Observations from a Business Interruption Review

bigstock-Business-Interruption-Sign-39078256I was speaking as part of a Generation Z Forum in Coffs Harbour last week and a broker asked me to run my eye over his calculation for the Declared Value on his largest client.

While I prefer to understand the individual risk first, I did make the following observations on two areas that I thought I would share with you.

1. Repairs and Maintenance: The amount deducted was significant and I suggested that the broker make certain that the amount did not have any fixed component. If the Insured has fixed contracts for any part of this that part does need to be insured.

2. Rent was deducted with the note beside it that the lease had a rent abatement clause.

With rent, an insured can sustain a loss of revenue and still be up for the rent. This can be through two main ways.

The first is where there is no damage to the building which would trigger the rent abatement but the business still sustains a disruption. This is about 30% of all Business Interruption claims.

Possible triggers are:

  • prevention of access,
  • public utilities outage,
  • murder or suicide,
  • an insured loss arising from say a fire at customer’s or supplier’s premises,

The second way is where the client relocates and starts paying a new landlord, but their revenue has not returned to full pre-loss levels.

I also pointed out that a lot of modern leases do not allow the Insured to break the lease if the landlord commences repairs within a certain period, say 3 months and completes the repairs within say 12 or 18 months, or even longer. This means your client could be paying double rent if they were to relocate temporarily, take out a 2 or 3 year lease on the temporary premises and the work at the old premises is fixed in 9 months.

I have written before on where the Insured owns the building in a different legal entity and the need to insure the rent both as part of insurable Gross Profit and as Loss of Rent. The simple reason for this is that both insured’s could sustain a loss at the same time from the one event.
For any /all these reasons I would typically insure loss of rent.

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Limit v Sub-Limit of Liability on Additional Extra Cost of Reinstatement Endorsement.

Questions And AnswersI received the following question in respect to the Additional Extra Cost of Reinstatement. It took a bit of research to find the answer and so I thought I would share the findings with you.

The question was:

Allan,

I wanted to pick your brain on endorsement ADDECPC4 which reads:

Additional Extra Cost of Reinstatement B

(Applicable to buildings, machinery, plant and all other property and contents other than those specified in items (b) to (i) under Basis of Settlement).

The policy extends to cover the additional extra cost of reinstatement including demolition or dismantling of the insured property damaged, necessarily incurred by the Insured to comply with the requirements of any Act of Parliament or regulation made thereunder or any by-law or regulation of any municipal or other statutory authority and not otherwise recoverable under the terms and conditions of the policy.

Provided that the indemnity afforded by this clause:

(a)         shall be limited in respect of each loss or series of losses arising out of any one event to the amount shown in the Policy Schedule against Additional Extra Cost of Reinstatement (B), which amount shall be separate from and additional to the Limit of Liability expressed in the Schedule of the policy in respect of buildings, machinery, plant and all other property and contents other than those specified in items (b) to (i) under Basis of Settlement;

(b)      shall not include the additional cost incurred in complying with any such Act, regulation, by-law or requirement with which the Insured has been duly required to comply prior to the happening of the damage; and

(c)       shall not be subject to the Co-insurance Memorandum contained in Section 1 of the policy.

The work of reinstatement (which may be carried out wholly or partially upon another site or sites if the aforesaid Act, by-law or regulation so necessitates subject to the liability of the Insurer(s) not being thereby increased) must be commenced and carried out with reasonable despatch, failing which the Insurer(s) shall not be liable to make any payment beyond the amount that would have been payable under the policy if this Memorandum had not been incorporated therein.

Our liability shall not exceed the amount of the sub-limit stated in the Schedule of the policy against “Additional Extra Cost of Reinstatement (B)” for any one loss or series of losses arising out of any one event or occurrence.

I have received a couple of queries noting that the endorsement appears to extend cover beyond the Limit of Liability on the policy. My understanding of the intent of this endorsement is that it extends cover beyond the existing sub limits, particularly “Extra Costs of Reinstatement” but, in all cases the Limit of Liability for the policy would remain as our maximum exposure.

How do you view the endorsement ?

Name and email address provided.

===================

I replied as follows:

Originally the ISR was designed to have a Limit of Liability which was all encompassing with any Sub-Limit to be paid out of the Limit of Liability.

This Limit of Liability was to be higher than the Declared Value for 2 main reasons.

One to allow for inflation in reinstatement costs between the start date of the policy and the date the works were completed; and

The second to cover any additional benefits which were not subject to co-insurance such as removal of debris, extra cost of reinstatement.

This worked  well until some insurers capped the percentage uplift for the Limit of Liability to 10% of the Declared Value. This left a potential uninsured portion even though the client had been charged for coverage such as Additional Extra Cost of Reinstatement. As such, it was felt necessary to provide the coverage for Additional Extra Cost of Reinstatement in addition to the Limit of Liability.

The wording you referred to was the “B” version of the endorsement. The “A version of the endorsement, XTMURXB4 was drafted and has been in use since circa 1990 and has been widely accepted in the market. That endorsement had the same wording but had an embedded Sub-Limit of liability of $250,000.

When I was commissioned to revisit the endorsements about 15 years later, I made the conscious decision to remove all the embedded sub-limits from within endorsements and have the sub-limit appear in the Policy Schedule so that the Underwriter, Broker and Insured all knew up front what the level of coverage was.

I did not change the wording of the endorsement other than that and so the words of endorsement ADDECPC4 continue to provide this coverage in addition to the Limit of Liability for exactly the same reason as the problem had not gone away.

In fairness, some insurers do allow the sub-limits to be added to the Declared Value before the percentage uplift but there are still many who do not negating one of the great benefits of an ISR policy.

In the 24 years that the endorsement has been around I only know of 1 case where the sub-limit has been paid in addition to the Limit of Liability and in fairness, if the insurer received a premium for the coverage then the client should I feel be compensated.

I hope this explains the situation.

Regards

Allan

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English Case sets to explain the duty of a broker when it comes to setting the sum insured

http://www.dreamstime.com/royalty-free-stock-photo-arrow-signs-not-my-fault-shifting-blame-image18471565In the case of Eurokey Recycling Ltdv Giles Insurance Brokers Ltd [2014] EWHC 2989 (Comm) the broker was being sued when the Insured found they did not have any where near adequate business insurance.

Far too often we see the broker being seen as a second line insurer when the Insured find themselves without the incorrect or inadequate insurance.

While the case is an English one and is not binding on Australian law it would nevertheless be regarded as persuasory. It also is a good reminder to us all as to our duties to the Insured. In this case the judge stated that based on the legal “authorities, the expert evidence and the parties’ submissions that, as relevant to this case, the following principles apply to business interruption insurance:

(1) Whilst a broker is not expected himself to calculate the business interruption sum insured or choose an indemnity period, both of which are matters for the commercial client, the broker must provide sufficient explanation to enable the client to do so. This will include an explanation of the method of calculating the sum insured, which will likely require an explanation of terms such as ‘estimated gross profits’, ‘maximum indemnity period’, and the considerations to take into account when choosing a maximum indemnity period.

(2) In order to do this, the broker will need to take reasonable steps to ascertain the nature of the client’s business and its insurance needs (Youell v Bland Welch & Co. Ltd (Superhulls Cover No. 2)[1990] 2 Lloyd’s Rep. 431 at 445, Phillips J; Dunlop Haywards (DHL) Ltd v Barbon Insurance Group Ltd [2010] Lloyds Rep. I.R. 149 at [168(1)], Hamblen J; Saville v Central Capital [2014] CTLC 97 at [29-30], Floyd LJ; M Simpson, Professional Negligence and Liability (2013), at para 10.144).

(3) In Arbory Group Ltd v West Craven Insurance Services [2007] Lloyd’s Rep IR 491, Judge Grenfell pointed out at [25] that “Insurable ‘Gross Profit’ is a term of art which means something very different from what an experienced businessman might expect”, adding that “a broker owes a duty to his client to ensure that he fully understands that term of art”. I would respectfully put it slightly differently, and say that the duty is to take reasonable steps to ensure that the client fully understands the term.

(4) An insurance broker providing the type of service that Giles was providing in this case is neither required nor expected to conduct a detailed investigation into a client’s business. However, and in so far as this was suggested, the broker’s duty is not diminished because his firm may offer an enhanced service at additional cost (in this case the “Giles Plus” service). Regardless of the availability of additional services, the above duties apply to any broker who takes on business of this kind. Nothing in Sharp v Sphere Drake Insurance Plc (The Moonacre) [1992] 2 Lloyd’s Rep. 501 at 523 suggests a contrary conclusion. (In closing, the defendant accepted that the broker’s duties were not diminished by the fact that Giles offered the Giles Plus service, its relevance being simply that the firm did not undertake specialist duties such as calculating the business interruption sum insured or choosing an indemnity period.)

(5) The nature and scope of a broker’s obligation to assess a commercial client’s business interruption insurance needs will depend upon the particular circumstances of the case, including the client’s sophistication, and the number of times the broker has met the client in the past (William Jackson & Sons Ltd v Oughtred & Harrison (Insurance) Ltd [2002] Lloyd’s Rep IR 230 at [29], Morison J). Contrary to the claimant’s submission, the fact that ICOBS 6.1.5 to 6.5.7 does not make reference to a client’s sophistication is not inconsistent with this, since the matters referred to in these rules are stated to be non-exclusive. (ICOBS is the Insurance Conduct of Business sourcebook published by the regulator, the FCA.)

(6) In that regard, although business interruption insurance is for commercial clients, the level of client sophistication will clearly vary enormously. It cannot be assumed that an SME (like the claimant in this case) will have any understanding of the nature of the insurance. (In this context, the evidence in this case is that the insurance industry unlike some other parts of the financial services industry does not have standard procedures for the identification and recording of sophisticated clients.)

(7) Further, although as a matter of common sense a client may not need annual repetition of advice previously given and understood, this assumes that the responsible personnel remains the same. It also assumes that the giving of the advice can be properly demonstrated by documentation (or otherwise), and the onus is likely to be on the broker to show this.

(8) If a client who appears to be well informed about his business provides a broker with information, the broker is not expected to verify that information unless he has reason to believe that it is not accurate (Jackson & Powell, ibid, §16-069, and Synergy Health (UK) Ltd v CGU Insurance Plc [2011] Lloyd’s Rep. I.R. 500 at [206], Flaux J).

(9) Having satisfied these obligations, where a broker is given express instructions as to the cover to be obtained, he must exercise reasonable care to adhere to those instructions (Colinvaux’s Law of Insurance, 9th ed, 15-034).

In this case Giles were found to have fulfilled their duties and as a result they avoided a Professional Indemnity claim of £17 million.

www.BIcalculator.com and in the United Kingdom BIcalculator.co.uk  was invented to assist broker in the education process with the client. I am proud to say that the broker in this case Giles are one of LMI BIcalculator’s client’s in the United Kingdom and moving forward I am sure they will be using the service as proof of the quality of their advice.

BIcalculator is not the only such product with PolicyComparison and RiskCoach also developed to assist in the education process as both a sales tool and protector of the broker’s professional indemnity program.

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Loss of Water Under an ISR Policy

Red Iron Tube In PoolI was asked to provide an opinion by one of my colleagues who had been appointed as a loss adjuster under a stand alone Business Interruption policy. The circumstances were that a water pipe had failed under a concrete floor and a large amount of water had escaped. As a result, the Insured had received a very large excess water bill. The broker had lodged a claim under an Industrial Special Risks “ISR” policy, but the claim had been denied on the grounds that consequential losses were excluded. The broker then lodged the claim under the Business Interruption policy and, hence, LMI’s involvement.

This issue has come up more times that I think most people realise. It can also arise with the stealing of electricity as well. The loss is clearly a recoverable loss under an ISR policy and is not a Business Interruption claim. I will explain why.

Let me start by looking at the property insured. The ISR policy, whether it be the Advisory or Modified wording, defines the Property Insured as:

THE PROPERTY INSURED

All real and Personal Property of every kind and description (except as hereinafter excluded) belonging to the Insured or for which the Insured is responsible or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which the Insured may acquire an interest during the Period of Insurance.”

Water is not excluded property under an ISR Policy. As soon as the water passes the water metre, the water is the property of the Insured and the Insured is certainly responsible to the water supply authority for the cost of the water. Therefore, the lost water falls within the scope of the definition of “the Property Insured”.

Next, we need to look at the trigger for the policy. While the ISR policy is often called an Accidental Damage Policy, the trigger is as follows:

 In the event of any physical loss, destruction or damage (hereinafter in Section 1 referred to as “damage” with “damaged” having a corresponding meaning) not otherwise excluded happening during the Period of Insurance at the Situation to the Property Insured described in Section 1 the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, indemnify the Insured in accordance with the applicable Basis of Settlement.” 

Turning now to the exclusions, it is appropriate to look at perils exclusion 4 a) which reads:

The Insurer(s) shall not be liable under Sections 1 and/or 2 in respect of:…

 4.         physical loss, destruction or damage occasioned by or happening through:

 (a)          moths, termites or other insects, vermin, rust or oxidation, mildew, mould, contamination or pollution, wet or dry rot, corrosion, change of colour, dampness of atmosphere or other variations in temperature, evaporation, disease, inherent vice or latent defects, loss of weight, change in flavour texture or finish, smut or smoke from industrial operations (other than sudden and unforeseen damage resulting therefrom).”

In the first instance, the loss has been occasioned by or happened through rust or corrosion. Both causes of which are excluded. The damage occasioned in the first instance is to the pipe and the damage to the pipe is clearly excluded.

The ISR policy has an all important write back for resultant damage to Perils Exclusion 4. This reads

Provided that this exclusion 4 (a) to (e) shall not apply to subsequent loss, destruction or damage to the Property Insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion.”

The effect of this proviso is that where circumstances that are excluded under Perils Exclusion 4, create other circumstances that are not excluded and which causes subsequent loss  to Property Insured, that loss is covered by the Policy.

The subsequent loss here is the loss of the water.  The whole issue of what is subsequent damage, what is meant by a peril that occasions subsequent damage and what is meant by the phrase “not otherwise excluded was addressed in Prime Infrastructure (DBCT) Management Pty Ltd v Vero Insurance Ltd  & Ors (2004).

In that case, the weld that failed was said to be damaged many years before the collapse of the machine. It was certainly not entertained by any party, nor ought to it have been, that the subsequent collapse of the entire machine was a consequential loss. I will return to the meaning of consequential loss later.

In the Prime Infrastructure case ‘Peril’ was found to mean:

Exposure to injury, loss, or destruction; risk; jeopardy; danger” .

Here there is no doubt that the escape of the water is subsequent loss of the water, which is exactly what the drafters of the write back clause had in mind when they drafted the write back provision.

Turning now to the definition of “Accidental Damage”. While the policy defines the term, “Accidental Damage” it only does so for the purpose of imposing a Sub-Limit or Policy Deductible. In other words, it is restricting the underwriter’s liability – not broadening the coverage.

I support the view of the claims officer that the loss is not caused by one of the perils listed and, therefore, the loss would be subject to any Accidental Damage Sub-Limit or Deductible. It is a bit tricky as the word “water” is shown in the definition but the loss is not physical loss .. caused by …water. Water is the property lost and not the cause of the loss. It is a fine but important distinction.

So, recapping:

  1.  The damage to the pipe itself is excluded.
  2. The cost of locating the leak but not the cost of fixing the pipe is covered under the policy, but not as accidental damage, but is limited to the Sub-Limit /deductible for Accidental Damage. The cover is, in fact, in place due to additional benefit (c) under the policy heading, The Indemnity.
  3. The loss of the water is subsequent, as opposed to consequential loss and is therefore covered under the policy, subject to the Sub-Limit for Accidental Damage not being exhausted.

Turning back to the issue of consequential loss. To suggest here that the loss of the water is consequential loss is like trying to suggest that theft of property is a consequential loss of someone breaking into the building, or a fire is a consequential loss to a rat chewing through a wire. They are subsequent not consequential losses.

The types of loss that are true consequential losses other than that covered by a business interruption policy are described in the remainder of the exclusion. The most common one I see is that, say, food in a fridge is undamaged in a fire by smoke or heat. However, the power goes off to the refrigerator and as a consequence of their not being any power the food perishes.

No business interruption policy or consequential loss policy that I can think of would cover the loss of the water. Section 2 of the ISR policy would not cover the loss of the water, even if the Insured had elected to take out the cover under the policy. The reason is that it is a first party or property loss, not a consequential loss.

As I said at the start of this opinion, there have been many claims considered under ISR and business pack policies for this type of loss or the loss of electricity where it has been stolen. In all cases, the claim has been met under the policy as a valid property, in the case of a ISR Section 1 Material Damage loss.

Hopefully in this case, my explanation will allow the insurance broker to go back to the property insurer and have them to reconsider their position in view of the above explanation and also advise the business interruption insurer that the claim under their policy has been withdrawn, as there is no coverage provided for this type of loss under the business interruption policy.

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LMI are Pleased to Announce the Release of Cyber Policy Comparisons

Cyber Comparison 2With the release of new cyber security policies into the Australian Market, LMI’s PolicyComparison.com are pleased to announce that, as from today, cyber is the 19th class of insurance being compared on the website.

The major policies released so far include: Chubb, Dual and Zurich with others soon to follow. The training module “Points to Consider” is being built at present and will be released within a month.

Other initiatives to assist brokers, underwriters and Insured’s to understand the risk, products on offer and the differences between the coverages are also being updated on LMI RiskCoach, as well as a new eBook for the series, specifically in cyber, is also coming soon.

In the meantime, please logon to PolicyComparison.com and compare the features and benefits of the cyber policies on offer.

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Recent updates on PolicyComparison.com #insurance

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I am often asked for a summary of the new comparisons that have been updated on the PolicyComparison.com site over the past month. With this in mind, I now list below the policy comparisons that have been added to Australia’s premier product features and benefits comparison website in the last month listed in alphabetical order by insurer/underwriting agency. You can now view these comparisons at www.PolicyComparison.com.

Allianz Cargo Insurance within Australia – POL615BA_0613
Allianz Carriers Insurance Package – POL260BAAMT_0613
Allianz Commercial Motor Insurance – POL124BA_0413
APIA Advantage Car Insurance – AP02571_0814
Australia Post Gold Car Insurance – AustPost-Gold-Car_0614
GIO General Limited Landlord Insurance – 22217_0813
Insure That Pty Ltd Asset Protection Policy – AssetProtection_0314
Insure That Pty Ltd Business Liability Policy – BusLiability_0514
Insure That Pty Ltd Business Protection Policy – BusProtection_0514
Insure That Pty Ltd Farm Liability Policy – FarmLiability_0514
Insure That Pty Ltd Farm Protection Policy – FarmProtection_0314
Insure That Pty Ltd Property Owners Liability Policy – PropOwnersLiab_0514
Insure That Pty Ltd Property Protection Policy – PropProtection_0314
Insure That Pty Ltd Strata Protection Policy – StrataProtection_0314
Lumley Insurance Landlord Protection Cover – PLHPDS90002_0514
Mobius Underwriting Residential Strata Insurance – Mobius-ResStrata_0514
Professional Risk Underwriting Civil Liability Professional Indemnity – ProRisk-PI_0713
Tasman Underwriting Accountants Professional Indemnity Policy – tasman2011accountantspiwdg_0314
Tasman Underwriting Insurance Brokers Professional Indemnity Policy – tasman2011insurancebrokerspiwdg_0314
Tasman Underwriting Professional Indemnity Insurance – tasman2011miscpiwdg_0314
Terri Scheer Landlord Preferred Policy – TS00005_0314
WFI Residential Strata Plan – RSPPDS-03_0314
WR Berkley Insurance (Australia) Miscellaneous Professions Professional Indemnity Insurance – WRB-MiscPI_G2_0613
Youi Insurance Car Insurance – YouiCar_0714
Youi Insurance Caravan and Trailer Insurance – Caravan_0714
Youi Insurance Home Insurance – Youi-Home_0814
Youi Insurance Watercraft Insurance – Watercraft_0714
Zurich Australian Insurance Limited Electronic Equipment Insurance – PCUS-008286_V2_0114
Zurich Australian Insurance Limited Product Safety and Recall Insurance – PCUS-005699_V1_0811

 

I take this opportunity to remind you that the LMI PolicyComparison website offers more than policy

comparisons. Visit the site to view our extensive policy library, Standard & Poors’ financial strength ratings,

a list of alternative markets, and more. We also do policy drafting and peer reviews of wordings.

Should you have any queries, please feel free to contact the team at LMI PolicyComparison  by going here.

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I Didn’t set the fire – Arson and the Onus of Proof

Holding Decorative Scales Of JusticeIntroduction:

A recent court decision in New South Wales looked at the issue of whose duty it is to prove whether the Insured was or was not involved in setting a fire, which was clearly deliberately lit.  My colleague, Mr Peter O’Brien, Director of LMI Legal, looks at this for us below, on a subject that I for one thought was considered as settled law for as long as I can remember.

Background

The plaintiff was the owner of a home in Orange, NSW, which was extensively damaged by fire on 27 December 2006.

The fire had doubtlessly been intentionally lit and occurred under suspicious circumstances, which gave rise to the police investigating the plaintiff, her fiancé and a friend.

Due to the unsavoury circumstances surrounding the fire, the insurer denied liability and argued that the plaintiff bore the onus of proving that the fire was not deliberately lit by her or someone who had entered the home with her consent. The relevant wording in the policy provided that:

 …, we will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone

 – who lives in your home, or

 – who has entered your home or site with your consent, or the consent of a person who lives in your home.”

First Decision

The court of first instance, in observing that the clause was an “exception clause”, went on to find that the plaintiff not only had to prove that a “fire” had occurred but, somewhat unusually, bore the additional onus of then proving that “a fire was not started by someone who entered the property with her consent with the intention of causing damage”. Presumably, this approach was favoured by the court because of the suspicious events leading up to the fire.

Result of Appeal

In McLennan v Insurance Australia Limited [214] NSWCA 300 the court reversed the decision of the court of first instance and held that the burden of proving that the fire was not deliberately lit did not rest with the plaintiff, but with the insurer.

The court’s reasoning is in accordance with established principles that once an insured has established that the claim falls within the scope of the insurer’s promise, the burden then shifts to the insurer to prove that the claim is not otherwise defeated by an exception that the insurer seeks to rely upon.

In other words, if an insurer seeks to rely on an exception, the general rule is that the insurer must prove the application of the exception

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Fire Service Levies rising in New South Wales #insurance

fsl taxInsurers in New South Wales, the only mainland state that still has Fire Service Levies on insurance, have been reviewing the adequacy of the charges to ensure they have sufficient to meet their obligations to the New South Wales government.

As a result of premium rate reductions and expected increase on the total tax impost, the Levy is expected to increase.

QBE have advised that for new business written on or after 11 October 2014, the following rates for Fire Service Levy will apply:

  • Fire/ISR/Consequential loss 31.5% (previously 28.0%)
  • Construction risk 31.5% (previously 28.0%)
  • Householders & house owners 17.5% (previously 15.5%)
  • Motor 1.0% (previously 0.5%)
  • Valuables 3.5% (previously 3.0%)

These NSW levies include the statutory contributions system for the funding of the NSW Emergency Services (SES).

It is extremely disappointing to me and any thinking member of the public that the New South Wales State Government have not acted on their promise to remove this archiac tax from insurance, which has the unintended but serious consequence of encouraging home and business owners not to have adequate insurance. This does not help the home or business owner, business employees, the community or the New South Wales economy when a loss occurs.

Surely we do not need another Royal Commission as we did after the Canberra Bush Fires or the Victoria “Black Saturday” Bushfires for this government to do the right thing by the public and remove the tax from insurance.

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LMI Opens Tasmanian Office #insurance

Cutting A Red RibbonI am pleased to announce the opening of our first office in Tasmanian today with the opening of an office in Hobart today.

The office will be managed by Gary Price, a highly qualified Chartered Loss Adjuster with over 30 years experience.

I and the leadership team at LMI have been keen to provide our claims and sum insured review services in Tasmania, in addition to our eServices, but it is important that we had the right staff in place. With Gary – we certainly have that.

I will be travelling to Launceston this afternoon and will be introducing Gary to brokers in town today and tomorrow.

Map Of TasmaniaThe new Hobart office will service all of Tasmania but, as with all our offices, will be able to draw on the services of LMI’s Legal, Forensic Accounting, Mining, Engineering, IT and Risk Management teams to support them as and when required.

One of the things that we will be doing in conjunction with the opening of this new office, will be pushing the Tasmanian Government to remove Fire Services Levy on insurance.

With the opening of the Gold Coast office earlier this month, LMI have now actioned half their plan with Canberra and Coffs Harbour offices to come before year end.

LMI has had long standing offices in Melbourne, Sydney, Brisbane, Perth, Adelaide, Illawarra, and the Mornington Peninsula, as well as Auckland New Zealand, and Singapore.

Contact for any LMI service is as follows:

Australia
Business Hours    1300 LMI GROUP (1300 564 476 – within Australia only)
After Hours           0423 LMI CLAIMS (0423 564 252 – within Australia only)
Email                    claim@LMIGroup.com
New Zealand
Business Hours    +64 (0) 9 414 6330 (0800 001 964 – within New Zealand only)
After Hours           +64 (0) 21 535 148
Email                    nz@LMIGroup.com
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A lot has Been Written About Lessons Learned, but how soon we Forget…

Lessons LearnedI read an article that suggested that Risk Committees/ Governance Committees etc are particularly naïve about the potential for a Lessons Learned regime to:

–       identify Risks as they arrive; and

–       mitigate them before they become a serious problem.

It is my own experience that there are additional bottom line profits being generated from lessons learned.

With a great team of insurance claims experts as part of the LMI Group, they are all encouraged to pass back the lessons learned from every claim they attend by commenting on risk management learnings, problems with the insurance coverage etc. This is collected by the Group’s Chief Knowledge Officer who transfers the information to the relevant LMI eSevice (our on-line research and comparison sites), as well as to all our claims and risk management team, so they can then pass on the learnings to our customers. I do the same by incorporating important lessons into my training sessions.

Not everyone takes this approach. A few years back, a major organisation had a large loss arising out of one of the natural catastrophes. The Insured found they were under insured to the tune of $50+ million dollars. As a result, they realised they needed someone with the correct skills to act in the important role of Manager of Risk and Insurance.

The Insured, in turn, engaged me to do a complete review of their insurance program and a full Business Interruption Sum Insured/Declared Value review. This resulted in the Declared Value and Limit of Liability being trebled. As an aside, the premium went up by a much lesser amount.

Once a year, I would make contact with the Risk and Insurance Manager and we would discuss what changes the organisation had gone through and what changes (if any) needed to be made to the program. My tailored template for the business interruption calculations was used each year by the Risk & Insurance Manager and I would double check the logic and calculation.

Last week I revisited the client to find that the organisation had completed a restructure and, as part of the cost cutting, had retrenched the Risk and Insurance Manager and reallocated the role of insurance officer to an accounts payable clerk. This, in a business with billions of dollars of assets and huge revenues.

It will not be long before the existing program will be out of date and when this does happen, the business will be back in the same position with a huge contingent liability hanging over their heads.

I went away shaking my head in disbelief at the short term mentality and lack of understanding at what is at risk for all the stakeholders of the organisation, by not heeding the lessons learned from the not too distant past.

Of course, it is not just the big end of town that make such decisions. How many of us see the losses arising from natural and man-made disasters night after night on television and think it will never happen to me! That only happens to other people. What if it did? How would your risk, business continuity and insurance programs stack up?

I personally learned a lot about the benefits of lessons learned for LMI from Ian Fry of Knoco Australia . I met Ian more 10 years ago when I needed someone to bring PolicyComparison on line. He did a great job then and still does in his chosen area of expertise of knowledge management and lessons learned. I end with Ian’s details should any one wish to learn more from the master.

ian

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