for the landlord to manage the insurance on the building themselves, get the cover both in sums insured and extent of coverage right based on the risk and their appetite (not the tenants) and sleep well at night.


There is always an exception to the rule.

If the landlord is relatively small and the tenant is a huge corporation with a world class insurance program with every bell and whistle known to insurance and the landlord trusts the integrity of the tenant and their insurer, risk manager and legal department to do the right thing by them and not just walk away and leave them high and dry to deal with the insurer without the benefit of their own broker working for them, then yes it may be in order to allow the tenant to arrange the insurance.

For me, with any asset. I have had to work damn hard to get it and I am not going to take the risk and abrogate the most important contract protecting my financial future, that is the insurance contract, to anyone else other than my own broker, whom I trust and myself.

Now to answer the specific question

If the insurance is to be arranged this way then the policy needs to show all the legal entities involved as named insureds but for “their respective rights and interests”.



Product Safety Australia Update 21/10/2016

This weeks announced recalls are as follows:

Recall word on a barrier or blockade warning sign to illustrate

G & L Yuen Trading As Yuen’s Markets Trading Co — Pandaroo Sushi Ginger 200g

Read more

Health World Limited — Metagenics Nasoclear Nasal Spray 30mL

Read more

Woolworths Limited — Halloween LED Spinning Wand

Read more

Audi Australia P/L — Audi Q7, SQ7 (4M) MY16 and MY17 – 7 Seat Variants

Read more

Mercedes-Benz Australia/Pacific Pty Ltd — Mercedes-Benz Unimog model 437

Read more

Teco Australia Pty Ltd — TECO 6.5kg washing machine model TWM65TTAMFBE

Read more

Woolworths Limited — Australian pork, lamb and beef mince

Read more


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Ebay joins the warning on imported products



I have posted a couple of articles of late advising of the fines and lack of insurance cover for imported products that contain asbestos.

A Gold Coast broker has written in response as follows:

Further to this I thought it interesting that as of a week ago certain purchases on eBay – namely from china – come up with a warning that I am responsible for making sure that the item meets Australian standards, this included the purchase of a child’s mechanical money box.


Jemma [surname and email provided]

Image provided by reader Jemma

Image provided by reader Jemma

The warning does not mention asbestos but rather is a general warning which covers a multiple of possible issues.

I really doubt such a warning will do anything other than reduce the liability of ebay and that products that really should not be coming into Australia will continue to do so with consequences that may not manifest for years.

Let us assume someone imports a gift for a relative or friend and they become ill or are injured. A budding entrepreneur imports goods which cause injury. These sort of folk will not have liability coverage under their home or business policies nor will they have product recall. This is the risk to them, but want of the people who ultimately obtain the product which contains asbestos or some other failure. It really can become a case of Russian roulette as to whether or not they become ill or injured.

Urrr! The feeling I have when I have no workable answer!

Thanks Jemma for sharing your findings and taking the time to write.


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New look to celebrate 5 years of blogging

thanksThis month sees the 5th anniversary of this blog with now over 850 articles published.

I would like to thank all the readers and particularly those that share the articles and/or pose questions and comments. It remains a privilege to share my thoughts, research and knowledge with such a wide and diverse audience.

Two things stand out.

  1. First is just how much I have learned myself by researching answers to questions put to me.
  2. Secondly just how wide the readership is now with people from at over 60 countries reading regularly. Only yesterday I was asked to allow many of the posts to be translated into Slovakian to assist the local industry educate the public on insurance. I naturally agreed immediately.

YouTubeThe blog has also encouraged my son to start becoming a vlogger or video blogger through his series on YouTube called Insurance Bites. He publishes a new video with the help of LMI Media’s Andrew Pitts each Wednesday. If you have not visited the site I encourage you to do so.

I do get a great number of requests for a guest post and while I do permit and encourage this, I do vet the content carefully to ensure it is not a product flog and that the topic is of relevance to the majority of readers in the countries where the bulk of the readership is.

The old site was looking a bit dated so the site has had a refresh.

A very warm thank you to Ashleigh White, Executive Assistant for your work on this.

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Are we failing our clients on Claims?

Thinking man and question mark

At the recent conference reflecting on the relevance and importance of Utmost Good Faith 250 years on from Carter v Boehm (1766) I questioned the wisdom of focusing on the cost of handling claims, including loss adjusters, lawyers and the like rather than the benefit achieved by good claims handling in mitigating loss not to mention enhancing the premium paying customer’s experience on their insurance program when it really matters, at the time of a claim. I  was surprised just how much positive support the topic generated, particularly from people I did not think it would.

I read the following article, Better for Who? published by ANZIIF where the author of the piece is likewise questioning a current trend:


Are current models with builders paid set fees for repair beneficial for the industry?

For illustration, a builder is paid $2,700 for claims between $1 and $7,500 regardless of the actual repair cost. Additionally, these Insurers have reduced their panels.

Smaller panels require larger builders. Larger builders require greater margins due to higher operating costs. That $2,700 job has to be done for $2,000. The sub-contractor then has $1,600 and their $1,200 to actually complete it. Imagine a lower cost job.
So, who benefits – the customer, the builder or the insurer?

Builders won’t operate at a loss so what are the Top 5 Risks:

  1.  Increase in cash settlements: if repair value is over the fixed fee, builders will have reasons why repairs can’t be completed (eg, maintenance and design issues). The customer will be left to arrange quotes and facilitate repair which is something they would expect their Insurer to do.
  2. Increase in declinatures: any reason to decline the entire claim or a good part thereof where value is over that fixed fee. This will lead to an increase in complaints, brand damage and retention issues. We have already seen a rise in FOS complaints.
  3. Increase in claim costs: where the actual cost is near that threshold (say, $5,000 to $6,000) costs will be inflated or scopes increased to move it into the next level.
  4. Increase in lower value claims accepted: claims under the fixed fee that might be declined will be accepted and under/near excess claims will see customers convinced to make that low value claim.
  5. Decrease in quality: to maximise profit on lower value claims and subsidise tighter margins of more expensive claims, trades engaged will have tight margins to work with leading to the use of general handymen and unlicensed trades. Repairs will be minimised, repair methods compromised.

Insurance already suffers a perception issue over value and customer service. Do these models help or hinder or do they focus on internal targets? What would the media make of this practice?

Insurers and claims managers talk about being customer centric but then develop models that drive supplier behaviour counter-intuitive to that.

So, who are these models better for?


I hope articles like this start to generate the discussion and debate that the current approach demands.

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Blog Question on Fire Service Levy increase

fsl taxI received this question from an insured who is concerned about the Fire Services Levy, to be correct the Emergency Services Levy. I have withheld the name of the insurer as is my normal practice.


I received my home and contents insurance renewal for a policy dated 7/11/16. The Financial Services Levy (“FSL”)  included was $181.85 (estimated by [my insurer]). Along with a letter explaining that the FSL would cease on 1/7/17 and be paid with your Council rates. Compared to last year, the FSL had increased by 23% and if charged, would actually for the period up to 1/7/17 where it would be abolished, it had increased 85%. My premium had not changed materially.

I called [my insurer] to query why the FSL had increased and was told it was a Government charge and they just pass it on. The percentage rate used by [my insurer] in 2015/16 was 18%  and 2016/17 it had increased to 23%.

I was told to contact the Department of Fair Trading insurance monitor, which I did and was told that there had been no increase in the FSL rates and that the insurance company set their rates.

I called [my insurer] back and said I thought the increase was excessive and was again told that it was a Government charge. But also that the $181.95 may be for the whole period of the policy to 7/11/17 and not pro rated. I said that this means that not only have [my insurer] increased the premium but also that they were going generate extra profits but not passing on the savings for the period after 1/7/17.

The call centre and their supervisor could not provide any better explanation.

I have passed my complaint onto the Insurance Monitor DFT, but wonder how many other customers have simply paid the increased FSL without questioning the huge increase in charges.


Peter [surname and email provided]

I replied as follows:

Hi Peter,

The whole system is quite complex and I feel that the transition which should have been handled as you suggest as a sliding scale on a pro-rata basis has not been followed by the NSW Government as it was with all the other main land states, except Victoria.

I see that the base premium went slightly up from your email but if that went down the amount insurers have to pay as a proportion of the premium has to go up. The amount each insurer pays is also based on the market share of each insurer.

As I say it is a very complex issue and I cannot work out the correct amount that should be charged/paid without an extraordinary amount of additional data.

It would be prudent, I feel, if Insurers did provide some basic training to their call centre supervisors on the makeup of the charge so that you did not have to play telephone tennis ringing back and forward as you have done.

What I would strongly suspect is that insurers will a) not want to be fined nor b) have their reputation damaged therefore they will be as accurate as possible on the amount of the levy charged and if anything be conservative.

Clearly you are concerned and by reporting your concern to the official monitor I am sure the matter will be reviewed and any adjustments that may be necessary will be done.

From my own perspective, as someone who has property in New South Wales, I will be glad when the whole transition is over with and the charges are collected through rates as then everyone in the community who benefits from the emergency services helps fund it and not just people like you and I who are prudent and risk averse and take out insurance. With around 1 in 4 homes and units not having contents insurance, for example, the current way of collection is clearly not fair.

Thanks for sharing your concern. The good news is that this will be the last year of it being linked to your insurance.




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My concern on the risk to Australian businesses on the import of asbestos products grows

asbestos-australian-border-control-managing-the-risk-of-asbestos-at-the-borderFollowing my post last week, I had several people write to me and I conducted my own additional research. Thanks to Brokers Ron and Gary and Gary’s client for their contribution.

It appears that the governments in both India and China do not recognise chrysotile (white asbestos) as being harmful, so in those countries only products containing amosite (brown asbestos) or crocidolite (blue asbestos) are classified as asbestos bearing materials.

It seems that among the many chrysotile containing materials being imported from those countries automobiles pose one of the greatest problems with their asbestos brake shoes and gaskets.

In the past, motor mechanics formed a large proportion of employees contracting asbestos related diseases as a result of “blowing out” with compressed air brake drums & discs. Equally distressing was the fact that many wives of mechanics also contracted, and in some cases died, from asbestos related diseases simply by washing their husband’s contaminated overalls/clothing.

The concept that I put forward in my earlier blog that 5% asbestos content was considered as “asbestos free” dates back a lot further than I first appreciated and I know believe it goes back to the mid to late 1970’s when I understand that Japanese Industrial Standards (JIS) allowed this.

Many companies including some government departments were said to have been caught with parts they could not use due to this problem.

The penalties for a company and/or an individual that imports products containing asbestos are quite severe. If you add this to the fact the importer will not have cover for any claims for injury caused by asbestos creates an enormous risk for the directors of any company that is involved in the importation of such products.

I end with a link to a brochure from the Australian Border Force on the issue. Please share it with any of your clients that could be involved in the importation of any product that may contain asbestos. This includes building materials, crayons, and mechanical / automobile parts.  asbestos-australian-border-control-managing-the-risk-of-asbestos-at-the-border


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Warning on Asbestos Imports

Since the beginning of 2004, Australia has had a complete ban on the importation, manufacture and use of asbestos and products containing asbestos.

As with some of the electrical wiring and insulated foam panels that are being imported from China, it has now been found that building materials, auto parts, crayons and other products imported into Australia from China, contain asbestos.

It is my understanding that under Chinese law, a product that contains less than 5% asbestos can be labelled “Asbestos free” when in fact the product is not. The use of this product can become a real risk to property owners, importers and tradesmen that purchase and install the products etc.

I will confine my comments in this blog to asbestos related products. Since the massive claims that arose out of the use of asbestos, it has become a blanket exclusion across home, business pack, liability and construction risk policies.

More recently, at least one insurer has an automatic decline on any building that contains asbestos. This is as I understand it, is being reviewed to become a referral and will be rated with the additional risk, however at this stage it is an exclusion.

As these products that are being imported are identified, a product recall will be called and if the importer does, as I suspect, immediately seek to go into liquidation, it will be left with the retailer or tradesmen that has sold the product to bear the cost in the first instance. This could have a crippling effect on those businesses.

It is always tempting to go for the cheapest option whether it be building materials, autoparts or general insurance. The reality is, you typically get what you pay for and that modest saving which was made, turns out to have created a massive uninsured exposure which could literally have life changing consequences.

I attach a copy of the Department of Immigration Border Protection notice #2016/13 on the subject of asbestos.

Brokers are urged to discuss this important topic with their Insureds.