Blog Question: Requirement to advise insurer when major home renovations are undertaken

Home ImprovementHi Allan,

I was in discussion with an insurance underwriter who was dismissive of me when I suggested that one of our staff needed to advise his company when a major renovation was being undertaken to one of our client’s home.

Could you please advise if the requirement to advise the insurer is still market practice.

Thanks and regards

John [surname and email provided]

Hi John,

I would confirm that the long standing common law requirement to advise an underwriter if the risk exposure increases still stands and of course this includes major alterations to the building. This is the case for domestic as well as commercial buildings.

This common law position is reinforced in the insurance contracts with insurers stipulating at what monetary level they want to be advised.

I ran a quick comparison using LMI and found that like most things there is no industry standard among Australian home policies.

It does vary in the market with one being as low as $2,000, yes only $2,000! Others were $20,000, $25,000, $30,000, $75,000, $100,000, $150,000 and $200,000. In other words it is all over the shop. As always it is important to read the individual insurance contract concerned to ensure at what level an individual client needs to advise the underwriter.
It may be that depending on the size and complexity of the renovation that the insurer will not accept the risk and it may be necessary to purchase contract risks insurance on the existing structure(s).

I hope this is of benefit to you, your client and your team.




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Sydney Siege Finally Treated as “Act of Terror” for Insurance Purposes

Police in hi-visibility jackets policing crowd control at a UK eIt is pleasing to see that the Federal Treasurer finally made the necessary declaration enabling those with insurance to lodge claims for property and business interruption losses from their insurer with the Australian Reinsurance Terrorism Corporation once their self retention has been exhausted.

I appreciate that there were many things to consider and that the Christmas/New Year period intervened but to take a month to the day for the declaration to be made and this is in my opinion far too long. It has been a long and agonising wait from many business owners effected by the forced shut down of the surrounding streets and businesses during a peak trading period.

When a client has paid an insurance premium and on top of that a flat 12% terrorism levy, in some cases for over 11 years, it is not unreasonable to expect that they be provided with some prompt piece of mind and more importantly, cash flow.

The insurance industry themselves are constantly under pressure to perform in a timely fashion and if this were any other peril, the government, among others, would be critical of such a time lag. The Insurance Council of Australia’s (“ICA”) Code of Practice at clause 7.10 states when it comes to claims that:

7.10 If you make a claim and we require further information or assessment, within ten business days of receiving your claim we will:

  1. notify you of any information we require to make a decision on your claim;
  2. if necessary, appoint a loss assessor or loss adjuster; and
  3. provide an initial estimate of the timetable and process for making a decision on your claim.

Many insurers were not able to meet this standard and in at least one case refused to allow the Insured to even lodge a claim.

Ever since the Cronulla Riots of 2005, the circumstances of which technically fell within the definition of terrorism under most policy exclusions, I have called for a fairer system for the insuring public. To my mind, if an Insured is paying an an insurance premium and an additional levy, which compared to world markets is on the high side, to obtain protection for terrorism, then they should be able to immediately claim off their insurance policy. After that, the insurer then makes a claim against the Australian Reinsurance Terrorism Corporation as they would with any other reinsurance program they may have in place. There should be NO gap between the policy exclusion for terrorism and the cover afforded by the Australian Reinsurance Terrorism Corporation.

I know a number of businesses and brokers that have contacted me for assistance and advice during this long wait and again I say I am extremely pleased for their sakes and that of all the businesses effected that the declaration has now been made. With the 4th review of the Australian Reinsurance Terrorism Corporation to take place this year, I ask that this issue be considered along with the long standing ones such as mixed use strata properties which is a topic in itself.
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Blessed News – The Arrival of Audrey Victoria Manning

Audrey Day 1Many readers saw me introduce at the 2014 NIBA conference an image of the scan of my future granddaughter.

She was anxious to start learning about insurance (the Mr Owl book) and arrived 20 days premature on Thursday 8th January. She is named Audrey Victoria. Despite being tiny at 2.58 kgs (5.5 lbs) she is in very good health and came home yesterday.

Mother Chantelle (and father Steve) are doing well.

While I will not be bombarding my blog with baby photos I do share this one with you of Audrey shortly entering this world and my heart.

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Blog question: Why do we Make Business Interruption so Difficult?

The word Why in red 3D letters and a question mark to ask the reHi Allan,

I am sorry to email you direct with a question however I am no longer on LinkedIn.

If it is not something that you could assist me I will understand.

I am having trouble putting in words why something is done a particular way…in the basis of settlement why is it that we “apply the rate of gross profit to the reduction in turnover” and just don’t do a straight calculation and pay” the gross profit that the business would have received then deduct savings and add on for additional expenses “

My thinking is that if we don’t use the widely used and accepted practice then we will end up with a flawed outcome for the client – because if the business is still receiving some income then it has some ability albeit (reduced ability) to pay some expenses .

I hope this makes some sense and would really appreciate the value of your input to get my head around why I know it needs to be done by applying the rate of GP to the reduction in turnover.

Thank you for time it is appreciated.

Kind Regards,

Steve [surname and email provided]

I responded as follows:

Hi Steve

The issue is that insuring accounting gross profit alone could and often would leave the client with an uninsured portion of the loss. For example in some industries, wages are included in the calculation for accounting gross profit and if we insured the accounting gross profit they would not have cover for this major expense of an important part of their business. There is a bit under LMI which explains this in more detail.

What some insurers are moving  to is to insure Gross Revenue and then do what you say and deduct savings. To arrive at the premium to charge they are using the LMI Indicative Rate of Gross Profit from LMI RiskCoach which shows the percentage of turnover (Gross Revenue ) that is typically not required to be insured.

The simplest way is to insure your clients turnover less purchases and then make a fair and reasonable allowance for growth over the next few years. Remember if you use LMI many insurers will wave co-insurance and it being a smart form the whole calculation process is mapped out and explained for you and your client.

Hope this helps.



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Having only the Farm Assets Insured is Only Part of Being Fully Protected

Source: Channel 9 News

Source: Channel 9 News

A number of rural communities have been effected by the recent bushfires in Victoria and South Australia.

The ones that I know about thankfully have their fencing, crops and livestock insured, but what is so often missing is any form of Business Interruption cover.

This starts with what some insurers call Farm Continuance Cover. This allows the owners of the farm to continue to meet their ongoing farm expenses while their ability to earn is effected due to the loss of pastures and/or crops. The coverage is very reasonably priced and I urge farmers to consider at least this cover.

For some forms of farming, full Business Interruption cover is a better option.

It is not just the farming sector that should consider this form of coverage. As always, I recommend that you speak with your insurance broker or adviser to ensure that you and your business are fully protected whatever industry you are in.

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LMI Legal opens Melbourne Office

LMI Legal LogoI am pleased to announce that following the ongoing success of LMI Legal, the practice opens an office in Melbourne as of today.

With offices now in Sydney and Melbourne, the specialist insurance law practice will continue to service all states and territories in Australia.

LiorThe Melbourne practice will be headed by Lior Maisner under Practice Leader Peter O’Brien. Lior has
many years experience in the law and holds both a law and business degree.


Contact details for each office are as follows:


Telephone: 02 9906 5966



Telephone: 03 9835 9977



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