End of Financial Year – Big issues for 2012-2013

The 2012 financial year was interesting to say the least. It ended with wonderful news for us at LMI in that 2 of our staff had children this week.

First up Prasad a senior researcher in LMI RiskCoach division had a baby girl on Tuesday 26th June. Today, Gloria, our graphic artist who works in both our IT division and LMI Media had a baby boy.

I wish both children live long healthy, happy and prosperous lives. They got the first part right, they chose wonderful parents.

When you think of year end it is time to check the score card and I am pleased to say that LMI Australia continues to grow. This year it was 31% over the previous year while over the past 5 years, LMI Group Australia has more than trebled. This makes the organisation one of the fastest growing private companies in Australia. This is on top of the New Zealand and Singapore operations and our first year’s operation in South Africa and the United Kingdom all of which have been successful. In this coming financial year we will also be taking our eServices to Ireland, Papua New Guinea and the big one, the United States. I travel to Europe and the US for a few weeks at the beginning of August to assist.

This could only happen with the work of a very hard working dedicated team members in Claim Services, Knowledge Management, LMI PolicyComparison, IT, LMI Media, Training and Publications, finance and support  and I thank them one and all.

My last comment on the past financial year is that it was the year that I introduced this blog. I have been overwhelmed by the support and feedback I have received and was blown away that over the last week the readership doubled again from what was already way above what I had hoped for. Thank you readers for your support and for sharing the posts with your friends and colleagues. As an aside, it was a real surprise to see so many people come from Facebook to the site. Nearly 4 times as many as LinkedIn.

The 2012-2013 financial year sees the end of Fire Service Levy in Victoria and hopefully progress on its removal in New South Wales. I will do my best here but have not forgotten Tasmania and New Zealand where all taxes on insurance need to be removed to protect insureds, the communities and the economy. The issue of the transition of the fire service levy in Victoria needs urgent attention as I have repeatedly explained in my postings.

The Carbon Tax comes in from tomorrow and I just want to remind readers that I expect the cost of all building materials to increase. Even humble plaster board causes an enormous amount of carbon dioxide to be produced during its manufacture. To learn more of the expected increase in the cost of reinstatement and replacement please see http://www.allanmanning.com/?p=1350.

At the request of a large number of broker users of LMI PolicyComparison, LMI will be introducing LMI ClaimsComparison within the next few months. The Insurers that we have discussed it with in the main have also been supportive as they seek to genuinely improve their service. I will advise more on this and the criteria that is being included in the comparison shortly. What you can count on is that like LMI PolicyComparison, the price of insurance will not be one of the criteria.

Finally, the new Master of Insurance Law and Practice kicks off this month with a number of keen students already signed up. I wish all of them the very best of luck. If you put in the work you will come out with a thorough technical understanding and a high quality degree.

I have posted a number of articles this week and I hope you find them interesting and informative.

 

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The Age continues fight on Fire Service Levy in Victoria

Source: The Age, 20 June 2012

Following up on the article in The Age on 20th June 2012 titled “Fire Levy Abolition Delay”, http://www.theage.com.au/business/fire-levy-abolition-delay-20120619-20m2f.html the newspaper has followed up with another piece by Tom Arup and Madeleine Heffernan under the banner: “Insurance bill fires up farmers”. An electronic copy of this article can be found at http://www.theage.com.au/victoria/insurance-bill-fires-up-farmers-20120629-218ad.html

I congratulate both The Age and the two reporters for pushing this issue. It is extremely frustrating to all those that insure and the insurance industry at large that the politicians who have had since 27 August 2010 when the abolition of fire service levy was first announced by the Brumby Government have gone off on their winter break and left everyone up in the air with no direction until at least August when they return.

It is too easy for the Victorian Government which was elected on a campaign of looking after the farmers, small business and mums & dads to blame the insurance industry for what is their complete bungling of the transition. It is not like they had no model to follow. Queensland, Western Australia and South Australia all did it well.

Having farmers, builders and all business owners pay 95% tax on every dollar spent on property, business interruption and construction risk insurance and then double tax it with GST and then triple tax the premium, fire service levy and GST with a 10% State Government Stamp duty is nothing more than yet another grab for cash, something this government is perceived with far too often. I think this is a clear case of perception being reality.

Imposing a tax of $580 million on the insurance industry much of which is capital expenditure during a transition year, when insurance is paid annually in advance and property taxes will start to include a fire service levy component will end up being a double tax for the same thing (on top of the triple tax of GST and Stamp Duty).

This issue will not go away. It needs to be addressed by the Government who created the situation in the first place.

Source: The Age, 30 June 2012
Despite this being the biggest debacle I have seen in my over 41 years in insurance, two good things will come of it or should. The first is that come this time next year insurance in Victoria will be up to 42.38% less expensive meaning it will be much more affordable. Secondly, it is hoped that he New South Wales Government who are looking at removing the Fire Service Levy on insurance in that state will see how not to action the transition year!

In the meantime, I pray for a low fire season in Victoria this coming summer as I know that under insurance and non-insurance remains a real issue in rural and regional Victoria due to the obscene level of levies and taxes on insurance.

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Recent Cases Reinforce the Need to Understand the Product Being Sold

Three cases, one in the insurance press and the other two matters that LMI are assisting on are examples of where the belief that all insurance policies are the same and that all that matters is the price is plain wrong.

The first is a matter involving the use of a commercial dive boat that was being used for private purposes at the time of an incident. The insurer in this case denied liability as the vessel was being used for private rather than commerical use. As a result, the insurance broker was found to be legally liable on the grounds that the advice was not that of a reasonable professional insurance broker, they (the firm) had to meet the claim.

If you look at the Institute Time Clauses – Hulls and the Institute Protection and Indemnity Clauses – Hulls – Time (or the Institute Port Risks Clauses)  then you will see that that there is no mention in those clauses that creates an exclusion or a warranty in respect of the use of the vessel. This, of course, can be altered by endorsement.

There are a few companies now who have their own company wordings and on looking at a CGU wording as an example I found that their policy automatically includes private use for their charter vessels (refer page 2 – definition of Usage).

Clearly, brokers who arrange cover for commercial watercraft that may be used for social, domestic and pleasure purposes by the owners need to be careful. Motor policies have dealt with this issue successfully for years, but it appears, on the facts as I know them, that not all marine hull policies in the market are the same.

The other claims involve contract works policies. In these cases, the cover was different between insurers and these differences were not picked up at the time of transferring the insurance from one insurer to another. LMI PolicyComparison is an extremely important service to assist brokers understand the vast majority of differences easily and quickly. Having said this, while LMI PolicyComparison compares contract works, marine transit and a dozen other classes, it does not at this stage compare marine hull policies as part of their standard offerings. As with any complex covers, the comparison researchers can provide one-off comparisons on request.

Turning back to the contract works cover, in both cases the contract works were being conducted on existing buildings. In each case, the broker had placed the contract works insurance with a different insurer to the property (Industrial Special Risks) insurer. This created at worst a gap in cover and at best a dispute between insurers arguing as to which policy covered the loss. While not every property/ISR insurer offers contract works insurance, my strong view is that the contract works insurance should be with the same insurer as the ISR is arranged.

When a claim occurs, no one remembers the price of the insurance, certainly not the Insured. All they want is a policy that covers them for the event and a prompt, fair and reasonable claim service from the insurer and their loss adjusters, surveyors and or investigators.

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Today is the 75th Anniversary of the Start of Fire, Police and Ambulance Emergency Number

In Australia it is triple zero in New Zealand 111, in the United Kingdom and many of its former colonies it is 999 and the whole world knows that in the United States (and Canada) it is 911.

How it all started

This simple but important change to how emergency services are contacted came from an idea from the actions of someone frustrated with the current way of doing things. In the case of the emergency number, it is said to have been invented following a major fire which occurred on November 10, 1935 in a house on Wimpole Street in which five women tragically perished.

A neighbour, who had tried to telephone the London Fire Brigade, was so outraged at being put on hold by the Welbeck telephone exchange that he wrote a letter to the editor of The Times which prompted a government inquiry.

The outcome of this inquiry was that an emergency number was introduced for the first time in the London area on June 30, 1937; 75 years ago today.

The format chosen in the United Kingdom was the 9-9-9 format was chosen based on the ‘Button A’ and ‘Button B’ design of pre-payment coin-operated public phones, which by 1937 were widely used across London.

Using this button system allowed a modification so as a 9-digit rotary dial in addition to the 0 digit, which was used to call an operator could be developed so as people could ring the emergency service centre but would not have free use of numbers involving other digits. Over time, other combinations of 9 and 0 were used for other purposes, ultimately doing away with the operator completely.

The choice of 999 in the United Kingdom was because in the dark or in dense smoke, 999 could be dialled by placing a finger against the dial stop and rotating the dial to the full extent three times. This enabled all users including the visually impaired to easily dial the emergency number. It was also felt that if 111 or other low-number sequences were to have been used, then they could be dialled accidentally, including when transmission wires making momentary contact and produce a pulse similar to dialling say when overhead cables touch in high winds.

Australia

Source: Country Fire Service South Australia

Australia did not have a national number for emergency services until 1980s. Up until 1961, the police, fire and ambulance services had a separate and different phone number for each local unit. In 1961, the office of the Post Master General  (“PMG”), the forerunner of Telstra and Australia Post, introduced the Triple Zero (000) number in major cities and towns and near the end of the 1980s extended this service Australia- wide. Why it took so long is a complete mystery to me and perhaps explains why it took so long to get rid of fire service levies until in Victoria, like the UK, it took a major event to get people to think.
The number Triple Zero (000) was chosen for several reasons. First up, the 0 in the rotary phones of that era was closest to the stop, and, following the lead from the United Kingdom, it was felt that this was the easiest to use in the dark or in a room full of smoke. A good friend of mine is a boffin engineer at Telstra and he explained as he fixed my vintage bakelite phone that technically, it suited the dialling system for the most remote automatic exchanges, particularly outback Queensland. These communities used the digit zero to select an automatic trunk line to a centre. In the most remote communities, two zeros had to be used to reach a main centre; thus dialling zero, zero plus another zero would call, as a minimum, an operator.

Interestingly, the popular 911 number was considered as the emergency number in Australia but the pre-existing numbering arrangements make this unfeasible as homes and businesses had already been assigned numbers beginning with 911.

New Zealand

The introduction of an emergency number started much earlier in New Zealand than in Australia. As with the United Kingdom it was introduced following a major fire. On this occasion it was the Ballantynes fire in Christchurch. Following this terrible fire, an experienced Fire Brigade Officer Arthur Varley was recruited from the United Kingdom to reform the New Zealand Fire Service.

Mr Varley was naturally familiar with the UK’s 9-9-9 number and he campaigned hard for a universal emergency telephone number across New Zealand.

It took until 1957 before a committee was set up to institute a common emergency number across the country. Members of the committee were drawn from the then Post and Telegraph Department, Police, Fire Brigade and Health Department. Following the recommendation of this committee, the Post Master General approved the service using the number 111.

1-1-1 was specifically chosen to comply with the positioning of London’s 9-9-9. With pulse dialling, New Zealand telephones pulse in reverse to the UK – dialling 0 sent ten pulses, 1 sent nine, 2 sent eight, 3 sent seven, etc.. In the early years of 111, the telephone equipment was based on British Post Office equipment, except for this unusual orientation. Why on earth do we not standardise these things from the very start? If it is not railway gauges, it is something else.

In any event, dialling 111 on a New Zealand telephone sent three sets of nine pulses to the exchange, exactly the same as UK’s 999.

The telephone exchange in Masterton, near the capital of Wellington, was replaced in 1956, and was the first exchange to have the technology installed for the 111 service. As a result, Masterton and nearby Carterton were the first towns in New Zealand to get the new standard emergency phone number.

North America

It was the Canadians in 1959, that first chose to use a central emergency number in North America. This came about due to Mayor Stephen Juba  of Winnipeg. Winnipeg initially used 999 as the emergency number following the lead from the United Kingdom, but switched numbers when 9-1-1 was proposed by the United States.

In the United States, the push for the development of a nationwide American emergency telephone number came in 1957 when the National Association of Fire Chiefs called for a single number be used for reporting fires.

In 1967, the President’s Committee on Law Enforcement and the Administration of Justice recommended the creation of a single number that could be used nationwide for reporting all emergencies, not just fires.

The task of implementing the system fell to the Federal Communications Commission, which then met with the primary carrier AT&T in November, 1967 to solve the problem.

The following year, 1968, saw the solution being agreed. AT&T  agreed to implement the concept, but with its unique emergency number, 9-1-1, which was brief, easy to remember, easy to dial and worked well with their phone systems.

Conclusion

It usually in a time of stress that we need to dial the emergency number. Thank goodness that the simple idea was developed to streamline the process. Hopefully with improvements in technology where the operator will be able to see on a screen exactly where the person phoning is located that even more precious time can be saved which will in turn result in more lives and property saved.

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Young Insurance Professionals – Aims, website and more.

While I am not directly involved, I just wanted to spread the word on the initiative of Michael Doonan of Suncorp and others in Queensland who are working hard to establish a chapter of the Young Insurance Professionals in that state.

Back in my youth, I was the foundation President of the Young Insurance Group, an off shoot of the Insurance Institute, which was a really great group but which did need a lot of driving to make it a success. I am therefore happy to help Michael and the YIP Committee spread the word.

I would provide the following background information on the committee’s behalf:

Overview We are an organisation for younger
insurance professionals throughout Australia and New Zealand.
Description Our members are generally in their
20s and 30s, but most importantly young at heart and keen to progress their
careers and develop solid professional relationships with others in the
industry.
General
information
Membership is open to all those
working in the insurance industry including underwriters, brokers, claims
personnel, risk managers, loss adjusters, lawyers and other service
providers.
Mission We want to make insurance a
rewarding career of choice and not one which people end up in through pure
random chance. Most of all, we want to enjoy what we do.

WEBSITE

The website is fully functional and up and running and I’d encourage you all to check it out (http://www.yips.org.au). If you are interested you are encouraged to take a few minutes to sign up for free.

It does not matter what age you are!!! It also allows the organising committee to advise you of any upcoming events, RSVPs, changes etc. via email. The features already available include career tips and a jobs board. Other features coming soon include:

  • mentoring
  • what management and employers are looking for
  • school leavers
  • working in the USA
  • glossary & terminology

There are also links to our Facebook, LinkedIn & Twitter accounts to keep abreast of other industry information and updates.

Facebook

http://www.facebook.com/yipsanz/ (please ‘like’ this page)

LinkedIn

http://www.linkedin.com/groups?gid=3699716&trk=myg_ugrp_ovr

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Unusual Plea for Help

Yacht Roxanne - Source ABC News

Of all the hundreds of requests for advice I have had since starting this blog, the following one is the most unusual. It is looking to track down the insurer of a yacht that got into difficulty and the owner went missing.

If you can help, I would very much appreciate it. I will pass on to a couple of people I know in the industry at Associated Marine, Club Marine and TIO in the hope they can help.

Good Morning,

I have been given your site by EBM Insurance as I am trying to track down if there is a policy in existance as per below.

The Northern Territory Police has asked me to see if I can find out if Bruce Roy Edwards DOB 16/12/52 had the following yacht insured with your company.  The Yacht was purchased from Port Douglas 12/3/12 from Rick Kilpatrick (rickstalex2gmail.com).  QBE suggested that you may be able to send a broadcast email to you Insurance base clients.

Yacht Name was ROXANNE
Registration of vessel is JV025Q
HIN number is 395200
Engine number is 42426

Bruce went missing sometime Tue 12/6/12 in the AM and the Yacht is currently lodged on the rocks at Cape Wilberforce.  Police undertook an extensive four day search and we have not found Bruce yet.

The following address may be listed at an address on the policy.

Po Box 964 Parap NT 0804

Your earliest attention to this would be greatly appreciated.   Lisa [surname and email provided]

Obviously, the whole incident is very concerning for the lady who wrote the note.

Naturally, I made my own enquires as to the authenticity of the request before posting this blog.

If you can assist, please let me know and I will pass on Lisa’s details so you can contact her and or the NT police direct. Hopefully some quick action will allow the insurer to mitigate any further damage to the vessel.

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TIO Shows Great Social Responsibility – Well Done!

The media and our politicians love to knock the insurance industry (Bill Shorten was at it again this week) and yet so many insurance companies, brokers and others in the Insurance Industry do great things over and pay out billions of dollars in claims and put people’s lives back together.

Much of the extra work goes into community initiatives that really benefit society and take the pressure ofF government.

I would like to applaud one such initiative. It is the Party Safe Program run by the Territory Insurance Office (“TIO”) in the Northern Territory.

As the administrator of the Motor Accidents Compensation Scheme in the Northern Territory, TIO were acutely aware of the number of road deaths in the Territory. The research they conducted revealed the following disturbing facts:

  • The risk of being killed on a Northern Territory road was up to three times greater an than elsewhere in Australia.
  • The risk of being killed in a car crash in the Territory was the highest of any developed country.
  • Half of all fatal crashes in the NT involved drink-driving. 48% involved a driver being over the legal blood alcohol limit.
  • In more than half the fatal accidents, seat belts were not being worn where available.
  • For every fatality, 10 people are seriously injured. Many of these injuries are life-changing. As with the fatalities, alcohol was a major contributing factor.

While alcohol and partying feature heavily in Australian culture, the effect of alcohol on drivers appeared not to be fully appreciated by Territorians.  The following statistics confirm this:

  • 1 in 314 drive over the legal limit in my home state of Victoria
  • 1 in 192 drive over legal limit in Queensland – the state where I was born.
  • 1 in 42 drive over legal limit in the Northern Territory!

What this means is that a road user is eight times more likely to share the road with a drink driver in the NT than they are in Victoria.

While more policing helps, educating the public on the risks was seen to be an extremely important method of changing the culture of mixing alcohol and road use.

Having identified a real community problem and the need for education, TIO went about tackling the problem by developing the “Party Safe” road safety community education program. The primary focus being to raise the awareness of the risks associated with drink-driving.

Party Safe operates at major sporting, community, entertainment and cultural events across the Northern Territory. They are not doing heavy-handed lecturing, but rather arming those in attendance with information. What also impresses me is that while there is TIO branding it is subtle and does not detract from the main message.

What I find really great is that with all the events that the program covers, it is staffed entirely by volunteer staff from TIO. It is not the same people doing it week after week, but the last time I asked it was oversubscribed with people wanting to help the good cause. I can see why, I wanted to be part of it myself when I saw it in action.

The Party Safe program began in 2009 with 1 marquee at a few events but now has 2 marquees, a van and a presence at around 15+ events annually.

Well done TIO on your great example of fantastic corporate responsibility and social conscience and to all your staff who so willingly give up their time for such a worthwhile cause.

I am pleased to say that the Party Safe program won the State Government Initiatives Award at the Australian Road Safety Award in 2011 and this was due mainly to the volunteers who make this program possible.

While I know TIO are doing this for all the right reasons, I do hope they continue to get this sort of much-deserved recognition for the program. TIO and their staff really deserve it.

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Changing technology means changes in insurance.

A Toyota Prius fitted with Google Driverless Technology. Source Google via UK Telegraph

Andrew Aisbett, head of IT at LMI Group did his research for the Honour’s component of his Engineering Degree for driverless cars. He worked on developing the technology that would allow this to happen. His research, while only a few short years ago was at the beginning of what was then just a dream. It may still take some time before it is common place but the advancements in this technology are enormous. I was in a car in Sydney only a few weeks ago that parked itself.

Clearly with these advancements a driverless car is no longer a dream and this will undoubtedly have far-reaching consequences in the insurance industry.

At the time of writing this, driverless vehicles have clocked up over 250 000 kilometres of travel in the United States and it appears that it has been made legal in a number of states as long as a passenger is in the front seat.

If the technology succeeds in being commercialised, the risk factor in motor vehicle transport is likely to be reduced significantly. Motor vehicle accidents are largely the cause of human error and experts believe that the system’s accuracy could help reduce the number of fatalities that occur on the roads daily. This of course is not only good for the motor insurers but also to the health system, the economy and the community as a whole. The transport industry has the most work place related fatalities in Australia.

Reduced risk should mean reduced premiums which although great for individuals and business does have an effect on the investment opportunities for insurers as WorkCover and Motor Insurance both contribute heavily to the income stream of insurers.

Driverless technology will not happen overnight and still has many years, perhaps decades before it becomes common place and it will be interesting to witness the on-going development and roll out. Just as interesting, will be watching the insurance industry come to grips with the ramifications of this exciting new technology.

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Well-written Article on the Flood Issue in Australia

I was alerted to this article by Paul George, General Manager of MGA Insurance Brokers. After all the bad press our industry received, it is pleasing to read a balanced piece titled “The Truth is in the Flood Maps” published in The Global Mail on 17 May 2012.

Although it starts off looking like another attack on the industry, the final paragraph sums up the quality of our policians. They now blame their constituents for not allowing the flood maps to be released.

What nonsense and what about, as I posted on May 13, 2012, at http://www.allanmanning.com/?p=1002.

I stress I am not opposed to flood mitigation which has all but been completely ignored by the Federal Government in the 2102 Federal Budget. This came as a complete surprise after all the grandstanding and public insurance industry-bashing by the Federal Government, particularly by The Honourable Bill Shorten MP – Minister for Financial Services and Superannuation. Now that they need to put their money where their mouth is, the true measure of the man and the government can clearly be seen.”

I would ask that there is a stop to the grandstanding by all levels of government by bashing up insurers and a start to fixing the problem by setting up a National Flood Action Authority made up of the various local, state, and federal governments along with the insurance industry to fix the problem for the good of the economy and the home and business owners the politicians claim to represent. While the Netherlands is a much smaller country, they were able to fix their flood problems, which I would suggest were harder than ours.  We need to start somewhere and we need to start now.

Congratulations to Ms Ellen Fanning and all concerned in putting the article together and thanks Paul for taking the effort to pass it on. Now that I no longer read Choice Magazine in view of their completely unfair Shonky Award to the Insurance Industry, I will give The Global Mail a go.

http://www.theglobalmail.org/feature/the-truth-is-in-the-flood-maps/236/#

Finally, I would advise that a colleague from LMI Group and I prepared a paper to the National Disaster Insurance Review that was chaired by Mr John Trowbridge. A copy of our submission which covers a range of issues on problem of flood can be found at http://www.ndir.gov.au/content/submissions/issues_paper_submissions/LMI_Group.pdf.

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Blog Question – How best to insure loss of rent?

In response to a question on how best to insure loss of rent, I provide the following answer:

It is possible to insure loss of rent under the material damage or the business interruption  section of an ISR, or under the fire/property or business interruption section in many business policies. We look at the alternatives and then move on to other areas of interest in the insurance of rent under appropriate headings as follows:

Insuring rent under Section 1 (Material Damage/Property/Fire) or Section 2 (Business Interruption)?

While this cover is available under the material damage section of many policies, it is not necessarily the best way to insure rent. Under the material damage, fire or property section of the policy, the cover ceases when the building is reinstated. This is fine if the tenant returns straight away. In many cases, the tenant cancels the lease and moves to new premises as part of their business recovery process. In others, the tenant’s business fails due to the fire (particularly if they themselves are not fully insured).

For these and other reasons, it is often more appropriate to insure rent under the business interruption section of the policy. Here, cover does not cease when the building is reinstated, but when the landlord’s rent returns to the pre-loss levels.

Insurance of  Outgoings

With rent do not forget to ensure that the outgoings are also insured. If the tenant has the right to temporarily cease paying rent, they will also have the right to cease paying rates, land tax and any other outgoings. If these are not insured as part of loss of rent, the landlord will have to meet the ongoing outgoings themselves.

Real Estate Agent’s Commissions

One exception to this approach may be the real estate’s agent. If this is not payable due damage to the premises caused by an insured peril, then there is no need for the landlord to insure the expense.

Special Care Required Where the Landlord and Tenant are Related Companies.

The tenant as one legal entity needs to insure loss of rent so that in the event the tenant can rent alternate accommodation while repairs to the damaged building. Insurance on rent by the tenant is achieved by not deducting rent as an Uninsured Working Expense.

The landlord, however, also needs to insure the rent so that this legal entity continues to receive the equivalent of rental income as well as the monies needed to fund any outgoings (rent, land tax and the like) which may continue even though the building is damaged so badly it cannot be tenanted. Rent therefore needs to be insured as a separate item. LMI BIcalculator explains this in greater detail in the e-Cover Calculators.

To recap, in practice an insurer can meet two claims for the one group of companies when one entity is a tenant and another is the landlord. To achieve this cover, both entities need to have rent insured.

Further reading:

Manning A., Business Interruption Insurance and Claims, Chapter 16.

www.bicalculator.com BI Explained.

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