Is perception really reality?

As you would probably guess I am a avid reader on all things insurance and I am part way through a new book written on one Insured’s view on the performance of the insurance industry. The book is titled “The Christchurch Fiasco – The Insurance Aftershock and its implications for New Zealand and beyond” by Sarah Miles.

I have not finished the book but my initial reaction is that it is very well written and most of the points she makes are valid.

After the Brisbane floods the insurance industry was also heavily criticised culminating in Choice Magazine awarding the insurance industry a 2011 Shonky Award. I was quite angry about this and wrote to them, posting comments on this blog at the time. I also went on TV and radio, wrote articles and 2 books trying to get a positive message across.

My concern was, and still is, that due to a combination of all this bad publicity, increasing premiums, a tough economic climate for many home and business owners and an unhealthy dose of “It will never happen to me!”. we will see lower levels of insurance. That is just what we have today. Acccording to a recent study by Roy Morgan 15% fewer businesses insure for property losses in Queensland. Insurer and brokers also record drops in vital covers like business interruption which is being shed even when the basic fire and perils cover is being retained.

While I felt in my heart, perhaps misguidedly that the industry was being unfairly treated in Queensland, I am not so sure that Ms Miles in not correct in New Zealand. Our office has too many valid claims where clients have come to us after receiving the run around by their insurer. When I read phrases such as insureds being subjected to  ” financial rape”, I was embarrassed to be part of our industry as I know that in some cases that is exactly what is happening.

Ms Miles picks up the issue of depopulation early in the book, another position that I share with her.

Another point she covers well is the difference in attitude of insurers from the days of mutuals to the financial structure of  insurers of today. She also has a good hard look at reinsurers but I have not made it to that chapter as yet.

The book is being read by politicians, the media, and insured’s looking for answers. The question is: is Ms Miles giving the right ones? I think the book is well worth a read and you can make up your own mind if these are the rants of a disgruntled insured or much much more.

I keep remembering the fact that after the US$6 billion, in today’s money, earthquake losses in the 1906 San Francisco, the then head of Lloyd’s, Cuthbert Heath gave instructions for valid claims to be paid quickly and fairly. This gave Lloyd’s in particular and insurance generally a great name which paid dividends to the Lloyd’s brand for the next century.

Are we witnessing the exact opposite happen now? Will we see a whole generation in at least 2 countries question the value of general insurance?

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Blog Question – Is damage by meteorites covered?

I have received a large number of email and phone enquiries as to whether damage by meteorites as has occurred in Russia would be covered.

The good news is that the impact damage from such an object is a standard cover under the vast majority of policies in Australia. I in fact no of none that exclude it.

Beside the impact damage, there was damage caused by the passing of the object which I assume was caused by sonic shock waves. This is not a standard cover under Australian policies with some companies covering the damage and others excluding such damage. From my understanding sonic boom was introduced as a standard exclusion following the development of supersonic aircraft in the mid 20th century.

When it comes to business insurance, an ISR would cover both the impact damage and damage by sonic waves, as would most policies covering accidental damage although most fire and perils policies and some Accidental Damage covers exclude sonic boom.

As with most triggers for business interruption, their needs to be damage to insured property caused by an insured peril for a claim to be considered.

As with everything in insurance there is rarely a cast iron rule and it is always best to check the actual policy wording. Having said this, www.policycomparison.com is a great place to start.

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Can brand insurance learn from the CPA’s

The Bottom Line moves to Channel 9

I have been a member of CPA Australia Ltd, since 1988 (then the Society of CPA’s) and have watched them slowly and carefully build their brand so that they have taken the image of an stayed and boring accountant to a energetic, empowered, trusted adviser to business large and small, local and international.

Well before brand insurance was so badly beat up by the media over the flood issue I felt that the insurance industry could learn a lot from the CPA’s and suggested that all the various bodies that are members of the insurance industry/profession should consider working together and funding a publicity campaign to raise the brand and reputation of our extremely important industry.

More than this, I felt that the industry needed a single highly respected spokesperson who could be the face of the industry and with back up on the history of issues like fire service levies, flood etc. and assistance where necessary on technical matters could move public opinion. This would then need to be supplemented with a CPA style advertising campaign. The benefits I felt would include:

  1. increased sales of insurance and less non and under insurance;
  2. a reluctance by the media and politians to use the industry as a punching bag and scape goat on issues like flood mitigation;
  3. have politicians understand the value of a healthy profitable insurance industry to the economy and to the citizens. That it is simply not an industry to be taxed like tobacco and alcohol as we assist government and society and do not create a burden. (The burden is created after a loss / natural disaster when home and business owners are not fully insured!);
  4. improve the morale of those that work in the profession so that they rightfully felt proud of what they do; and finally;
  5. attract good quality candidates to the profession to replace the large number of baby boomers who will be retiring over the next 5 or so years.

While my private discussions have received some positive comments more often than not reasons for not doing this were put up. The first was that of cost. When you look at the size of the insurance industry in Australia, this argument just does not stack up. As a percentage of total turnover it would be a drop in all the oceans of the world.

The second is that various sectors think it should be some other sector that does this. I disagree. Brand insurance needs a revitalisation. This was brought home very strongly in a recent survey by Roy Morgan research. This showed that there has been a drop of 6 percentage points in Queensland drop in the number of businesses with property insurance since the floods of 2011. A decline is not just in Queensland. It is 3% nationally over the same period.

As a claims professional, I am staggered at this drop. Yes I appreciate that premiums have gone up but I also firmly believe that as an industry there has been a loss of faith in insurance due to all the bad press culminating in the socially irresponsible and unjust Skonky Award by Choice. I say unjust when in reality tens of thousands of hard working insurance personnel managed the payment of over $2.5 billion in claims.

But where were the good news stories. Homes rebuilt, businesses reopened, jobs saved? We are seeing it all again but this time with less businesses (and homes) insured I am seeing more heartache.

My view is that all the councils and associations that claim to be representing the insurance industry need to work together to rebuild brand insurance and then when that is re-established the various organisations can then explain the importance of their members within it. This has to be an easier road to follow than doing it alone from where we currently are.

The original CPA campaign did not have a respected face. Rather, it had a number of young professionals speaking of what they do for a professional and how exciting and important it is. CPA more recently, working in a joint venue with a private media company, engaged Ita Buttrose and moved to a television program called The Bottom Line. Because of  the high production values, good content, and credibility of brand CPA, this program has now been taken up by Channel 9.

I congratulate the CPA on their initiative and wish the program every success. It makes me feel proud to be a Fellow CPA. The thing is, I get much more job satisfaction working in insurance and helping genuine business owners when they have a loss than I ever did doing any type of standard accounting.

After what we have been through of late we cannot hope to have a program on main stream television devoted to insurance like the bottom line. We can start to take baby steps and formulate a industry wide, national campaign to rebuild brand insurance. We rebuild the lives of those that insure every day. We should be able to rebuild our brand. To do otherwise will continue to hurt our industry and everyone who works in it.

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Are our disasters natural or man made ones

I was asked last week to speak in Tasmania early next month on the subject of Re-Building the South East of Tasmania following the recent fires in that state.

In preparation of my session I was interested to read the attached article by a resident of Sorrell, a community to east of Hobart.

Bushfire Article

We have this weekend remembered the horrific Ash Wednesday fires (South Australia and Victoria) and of course it was only a few weeks before on 7 February, that our minds revisited the Victorian Black Saturday fires of 2009 and on the same date the 1967 Tasmania bushfires.

When I study the findings of the various Royal Commissions on these events as well as Canberra, and another major bushfire in Victorian one of 1939, I share the view of LTGEN Ash Power, Head of Joint Operations Command, of the Australian Defence Forces: we are very good at learning lessons; we learn the same lesson over and over again.

It is not just with bushfire but with flood. In Queensland there has been no buy back of homes or buildings in high flood prone areas, no real flood mitigation strategies since the Wivenhoe Dam following the 1974 floods, little or no work on requiring homes to be raised on high stumps, few if any levies.

What can we expect as communities. What should we be demanding as an industry and as voters of our elected officials? I for one have seen the needless losses of life and property too many times.

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Blog question – what triggers a progress payment

I received the following question:

Dear Allan,

…………

A young colleague asked me the other day as to what triggers a progress payment to an insured under a Business Interruption claim.

Would underwriters generally wait to make a single, final payment or, under what circumstances and covers would a progress payment be requested and adjusted. I discussed the important role of a broker in this process however I would be interested in your comments.

 Stephen (surname and email provided]

This is quite a topical subject with the broker association in the UK, BIBA publically critisicing insurers on this very subject. We also tend to see a slow down following natural disasters where everyone is so busy. My response to the broker was:

Thanks for your note and kind comments.

Progress payments should be made on accepted claims regularly as ongoing cash flow for many businesses is extremely important.

The policy does not typically say much on this subject other than to say progress claims may be made.

It is typically expected the client has to prepare his aim and submit it and then the loss adjuster will review it.

The broker needs to assist here by making sure the progress payment is considered in a timely fashion.

A good claims preparer should assist with this process and take much of the stress out of the process and ensure the Insured receives their just entitlement but even then a broker can and should assist with putting pressure on the insurer to review the submissions for progress payments and make payments if they or the loss adjuster are not responding in a reasonable period. I personnally think the quality of the claims service is an under rated feature of the insurance buying decision making process.

If submissions are not made BI claims tend to be left to last.

Hope this helps explain the situation.

Regards

Allan

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Good news, bad news and no news on Fire Service Levies

I start with the good news. As predicted in my early postings, Victorian State Government Fire Service Levies (“FSL”) in Victoria will be reduced again by some insurers, this time led by QBE.

As I undersyand it there will be a significant drop in FSL as from 23 March 2013 (removed on home and contents insurance in rural Victoria from this date) and that at least for this insurer FSL will be removed completely from all insurance as from 20 April 2013. This is more than 2 months earlier than the legislation requires.

The table immediately below is the rates that will be charged from 23 March 2013 and the second table from 20 April 2013.

With the Victorian Government not working with the insurance industry as did the Queensland, South Australia or Western Australian Governments it has been left to the industry to come up to come up with a way to transition the removal of FSL in that state. This created a monumental problem which I have covered in more than one of my previous posts.

For many home and business owners they have paid their last fire service levy on insurance in Victoria and in a few short months it will thankfully be gone.

On the bad news front, the high hopes that many of us had that the enquiry in New Zealand on the removal of FSL in that country went nowhere. I simply cannot understand it. With home and business owners facing increasing insurance costs due to the Canterbury earthquakes I thought any prudent, caring government would have removed the burden of funding of the fire services from those that insure and taken the lead from most countries around the world and funded it through property rates. I simply cannot understand the logic of keeping the taxes on a service that is so important to protect the New Zealand economy and the voters of that country.

Similarly, we have seen no push in Tasmania to remove the FSL in that state which only applies to businesses, not home owners. I think the logic here is that businesses do not vote. What the politicians need to understand is that:

  1. voters own businesses;
  2. SME is the biggest employer of people in the country; and
  3. increasing the cost of insurance leads to less insurance and therefore greater business failure and requests for help from government

I appreciate that taxes on insurance accounts for a whopping 7.5% of the budget for the Tasmanian government. But everyone benefits from a well-funded, well trained and properly resourced fire service. Everyone in the community should contribute.

Finally, the no news. I like many are anxiously awaiting the New South Wales State Government’s next move on FSL in that state. We all hope they follow the lead of all the other mainland states and remove the tax before the next election.

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Floods and fires hit Australia – again

2013 Bundaberg Flood - Source: The Australian

It seems Australia and its people cannot get a break from the ravages of bushfires and floods.

While the damage and destruction is devastating for those involved, it is good to see that the extent of damage and loss of life is less than over the past couple of years.

What is extremely disappointing to read is the research carried out by Roy Morgan Research that the level of insurance in Queensland has dropped to below the level of other states over the past 2 years. With Cyclone Yasi and the floods the hit so much of the state in 2011 showing the need for full insurance, I am staggered at this finding. My own research shows that the level of under insurance is at least as high as in 2011 and perhaps worse.

I appreciate that the cost of insurance has increased over the past couple of years due to the increased frequency of losses and the amount paid out following the spate of natural disasters that hit, not only Queensland but also the rest of Australia with fires, hail storms and floods. What should come as no surprise is that the call for universal flood insurance comes at a cost and a lot of people cannot or will not pay for the cover. The trouble is they may also forego fire, hail, storm and burglary cover at the same time. This leads to unnecessary financial and emotional distress.

I question whether the logic of some people, particularly in South East Queensland was that the last major flood in Brisbane, prior to the 2011 flood was in 1974 and that this was 37 years and so they did not have to worry for a while. If this is the case, then of course this is flawed logic as floods and other disasters can happen at any time and do not follow a smooth pattern.

Another possible cause is all the bad press that the insurance industry received following the 2011 floods culminating in the ridiculous Shonky Award from Choice to the entire insurance industry. I see they are bagging the industry again about increase costs.

Another major critic has been the mayor of Ipswich. On the one hand he states that the council has spend $100’s of thousands on flood mitigation, which in a town like Ipswich is a drop in the ocean (excuse the pun) and is saying it is the insurance industry’s role to pay claims. On the other hand he is complaining that his own premium has gone up by $3,000 and he is on a hill.

I am not sure why people do not get it. Someone has to pay for the cost of paying claims. Insurance is a pool of funds to meet losses suffered by insureds who have paid a premium to protect themselves from the peril that caused the damage. Insurance companies cannot simply print money to pay claims. They need to have the funds to meet valid claims.

What the mayor ought to do is look at the frequency of flooding in Ipswich. If you go to the Bureau of Meteorology site at http://www.bom.gov.au/qld/flood/fld_history/brisbane_history.shtml you can see clearly how often the Bremmer River floods. I reproduce the chart below.

I strongly agree with the position of the Insurance Council of Australia and many of the major insurers. The Insurance Industry cannot fix the problem of flood. Paying out billions of dollars year on year and then putting back the asset in the same place in the same way time and time again is just plain stupid.

It will require a concerted effort on the part of the Federal Government, State Governments, Local Governments, the Insurance Industry, and other stakeholders working together with meaningful flood mitigation strategies, not a few hundred thousand dollar band aid.

I will revisit this topic over the next week and set out a more detailed look at this issue.

While I feel the Insurance Council of Australia responded much better this time around than after the 2011 floods, I am of the strong view that as an industry we need to get our message out in a positive way before disasters and not just in response to public or government criticism.

While this debate goes on, my heart goes out to all those that have been effected by the lastest round of natural disasters. For those of you not effected, remember we are not through the summer cyclone, storm, flood or fire season. Please speak to your insurance broker to ensure you are fully insured.

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NTI and WR Berkley have new offerings

www.policycomparison.com

There are literally dozens of new policies and upgrades of existing policies in the Australian market each month. In some months it can be over 100.

LMI PolicyComparison has a dedicated team that continually keep updating the site so that subscribers are aware of these changes and any improvements or derogations of cover.

I thought I would share a couple that I have personally looked at over the last week.

NTI have recently launched a new policy specifically for mobile plant. On my initial review of the wording it certainly ticks the important boxes.

WR Berkley also updated their management liability offering with several major improvements.

Please visit www.policycomparison.com to learn more or speak with Peter Jenkins on 0407 149 375.

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Mind the Gap – PolicyComparison takes off in UK

Speaking of LMI PolicyComparison, it is pleasing to see the response that the product is receiving in the United Kingdom since its launch in May 2012.

Brokers and Insurers are seeing the benefit of having the independant review of wordings to ensure that the cover they offer contains no hidden gaps in cover which may cause an insured loss to their client and or a professional indemnity claim against them.

It of course one thing to attend a training course to learn the benefits of a policy coverage but another to have this information for thousands of policies at your finger tips, kept up to date and current when you need it.

Sales and service in the United Kingdom for this product along with the popular LMI BIcalculator and LMI RiskCoach are being handled in the UK by John Sims, phone 078 6020 6720 and within Australia for the United Kingdom, Irish, and South African markets by Steve Manning, phone 0413 743 319.

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Congratulations on Allan Douglas AFMA Life Membership

AFMA Life Member, Allan Douglas being congratulated by Prof. Allan Manning

I would like to pass on my warm congratulations to Allan Douglas on his being awarded Life Membership of the Australian Fire Managers Association at their annual conference, held last week (6th – 8th February 2013) at the Gold Coast.

Allan was awarded the honour due to his outstanding service and dedication to the Association. Well done Allan.

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