Well done NT govt in dropping stamp duty on life insurance, what about GI too!

http://www.dreamstime.com/-image21100032It was pleasing to read in InsuranceNEWS yesterday that the Northern Territory government is removing all stamp duty on life insurance. It did raise a number of questions and thoughts in my mind though which I share with you below.

I would ask the Northern Territory Government to consider also removing stamp duty on general insurance. Insurance in the north of Australia is high due to the frequency of storms and cyclones and the removal of stamp duty would reduce the burden on home and business owners. Government ought to remember that the more people look after themselves with insurance the less burden their is on government.

What was not made clear is that the Northern Territory government followed the lead of Victoria and Western Australia in adding the taxes to the trauma and disability covers typically added to life insurance.  These are general insurance taxes and there  is a general belief that this will raise more than the duty on life insurance that’s been dropped. For many people the trauma and disability covers are more important than straight life cover.

One thing that came immediately to mind is how can the life insurance industry lobby and get this important concession whereas, general insurance which is all over the news over the high cost cannot, through its lobby organisation, get a reduction in government charges, when I would argue it is more important to the community and economy to do so.

The ACT government is on a program to remove all taxes on general insurance and it is interesting to note that the territory governments are more attuned to the needs of their constituents than the state governments who still whack their citizens with high stamp duty and in the case of New South Wales and Tasmania, outdated and unfair Fire Service Levies.

In contrast to the ACT government, following the Brisbane floods and Cyclone Yasi, the Queensland Government increased Stamp Duty putting an even greater burden on Queenslanders who were forced to pay much higher premiums due to the size of the payouts made by the general insurance industry. Even if they had held the stamp duty rates, the government would have had more revenue as Stamp Duty is a fixed percentage of premiums, the terrorism levy and GST. Part of it is therefore a tax on a tax. Not satisfied with this, the greedy Queensland Government increased Stamp Duty to 10% making it the equal highest in Australia!

When the taxes are high like this, basic economics tells us that people will buy less and be under insurance or inappropriately insured in the event of a loss.

With the flood mitigation works promised by the Northern Territory Government as part of the proceeds of the sale of TIO, plus some lower taxes, it does position the Northern Territory well for future investment.

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Blog Question on Tenant Insuring the Building

Risk Management.The question posed was:

Allan, our client has for several years had a policy covering his property, liability, rent, and glass.

He has now realised that the tenant also has cover for the building, liability, rent and glass.

I have explained to the client that the sum insured on the building is under insured by $1,500,000, he is not covered as a property owner for liability and the loss of rent, which is also inadequate at 6 months, does not cover him.

Whilst he is noted as an interested party does this extend to cover him as a beneficiary?

I have tried to explain this to my client but he has received a letter from the tenant advising that they have placed cover as required under their lease and there is no need for him to pay the sort of premium he is paying to us.

He also referred this to his lawyer who had advised that “ it is not our clients prerogative to insure the premises otherwise there will be a duplication”

I feel that my client is un-adequately insured and mis-advised by third parties.

Are you able to confirm or otherwise what I am seeing as I would like to re-visit my client and his lawyer with the “facts”

Kim [surname and email provided]

My reply was:

Hi Kim

I have written many articles on this issue and I firmly believe that any owner of property should retain control of the insurance on their property and on their income stream, that is, the rent.

When a tenant arranges insurance, typically, all they are interested in is the price of the insurance and not the level or quality of the coverage, the claims service, nor the financial strength of the underwriter.

When it comes to under insurance, it is important for every building to fully appreciate the ramifications of being under insured. A common misconception is that there is no risk until such time as the loss exceeds the sum insured. This is simply not true.

Let us assume the following. The building is worth $2,000,000, but it is insured for $1,000,000. A storm causes damage to the roof, say hail and a bit of water to the interior, to the total value of $250,000.

The Insurer will allow a tolerance of typically 80%. They would then settle the claim on the following formula.


Sum Insured = $1,000,000

80% of Value at Risk of $2,000,000  x  the loss ($250,000)

 

= $1,000,000

$1,600,000 x $250,000

 

The Insurer would pay 62.5% of the claim, or $156,250, less any policy excess.

The building owner would then have to pay the balance of $93,750, plus any policy excess.

Further, if the premises are not tenantable, the tenant would stop paying rent in accordance with the Rent Abatement clause of the lease and the building owner would be out of pocket with this, as well as having to meet the ongoing outgoings of rates, etc.

As a claims professional, I also see cases where the tenant breaches a policy condition or fails to pay the premium on time and the landlord is suddenly in a position of not having any insurance at all. They are stuck with the damaged building, removal of debris and no income.

Ironically, the last one of these I had was where the landlord was, himself, a lawyer who did not understand the risk he had taken on, until the premise suffered a major fire.

In my opinion, your advice to the client is without question the correct advice to fully protect the Insured’s valuable asset and his/her income stream.

The final point I would make is that six months loss of rent is completely inadequate. It can take twelve months or longer to obtain council permission.

I hope this fully explains the situation but if not here is an article I posted a couple of years back on my blog. http://www.allanmanning.com/letting-the-tenant-insure-the-building-on-behalf-of-the-landlord-is-rarely-sensible/

Regards

Allan

=========

Thank you so much.

I thought I was on the right track but when My client involved his lawyer I needed to be 100% sure that what I was saying was accurate

I appreciate your valuable time.

Kim

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How to make your clients love you rather than hate you

Love and Hate, closer than you think - 3d imageAt a recent conference I explained that following a lowest price strategy was not the way to go for a general insurance broker in the 21st century.

I then set out an alternative strategy and explained that one of the golden rules of business was not to make your client’s hate you. I used the example of airlines, which seem to go out of their way to find ways to upset their clients. In the time I had, I used some of my own experiences with JetStar, one of which I had posted as an article in this blog. If I would have more time on this point, I would have used the example of a musician named Dave Carroll who had difficulty with United Airlines. United, apparently, damaged his treasured Taylor guitar (US$3,500) during a flight. Dave spent over 9 months trying to get United to pay for damages caused by baggage handlers to his custom Taylor guitar. During his final exchange with the United Customer Relations Manager, he stated that he was left with no choice other than to create a music video for YouTube exposing their lack of cooperation, to which the Manager responded: “Good luck with that one, pal.”

So he posted a retaliatory video on YouTube. The video has since received over 6 million hits. United Airlines contacted the musician and attempted  settlement in exchange for pulling the video.
Naturally his response was: “Good luck with that one, pal.” Taylor Guitars sent the musician 2 new custom guitars in appreciation for the product recognition from the video that has led to a sharp increase in orders.

Here’s the video! I was presently surprised how good it is and it shows the power of social media and what damage you can do when you make a client hate you. http://www.youtube.com/watch_popup?v=5YGc4zOqozo

I was, therefore, pleased to see one airline working on a positive strategy to reconnect with their customers and make their customers love and speak about them in a positive way. I think this is a very clever strategy and if, like me, you have left something on a plane and have not got it back, this is a smart move on many plains. Excuse the terrible pun! To view the short video, that I am sure will put a smile on your face, please click here.

Think about what you can do to have your client’s love you and your business. Providing a great claims service during their hour of need is clearly one of the most important for those in the insurance industry.

One final point. On the day I had my rant about JetStar at the conference, I received a call from Qantas apologizing for my experiences and they gave me 10,000 frequent flyer points for passing back the feedback. To be honest, I would prefer to just be treated fairly and honestly by JetStar or any service provider, don’t you. Like most of us, I do not have time to write and complain, I just vote with my feet and go elsewhere.

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Why I love what I do

Feingold AwardLast Friday, I had a great day. First up, I was pleased to award Feingold Flowergrowers and their insurance brokers, Fitzpatrick Insurance Brokers, with a much deserved Phoenix Award. This signifies, a business that has suffered very severe damage and/or a disruption to the business and survived.

The inspiration for the award came from my doctoral research into business survival, which showed that 50% of businesses that suffered a major loss failed within 2 years. The whole drive behind LMI is to reduce this statistic by working with quality insurance brokers and their clients. If a business gets through this very tough time they are usually the better for it. As the words on the award say: the finest steel has to endure the hottest fire.

Feingold Flowergrowers of Lyndhurst, south east of Melbourne, suffered a major fire which could easily have destroyed their business but, due to the hard work of the owner John Feingold, his senior manager Craig Ellis and their staff, backed by the expertise of Fitzpatrick Insurance Brokers and the speed and reasonableness of The Hollard Insurance Company, Feingold’s not only survived but are now doing better than ever. Last week and the orders for the next couple leading up to Mother’s Day are all records for the business. Well done to all those involved. Seeing a business recover like this is why I am still actively involved in claims.

From this uplifting award ceremony, I attended a meeting with Midas Insurance Brokers as part of a presentation to a client who had just acquired two other very large businesses and now found themselves with three insurance brokers and were looking to appoint one to look after the now billion dollar plus business. I am pleased to say that the proposal put together between Midas and LMI for risk management; insurance coverage review including property and business interruption valuations and loss management services convinced the financial controller to engage Midas.

The trust placed on LMI and Midas creates a great deal of responsibility, not only to the financial controller but to the owners, employees and all the stakeholders who will be relying on the insurance program to cover any losses should anything trigger an insurance claim. Having worked with Midas and other similarly minded insurance brokers in the past, I am confident that the team of risk surveyors, forensic accountants and insurance experts at LMI can bring the three programs together into a world class program.

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Uber does a deal in the US on motor insurance

Turn Knowledge into PowerBack on the 3rd October last year, I warned that the exclusion that appears in most private and commercial motor policies which voids the policy in cases where the car /vehicle is being used to carry fare paying passengers is likely to effect  Uber operators in Australia.

It was therefore pleasing to read that Uber has done a deal with a couple of insurers in the United States. With this sorted hopefully they can come a similar arrangements for their operators in Australia and New Zealand.

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