Prof. Allan Manning

A quick reminder on cyber security

On the one hand as LMI builds our brand in the UK,  I am being inundated by emails regarding the UK Legislation aimed at giving consumers more control over their personal data (General Data Protection Regulation (GDPR)) and at the same time I am getting hit daily with emails pro-porting to be from legitimate companies such as Microsoft asking for me to change or confirm my password.

This is despite LMI investing significantly on our already big spend on cyber security.

At the end of the day it really comes down to all of us remaining vigilant and taking 10 seconds thought to double check that the email is legitimate and if in doubt don’t click on the link or open the attachment.

Every business needs to consider the benefits of cyber security insurance. It is a complex area with policies ranging from basic through to great protection.  As always I recommend advice be sought from an experienced broker.

Here is the email that I got this morning that prompted me to post this article.

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The emotional & financial stress following a major loss

Gary Price, our Tasmanian Manager with over 50 years of experience in the industry wrote to me after reflecting on a new total loss claim he is involved in.

“I have a total loss fire with a modest sum insured $430,000. No issues regarding policy indemnity.

The claims officer wants the premises valued as they consider the premises was under insured and want to apply average.

You can imagine my reaction and subsequent conversations as with a total loss and no salvage and or undamaged property, the whole exercise is a waste of time and money as the formula, particularly with an 80% co-insurance clause will always come out higher than the sum insured.

Finally the chap conceded “you may have a point” and is going to talk with colleagues. How can underwriters justify paying high salaries to staff who have to be trained on the basics.

As we see far too often, my client has been caught short with Removal of Debris. $100,000 coverage but the clean-up quote is for $430,000. Another item to add to your concerned bucket.

[The clean up cost is in fact greater than the sum insured on the building!]

Finally, I had a real epiphany on this one. I have always felt insured are overwhelmed by events following a major loss. However this one really brought it home. Interviews were requested by

  • Fire service
  • Police
  • Parks and wildlife (the building was in a park area)
  • and me as their claims preparer.

but it does not stop there.

  • Material Damage loss adjuster
  • Business Interruption loss adjuster
  • Forensic investigator
  • Asbestos investigator (two, one for underwriter and one from the park authority)
  • The claims handler

My client had to walk away for several days to recuperate.  It just drove home to me how demanding the aftermath can be.


While the insurance industry can measure the financial loss, the emotional toll is something that I identified in my doctoral research back at the start of the 2000’s but as an industry we really do not appreciate let alone understand. My daughter Susan who graduates with her doctorate in Psychology in November has been assisting me gain a much better understanding. I have learned so much co-authoring a new book with her on some major insurance losses in Chicago, the city where her university is based.

Clearly the level of under insurance giving rise to a significant financial loss is a part of this but the claim process itself is also very stressful as has been reported in several studies after natural disasters.

Emotional stress is something that I am always mindful of and try and help the Insured through so that they do not make any wrong decisions at a time of great stress.

The level of under insurance is still way too high. All of us in the insurance industry need to constantly remind Insured’s every single renewal the importance of full insurance and the need to review the adequacy of their sums insured, and or limits of liability. It does not just stop here as all the sub-limits, such as removal of debris, extra cost of reinstatement in property risks need to be checked for adequacy.

Readers are reminded of the free under insurance app, LMi Mobile Applications which is a free download from iTunes store. This is proving to be a powerful tool to educate Insureds, increase sums insured and protect the adviser’s professional indemnity program should the Insured not take the right advice.

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Product Recalls Australia – 23 May 2018

This week’s product recalls includes the following:

Mercedes-Benz Australia/Pacific Pty Ltd — MY 2017 Mercedes-Benz AMG “GTR”, “GTC” and “GTS” Passenger Cars

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Coles Supermarkets Australia Pty Ltd — Coles Mini Classics Vanilla Ice Cream

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Suzuki Australia — Suzuki SX4

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Suzuki Australia — Suzuki Kizashi

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Suzuki Auto Co — Suzuki Kizashi

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Suzuki Auto Co — Suzuki SX4

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Volvo Group Australia — UD Trucks – Quon

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Audi Australia Pty Ltd — Audi Q5 (FY)

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SA Health — Al Mina Mediterranean Patisserie – Assorted Products

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Fraser Coast Free Range Pty Ltd — Sunny Queen Farms Organic Free Range Eggs 550g and 590g

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Scandinavian Tobacco Group Australia Pty Ltd — Djarum Bali Hai Cigarettes

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Clark Rubber Franchising Pty Ltd — Be Safe Portable Pool Fence

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Volvo Group Australia — UD Trucks – Quon

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IVECO Trucks Australia — Metro and Delta Buses

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Mercedes-Benz Australia/Pacific Pty Ltd — MY06 – MY12 Mercedes-Benz GL-Class, ML-Class and SLK-Class Passenger Cars

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Specialized Australia Pty Ltd — Specialized MY18 Fuse Comp Bicycle Stout Cranks

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Guest Post: Steven Manning – Another New General Insurance Product Class introduced on LMI RiskCoach

Only a week after the launch of Corporate travel the team are back at it again, be it in the background for months, on the launch of yet another class of insurance, Product Recall and Product Contamination insurance. With the addition of these new classes onto the system, users can now research 14 classes of General Insurance through their LMI RiskCoach Subscriptions.

The reasoning behind the addition of this all-important class is to erase the misconception held by many small to medium businesses that believe that Product recall and contamination covers are included as part of their Product Liability insurance which is, of course, not the case with product liability insurance not covering the recall costs but rather just the liabilities arising out of the incident.

The new content touches on a vast number of areas including policy features, coverage and malicious tampering. It also goes into detail around the regulations under the Competition and Consumer Act of 2010 (CCA) that deem any importer of items into Australia to be the manufacturer, this relates to a huge product recall exposure that many of these businesses do not know they are accepting and could easily mean the end of their business.

The system not only points out the risks associated with Recalls and Contamination but provides Risk Management steps which can be easily implemented into any business faced with these exposures. These steps will significantly reduce the chances of an event occurring and assist in managing the process more efficiently and effectively should a recall occur.

With recall costs on the rise it has never been a better time to have this class added to the RiskCoach system and more importantly to have that discussion with the insured.

One last final note, a big thank you to all of those involved who have made this happen. We have a lot of people working away in the background that make these services and improvements possible! Thank you again!

 

By Steven Manning of LMI Group

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Reduce funding of ASIC when the Royal Commission showed up so many problems and risk from natural disasters continuing to be ignored

When I started this blog I did not have any intention of discussing political issues but wanted to focus on general insurance. I am into politics and do not belong to any political party nor do I vote for the same party at each election. I try and make an informed decision based on the promises of each side.

With this background, decisions by governments do impact on general insurance which in turn is there to protect the Australian economy, our communities right down to individual business and home owners.

Last week I was questioning the huge hidden tax that the Terrorism Levy has become.

This week I join the group of Australians who cannot understand why the Federal Government has reduced funding to the Australian Securities Investment Commission at the same time the Royal Commission has uncovered so many problems. I will let you draw your own conclusion.

The other great disappointment in the budget is that the investment in addressing the increasing risk brought about by climate change, i.e flash flooding, cyclone damage etc has been ignored. As a country we will pay for this big time in the long run. If you compare Australia’s investment in this space to Canada’s you can see the leadership required to address this very real issue in our country is way out of step.

Yes there are some good things in the budget but these two issues are of great concern and really do need to be rethought.

We all deserve better than short term politics. We need some statesmanship with a genuine investment, not only our future, but that of our children and grandchildren.

Enough said, hopefully back to some technical insurance stuff tomorrow!

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Wear Orange Wednesday – WOW Day – Wednesday 23rd May 2018

This Wednesday is WOW day, Wear Orange Wednesday, an initiative by the SES who are encouraging everyone to wear something orange to work or school to show your support for the SES volunteers.

 

Who are the SES?

“The State Emergency Service (SES) is the name used by a number of volunteer organisations in Australia that provide emergency help during and after declared (natural or otherwise) disasters, typically flood, storm or tsunami. The SES also assist in other emergencies, such as vertical and road crash rescue and medical emergency. In other scenarios the SES may provide a support role to other agencies, particularly police and fire. The SES is operational 24 hours a day.”

Source: https://en.wikipedia.org/wiki/State_Emergency_Service

 

They aren’t asking for much and I think in any way we can thank and show support for the wonderful work our SES volunteers do, we should get behind.

I hope all of you can show some support with the hashtag on all social medias #THANKYOUSES

They have made a brochure with some other things you may like to do to help support, here.

 

Some other things to look out for on the day that may be turning orange include:

NSW – Don’t be surprised to see an orange dinosaur on the M1 Pacific Motorway at Somersby as Ploddy from the Australian Reptile Park gets an orange facelift.

VIC – Landmarks in Melbourne and across the country will be ‘flooded’ in orange this WOW Day in support of SES volunteers, including the MCG, AAMI Park, Bolte Bridge and the Melbourne Star.

WA – A number of iconic locations across the State will be lit up in a magnificent orange in support of the SES volunteers, including the Bell Tower, Elizabeth Quay, Parliament House, Yagan Square and Perth Concert Hall. Why not also take a drive by the Swan River in Nedlands to see how the Eliza Statue is showing her support?

 

 

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Terrorism Levy – Another hidden tax on insurance – You will be surprised just how much – a whopping 45% of terrorism levy collected.

Where do we start on this thorny issue…

Point 1.

Report after report urges governments to remove taxes on insurance. The Federal Government’s Productivity Commission inquiry on “Competition in the Australian Financial System” released earlier this year is the latest to do so. In fact, every time the issue has been looked at, going right back to the Royal Commission into the collapse of HIH, has made this recommendation.

Point 2.

I strongly believe the way that the terrorism levy is determined on Australian businesses is seriously flawed. While I have written on this many times, I would explain that the fact that the Terrorism Levy is based on a percentage of the premium fails to match the rate of the levy with the risk.

Insurance premiums on property and business interruption are determined by a large number of variables with natural catastrophe losses being a major determinant, but other factors such as investment income, claims ratios in general, to name a few, are all involved. During bad years for the insurance industry, like the year we had the Brisbane Floods, Cyclone Yasi, and 6 other declared natural disaster events (2010) premiums increased. Despite the risk of terrorism falling during the same period, the terrorism levy did not reduce to counter the effect of the increase in premiums. This has, in effect, created a giant windfall to the pool.

Then, when premiums started to fall again 5 years later with normal competitive forces in the Australian Insurance Market, the pool had to increase the terrorism rates in 2015. The current rates are now:

  • 16 per cent for Tier A, [ the Central Business District in Sydney, Melbourne, Brisbane and other cities with a population over 1,000,000 – interestingly not Canberra]
  • 3 per cent for Tier B, [Urban areas of all State capital cities and cities with a population of over 100,000;
  • 6 per cent for Tier C. [Those postcodes not in Tiers A or B]

The reason for this was that as insurance premiums fell the current percentage rate applied to insurance premiums to determine the levy was insufficient.

Now with a toughening market, premiums have been on the rise for some time but the rates did not reduce in the last review and will not for at least the next three years.

The key issue here is that the levy is not linked to the risk of terrorism, it is linked to the vagaries of the insurance market. If any other product was priced this way ASIC or APRA would be, I suggest, having a field day.

It is worse for those in NSW and Tasmania as the fire service levy is charged on not only the premiums but also the Terrorism Levy.

As an aside, I would hate to be a business along George Street in Sydney which is seeing the tram upgrade works drag on and on, being hit with higher insurance premiums, the terrorism levy and a fire service levy that was promised to be removed.

Point 3.

Now where is the terrorism levy going?

The 2017 Annual Report, (See: ARPC_Annual_Report_2016-17) which shows Australian Reinsurance Pool Corporation (“ARPC”) paid the government $147.5 million in 2016/17 as a dividend, and since the start of the scheme the ARPC has paid the government $697.5M in fees and dividends.

Page 46. Table 2.15 shows Gross Premiums written for 2016/17 was $121.9 million, (which is less than $147.5M paid to the government). If this is not a tax then I do not know what is.

Year to date $1.545 billion has been paid in terrorism levy with the government being paid $697.5M. This is a whopping 45%. I am sure every Australian insurer would love a dividend of 45% of premium income. I would start an insurance company myself!

My argument is that the Federal Government needs to start with itself and reduce the hidden tax on Australian businesses.

In fairness, the report does say that the retrospective portion of the dividends (no dividends were charged in the early years) is set to end in 2018.

I would like to see the entire dividend dropped and the value of the pool increased to the point that the level of reinsurance could be reduced and the levy itself reduced. This is on top of a fairer system of calculating the levy introduced, one linked to risk not a percentage of premiums.

 

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Insurers forget “utmost good faith” at our peril

I get so frustrated when I see dishonesty in any part of the insurance claims process. I fully support all efforts to stamp out genuine claims leakage and dishonesty on the part of the Insured and or repairers who milk the system. But equally if an Insurer is acting with scant disregard to the principle of utmost good faith I am equally appalled.

Before I outline a situation that prompts me to write this post, I want to explain what claims leakage actually is.

One definition is:

Claims leakage is defined as the difference between the actual claim payment made and the amount that should have been paid if all industry leading practices were applied. • Leakage is caused by deviations from established industry or company standards and leading practices. [Source Ernst and Young].

I do not like this one as it speaks of ‘established industry or company standards’ which in themselves may be stacked against the Insured. I have never liked the way that jewelry is insured as it is stacked against the Insured paying premiums on sums insured jewelers and insurers know the Insured will never get all of. You would be staggered at how many people think they have been ripped off by their insurer following a jewelry claim but many in the Industry justify it as it has always been done that way.

Another is:

Dollars lost through claims management inefficiencies that ultimately result from failures in existing processes (manual and automated). In other words, it’s the difference between what you did spend and what you should have spent on a claim. The cause can be procedural, such as from inefficient claim processing or improper/errant payments, or from human error, such as poor decision-making, customer service, or even fraud. Claims Leakage is often discovered through an audit of closed claim files. [Emphasis mine – Source: International Risk Management Institute, Inc]

My own definition is:

Claims leakage is the difference between the amount paid on a claim compared to the Insured’s genuine entitlement under the contract of insurance.

I am the first to appreciate that Insurers pay directly or indirectly, vasts amounts of money to builders, panel beaters and a raft of other suppliers and trades. As such they are in a good position to negotiate favourable terms on the basis of the quantity of work directed to them and also the fact in some industries that payment is guaranteed.

At the same time this cannot be an abuse of power and drive businesses into the red or creating a situation where the only way the supplier or trade can make a reasonable profit is by cheating the Insured. I.e quoting for 2 coats of paint and only applying one is a common example. Another is not replacing all the damaged building parts that are not normally visible, that is say wall or ceiling framing.

It appears that at least one insurer has done a deal with a flooring contractor to supply and lay carpet. This is fine.

An Insured suffered damage, lodged a claim and the supplier produced a quotation that was sent direct to the Insurer. The Insured was then offered a cash settlement and found that no other carpet company could do the work for the amount quoted. In desperation the Insured went back to the original company that provided the quote only to be told that they could not do the work for the amount quoted.

Finding that they could not get their damaged carpet replaced The Insured pushed and finally received a copy of the quotation. As it is the Insured’s home, they should be provided this to ensure it is the same quality as before, that what was quoted they receive etc but it was only when the Insured really pushed and would not take no for an answer did they finally get the quotation.  This is what was written at the top of the quotation:

 

Note: this is an image of the exact words and not my retyping the words but I have removed the name of the firm pending possible legal action.

You can image how the Insured feels about their insurer, the repairer and the insurance industry in general. It just adds to the stereotype image of our industry.

When we were appointed we contacted the repairer and they were very upset the client had their original quote. We asked for a quote from this repairer that they would honour and despite their promises, we have never received a quote.

Stepping away from this claim for a minute. If an Insured submitted a quotation like this in reverse, that is that it clearly did not fairly represent the true loss suffered by the Insured, i.e. in the case of an Insured knowingly submitting a quote higher than the true value, it would be regarded as a serious breach of the principle of utmost good faith.

Why is it any different for the Insurer? If it can be proved that, what you could be forgiven for thinking, that is the Insurer has entered into an arrangement that appears to be allowing them to low ball genuine losses, then to me it is a serious breach of the utmost good faith principle. How many other Insured’s have been short changed by this arrangement?

And we continue to wonder why insurance rates so poorly on the trust scale.  I keep coming back to the words of Lord Mansfield more than 250 years ago:

“Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.”

If any reader finds that they or one of their clients is in the same boat as here, please insist on a copy of the quotation and certainly do not accept any offer until it is received and or you are satisfied that you can have the work done properly for the amount offered. All of us in the industry have a duty to protect the insuring public and brand insurance.

For my part, I will meet with the Insurer and see if I can get this one sorted fairly.

 

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Product Recalls Australia – 16 May 2018

This week’s product recalls includes the following:

Volvo Group Australia — UD Trucks – Quon

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Red Kellys No 1 Pty Ltd — Red Kellys Tasmania Creamy Caesar Dressing

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American Special Vehicles — RAM 2500 (DJ) and 3500 (D2) Trucks

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FCA Australia Pty Ltd — 2004-2007 (KJ) Jeep Cherokee

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FCA Australia Pty Ltd — 2018 (KL) Jeep Cherokee equipped with 2.4L (ED6, ED8) engine

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Aldi Stores — oh so natural Almond, Cashew and Cranberry Bites

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Plum Products Australia Pty Ltd — Plum Premium Metal Nest Swing with Mist

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Guest Post – What does home insurance cover?

I often get requests from people and organisations seeking to make a guest post on my site. Unless it is meaningful and is not a straight product flog I will certainly share and embrace their articles. (You would be staggered how many requests I get from gambling sites).

This guest post is from Alex at Lendi.com.au.

What does home insurance cover?

 

The Wye River bushfires that took place in 2015 on Christmas Day destroyed over a hundred homes, with The Insurance Council of Australia at the time estimating total losses to be worth $38 million.

Property losses were significant, and while government grants were given out to those who were unable to return to their home, $1,300 would not have made much of a difference to the many homeowners that turned out to be underinsured.

According to data from RACV Home Insurance, 65% of the members who had their homes destroyed by the fires were underinsured, some by over $100,000. This is an alarming reminder of the importance of understanding your home insurance policy and what it does and doesn’t cover.

 

Home insurance and contents insurance

 

So, what does home insurance cover ? Well, there’s a reason it’s also referred to as building insurance. Most policies do not protect your personal belongings, but rather cover the cost of repairing or rebuilding the actual building structure itself, including any outer buildings, garages, and permanent features within the home, such as light or a built-in wardrobe.

It provides you with financial protection against external events that are out of your control, such as natural disasters including fire damage, hail, and wind, or man-made damages including vandalism, arson, and theft.

However, you should be aware that most policies do not cover particular events such as earthquakes and floods. If you live in an area where these events are more likely to occur, then you may need to take a closer look at your policy options.

If you want your personal belongings covered in case they are damaged, lost, or stolen, then you would need contents insurance. This covers personal possessions in your home such as electrical equipment, clothes, furniture, tools, and jewellery. Many homeowners bundle their home insurance policy with contents insurance into a combined policy so that way everything is covered.

As for home insurance policies, there are two different types to choose from:

Total replacement cover

Total replacement cover is a type of home insurance that, as the name suggests, covers the cost of rebuilding your property to the state it was in prior to being damaged. This is the best option if you want to reduce the risk of being underinsured.

However, only a few insurers currently offer total replacement policies, and you may find that it takes some time to receive the funds if you are to suffer a total loss, as a full assessment will need to be carried out by the insurer to calculate the cost of rebuilding the property.

Sum-insured cover

A sum-insured cover is the more common home insurance option and will only cover you up to a set amount to rebuild or repair your property. The set amount is selected by you and often referred to as ‘the sum insured.’

Since you can only receive up to a set amount, there is a higher risk that you will be underinsured, as most people do not have the expertise required to accurately work out how much it would cost to rebuild their home.

It should also be noted that limits, caps, exclusions, and other conditions vary between insurers, so when you are choosing a policy be sure to ask questions and carefully read the product disclosure statement. Take your time to shop around, so you find the best cover for your needs.

Homeowners that do not fully understand their insurance policies could end up finding themselves to be underinsured at the time disaster strikes. Be sure to do your research and read over the fine print. You don’t want to end up losing your home because of a natural disaster, only to find that you won’t be able to afford the repairs.

As well as taking the time to understand your insurance cover, you should also make a point of regularly reviewing your policy, as over time life circumstances can change, along with your possessions and your home.

Think back over the last year before you blindly renew your policy. You would be surprised at how many homeowners forget to mention an expensive home renovation to their insurance providers. Failure to do so could leave you at risk of not being adequately covered, so it’s worth taking the time to review your policy on a regular basis.

 

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Thank you for sharing Alex.

I would support the position that with some no sum insured policies the time taken to finalise the claim in the event of a total loss can be much longer to agree than with a sum insured policy. I ended up working with around 12 such people following the Wye River fires being engaged around 12 months after the fires. Most disagreements were over the amount of reinstatement.  It is therefore important to use both LMI PolicyComparison.com and LMI ClaimsComparison.com to compare the features and benefits and also the claims service as part of your decision making process.

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