Positive Feedback

One of the great things about LMI’s role in assisting claims is the appreciation that our customers show. Every week I receive one or two emails thanking us and or complimenting the team on our service. I thought I would share those from the past week with readers.

The first involves a business interruption claim where through the help of our claims expert Derek Jorgensen, the loss was mitigated and is about to be finalised. The Managing Director for the Insured, Bratan Engineering Pty Ltd wrote:

Thanks for all your help though the last 8 weeks, you have been a tremendous help and have always conducted everything in a professional and fast manner to minimise the hassles for us.

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The second one involved a claim arising from Cyclone Yasi by Kookaburra Holiday Park which was handled Revell Weightman, head of LMI Forensic Accounting.

Since Cyclone Yasi, we engaged the services of LMI Group for our BI Insurance and Material Damages Claim.

 

Revell Weightman was appointed our contact and during this time we found him to be extremely thorough, competent and diligent in all his investigations pertaining to our claim.

 

His attention to detail, communication with our insurer and ourselves, left no stone unturned.  He was most tenacious at all times, endeavouring to obtain the maximum amount to allow us to repair the necessary damages to our holiday park.  Should a similar occurrence happen again, we would not hesitate to contact Revell to oversee the entire process.

 

We are a family owned and operated business and collectively, we cannot speak highly enough of the manner in which he assisted and supported us during the last eighteen months.  When we were at our lowest he encouraged us to keep going and gave us moral support.  We sincerely wish to thank him for his time and efforts.

 Like any good company, we do take the feedback we get, both positive and those that offer constructive criticism, carefully in our quest for excellence.

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Is it any different in Australia?

More than four in five Americans (81 percent) know that a standard homeowner’s policy does not cover flood damage, according to new research from Bankrate.com. However, a similarly vast majority have not acted upon this key information. In the US only around 14% of households have flood insurance.

After all the poor publicity that the Insurance Industry received in Australia following the 2011 Brisbane Floods I would guess that the same level of understanding of flood insurance would apply in Australia.

With more and more insurers offering flood as standard the problem has turned from understanding to affordability. The Federal Government has ruled out subsidising flood insurance for home owners in low lying areas and most people living in non-flood prone areas resent contributing to a catastrophe pool to cover future flood losses.

This goes to the nub of the problem. Private enterprise alone cannot fix the flood problem. Over the past 3 years alone the insurance industry has paid out over $3 billion in flood claims, if you bring in the amounts paid by foreign insurers I estimate it to be closer to $5 billion.

With all this, you would expect governments, local, state and federal to have got together and worked out a strategy for reducing the risk of flood. So far the total amount spent is $27 million.  This equates to less than 0.5% of the amount paid out in claims. There is talk of another $100 million over the next 4 years but I expect a backflip on this due to the worsening deficit even though the Commonwealth Government is extracting a dividend of a similar amount over the next 4 years from the Terrorism Levy imposed on Australia business through their insurances. 

I have heard one mayor in particular say that levy banks do not work. Here is a photograph of the Victorian Town of Kerang. The levy was built in the late 1950’s and over 50 years later is still protecting the town. This investment in the town was certainly money well spent.

John Lock’s position as far back as 1681 was that “Government has no other end, but the preservation of property”. In today’s world, the primary role of government should be to encourage and protect homes and businesses, and safeguard the on-going growth of the economy. Our governments have disappointingly moved away from this to a strategy of getting re-elected at any price/cost.

To me this is the only workable solution. For a fraction of the cost of claims payouts, not to mention the effect on those with no insurance and those that are injured or worse, the risk can be greatly reduced.

The subsidy scheme, which was doomed from the start, was never going to protect business. This is despite the fact that they are so important for employment, taxes and the good of the economy and communities in general.

Left to their own devices, I would argue that it is a bit more complicated for business owners to understand the risks as they should not only be considering damage to their own premises but also the infracsture and other dependencies upon which the business relies. These include: public utilities such as power, water, sewerage, telecommunications; customers and suppliers’ premises; prevention of access; closure by public authority and more.

While buying your home and car insurance on line may be okay, I keep coming back to my strong belief that insurance has such a complex product range that a trusted insurance broker needs to be appointed to advise on risk management in general and insurance protection in detail.

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A good news story for a welcome change

After getting so frustrated and angry about the lack of flood mitigation, here is an uplifting video that shows why the right  insurance, including business interruption insurance  is so important.

Look at the faces of the Insureds and please consider the coverage afforded by the policy, the financial strength rating and most importantly the claims service when considering which policy to take.

http://www.youtube.com/watch?v=Lq1DHzOXxWU&list=UUjhEx7nh9g8l6cO-0JU8l_g&index=1

The final point I would like to make is that after seeing all the bad press about insurance it is comforting to know that there are thousands of claims like this where the Insurance Industry have put people’s lives back together.

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The cost of recent storms in the US and Australia

Insurance regulators in New Jersey and New York — the two states hardest-hit by Superstorm Sandy — report that insurers have settled 93 percent of the claims they received in the wake of Sandy, according to the US Insurance Information Institute. Bearing in mind this storm only occurred back in last October that is a super human effort.

More than half of the 1.5 million claims for Sandy-related damage to homes, vehicles, boats and businesses were lodged in either New York State or New Jersey. The others were filed in a dozen other states as well as the District of Columbia.

It is estimated that insurance companies will pay out an estimated $18.8 billion in claims to their policyholders, making Sandy the third costliest storm in U.S. history, as defined by insurance claims payouts.

Hurricane Katrina in 2005 ($48.7 billion) and Hurricane Andrew in 1992 ($25.6 billion) were larger insurance events. Both of those claims payout numbers are expressed in 2012 dollars; moreover, Katrina and Andrew were hurricanes when they made landfall whereas Sandy was a post-tropical cyclone.

In Australia the latest estimate of the flooding in Queensland and New South Wales at just over $1 billion with the bulk of the losses ($908 million) being in Queensland.
What continues to stagger me is that few businesses are insuring their property in Queensland now than were being insured before the 2011 floods. Across Australia, less businesses are insuring against business interruption. How does any prudent business owner hope to survive a natural disaster like these storms without the protection of adequate insurance?
I again any business owner to speak with a good insurance broker and ensure that your life’s work is properly protected/insured. It is no good just hoping for the best. You need to plan and insure for the worst to protect all that you have worked for.
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News Corp claim under their Directors and Officers Policy

On Monday 22nd April 2013, News Corporation advised that it had recovered $139 million in insurance proceeds in a settlement with shareholders over the board of directors’ actions related to the company’s phone hacking scandal and its acquisition of Shine studios.

The company said the money would come from insurance policies held by members of the board who were the defendants in the suits.

While this matter did not directly affect Australian insurers it is a reminder that around 24% of large organisations in Australia have had need to call upon their Directors and Officers (“D&O”) Insurance program. On my best estimates, only around 17% of all SME businesses in Australia have any form of D&O cover.

Shareholders, employees, and other exposures from regulators, are just some of the risks that can be protected by a good D&O policy.

This is certainly an area that both business owners and their brokers should be discussing. The risks are real and as the director and officers can be personally liable, they should be treated as personal risk not a business risk.

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FSL Monitor Draft Guidelines

Prof. Alan Fells, the monitor of the Victorian Fire Service Levy transition has prepared a sets of draft guidelines on misleading conduct, and price exploitation. He has also prepared a webinar on the subject.

Here are links to them.

FSL draft price exploitation

FSL monitor draft guildeslines on misleading conduct

Tough new guidelines for insurance companies

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Congratulations to Insight Award Winners

I had the honour of speaking at this year’s Insight Conference in Cairns last week. This, was the 12th or 13th year I have done so.

At the final dinner, three awards were presented and I would like to congratulate the winners and the finalists that all did so well.

Simplex Insurance Solutions broker Samantha Baker won the Norm Dyer Award of Excellence. The award, sponsored by CGU Insurance, is presented to individuals with up to three years’ experience and aims to encourage industry professionals to follow their dreams and further their academic qualifications.

Queensland broker Natasha Burr of Parmia Insurance won this year’s Les McInerney Award of Excellence. Sponsored by Zurich Financial Services Australia, the award is named after a longserving former Insight chairman. It recognises the achievements of professionals with more than five years’ industry experience.

Founding member of Regional Insurance Brokers Association, Warwick Remington, received the Peter Michell Friends of Insight Award.

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Is a 12 month Indemnity Period long enough? Far too often it is not.

While the length of recover for every business is different, it is my experience that in more and more claims, 12 months no longer cuts it.

As I explain under the heading: “How long should I Insure for?” on LMI BIcalculator (http://www.bicalculator.com/KC/kc1.aspx?id=39) there are a number of factors that need to be considered. (Remember brokers, you can copy and send a link to your clients from this website to assist in the education of your clients)

First of all, let me explain that the indemnity period is the period which the insurance policy will provide cover for disruption to your business. It not only covers the period which it takes to rebuild a damaged building or replace stock etcetera it is the period which you expect the business will take to be back exactly where it was at the time of the loss. This means getting back or replacing any lost customers and/or protection for any on-going increased costs of working to the business. A good example of this is that under many lease agreements the tenant is bound by the lease to maintain the lease if repairs are started within three months and completed within a time period sometimes 6 other times 9, 12, 18 or even 24 months. There is no use having a short indemnity period if a) you have to incur the costs of moving back into the finished building after the indemnity period has expired or b) you have to pay the lease out.

Other things to think about are:

http://www.bicalculator.com/KC/kc1.aspx?id=39

Acceptance of the property claim

How long will it take the insurance company to accept your claim in respect of the loss of assets? In respect of a fire claim, this entails a thorough investigation into cause and in a major loss this process typically takes between 6 and 13 weeks.

Management of the claim

Getting the claim accepted is just part of the process. How proactive the loss adjuster, the consultants such as engineers, builders and the claims department themselves in getting things done, making all important progress payments etc. needs to be considered. Brokers and Insureds ought to give this much more consideration at the time they take out the insurance than they tend to do. Good quality insurers actively work to assist their clients. Others move the Insured from “customer” to “cost centre” the moment the claim happens. Having a longer indemnity period can act as a second form of insurance as, realising that delays are really going to hurt them, it can force otherwise slow insurers/loss adjusters to keep things moving.

 Alternative Premises

Let us assume you cannot occupy the building you usually do. There has been a fire, or perhaps an outbreak of disease. What alternatively premises are available to you? We find in many areas, such as shopping centres, retail shopping strips, country towns that there is a shortage of alternative accommodation available. This is particularly relevant in cases where your business has particular needs. Health department approval for food handling, particular requirements for electricity, gas, lifting, delivery, and storage facilities are just a few examples.

The Connection of Services

The connection or reconnection of electricity, gas, and or telecommunications, can be a problem for the original premises or to the premises to which you may relocate, temporarily or permanently, particularly to newer areas.

Removal of Debris

How long will it take, allowing for the environmental protection authority and work safe rules and regulations to clear the damaged property ready for replacement?

Another point to consider is, in the case of a landlord, just how many of the tenants are insured adequately if at all. Under insurance or worse still no insurance can certainly delay the rebuild process, particularly if the tenants go bankrupt and abandon their debris to the landlord.

Council Requirements

The time frame to obtain council permission to rebuild to current standards sometimes requiring a new planning permit can take several months. This is why most commercial leases now allow the landlord a minimum of three months before they have to start repairs otherwise the lease is at an end. Please check your own lease as part of your planning process.

Environmental Issues

This is certainly becoming an issue in more and more cases and should be carefully considered when setting the Indemnity Period.

Tender Phase

There is the tender phase of obtaining quotations for the reinstatement of the building, machinery and plant etcetera. It takes time to prepare an adequate scope of works and then evaluate the tenders that are received.

From our experience, Insurers are less and less inclined to go down the “cost plus” methodology today which has proved to be so much quicker in the past. As all the costs are verified as part of the verification process with the overhead and profit margin is agreed in advance, the cost of reinstatement is traditionally lower and the reinstatement done faster. As such I cannot see why it is not used where appropriate. In any event, the tender phase does add considerable time to the process and needs to be factored in to the Indemnity Period.

Lead Times on Replacement Equipment

If your business relies on product or machinery that is imported from overseas or is otherwise not immediately available then you need to factor this into your calculations. The more complex the machinery: typically the longer the lead time.

Fit out, Testing, and Commissioning

It is one thing to rebuild a building but then it has to be fitted out. Partitions may have to be built, telephone cables laid, computer networks installed etcetera. For some risks this can be many weeks of work.

Similarly, any new equipment needs to be installed, tested and commissioned. What reasonable time is required here?

The Time to Relocate back into Your Premises

If your business has temporarily relocated after say a fire, you will need to return to your original premises. This can be a time consuming and disruptive period.

Winning back new customers

This is the major point that most or many people overlook. Even when all your property is reinstated you are entitled in many jurisdictions, United Kingdom, Australia, New Zealand and the like to continue to claim under an interruption policy until your turnover has returned to normal as has your expense rate. In the United States the policy typically limits this to a nominated period, independent of your indemnity period.

Add more for Catastrophe Situations

If the business is in an area where a catastrophe is possible such as a hail storm, flood, cyclone, earthquake then at minimum of 25% to 33% increase in the length of the Indemnity Period should be considered as the whole reestablishment process will take longer after a large catastrophe. Following the Victoria “Black Saturday” Bushfires and Christchurch earthquake a minimum of three (3) years was necessary for many SME businesses to be fully protected.

Conclusion

Regardless of the type of insurance, the time taken to win back your customers should be carefully considered when determining what level of indemnity period is required.

It is important that a 3 month cover, i.e. a 3 month indemnity period is not 25% the cost of 12 months. The reason for this is the frequency of short disruptions compared to longer ones. You will find that the cost difference is so small it is better for you to insure for at least 12 months as a minimum.

I strongly suggest you take a longer indemnity period if you feel that 12 months is even the slightest bit “skinny”. Twelve months may sound a long time, but from my experience, it goes far too fast and many a business is only just started rebuilding after a major event let alone fully recovered.

 

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Man Made Catastrophes – Texas explosion in hindsight

Source: www.theaustralian.com.au

I have been travelling around Australia as part of the Zurich Zenith Forum and one of the issues that we have been discussing is whether flood is a man-made or a natural catastrophe.

My own view, as explained in previous postings is that flood plains are for floods and not for homes, factories and shops and that when developers and local authorities allow development in these areas it is a man made catastrophe waiting to happen.

It was the same with the horrifying fire and explosion in the town of West in the state of Texas, USA. First a high hazard fertilizer plant is built out in the middle of nowhere. Later, schools and nursing homes are allowed to be built very near the factory, not to mention homes and in fact an entire community.

Those in the town then seek to have the factory moved but as I understand it the farmers liked the convenience of the factory so close to their farms.

The rest is history. Thankfully, it was not a school day as the loss of life would have been much greater.

I am not saying we should not have factories, nor that we should not have development, but we need to use some basic risk management in the form of common sense when granting permission to build our communities. It will be private enterprise that will pay for the bulk of the financial losses in the form of massive insurance pay-outs. This of course is nothing compared to the human cost in the form of unnecessary loss of life and injury. Hopefully this local authority will learn from this tragic event and not mix high hazard industrial operations with residential living.

It just frustrates me that as communities we have to keep learning the same lesson over and over again the hard way. When it comes to flood, we do not seem to learn for in most Australian municipalities we simply allow the home and business owner to rebuild exactly what was there before and expect it not to happen again!

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Caution in Premium Funding Directors & Officers Liability Insurance

One of the areas of coverage that is available, but not always, under a Directors & Officers, or Management, Liability Policy is for insolvency.

Particularly in these tough times companies do go into liquidation and this can create an risk exposure for the directors from creditors and perhaps shareholders. It is at this time that the directors and senior officers of the organisation require the protection afforded by their Directors & Officers / Management Liability insurance policy.

What would be disastrous is that a premium funding company who finding themselves in the position of not receiving the balance of the premium instalments cancels the Directors & Officers / Management Liability Policy seeking a refund of premium from the insurer. In some cases, directors seeing the exposure have paid the balance of the premium to the premium funder to ensure the policy is not cancelled but this may not be the answer, as it may well create a whole raft of legal issues in its own right, even if they have the personal funds to do so.

My advice is that either this coverage is not premium funded or the policy is non-cancellable. Being a claims made policy, that is the trigger for a claim is at the time a claim is made against the policy holders and notified to the insurer, the policy needs to be kept in force and of course the impending insolvency notified to the insurer.

I have written other articles on the need for run off cover with Directors & Officers Liability, Management Liability, Professional Indemnity Insurance and even Public and Products Liability Insurance. See http://www.allanmanning.com/?p=155 as an example.

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