Customers goods and the huge benefit of LMI PolicyComparison

PCI temporaryWe are handling a large loss for a commercial laundry and dry cleaner and of course there are hundreds of claims from customers.

The Insured is an innocent party to the fire just are the customers but the customers are all looking to recover from the dry cleaner.

The reality is that unless the laundry operator has been negligent in some way or has assumed responsibility to insure the customers goods in advance of the loss, their liability insurer will rightly deny liability for the losses suffered by the customers.

It is possible and it is my recommendation that anyone holding customers goods not just rely on their public liability policy but to insure the customers goods under their fire/business pack or Industrial Special Risks policy as what we in the industry call at first party cover (as opposed to a third party cover). Typically cover will be granted but only for customers goods not insured by the customer themselves under their own policy as this could lead to a situation of dual insurance which can be very messy.

The beauty of this approach is that the Insured is in effect insuring their good reputation and brand image. They can go to their customers and say where the customer does not have their own insurance: do not worry, we took out cover to protect you in this sort of event and we will look after you. The alternative is to try and convince the customers that they (the holder of the goods in care, custody and control) are not liable. Even if they win, the customer gets angry and goes elsewhere telling all their friends, perhaps on social media, that so and so business are terrible.

What we are faced with is a client who does not have sufficient cover and so we have to write to each and every customer and explain there are is no cover in place.

As the people come back to us with their advice as to who is their insurer we can, using LMI PolicyComparison, quickly check, using the product feature function, which home policies cover temporary removal to a dry cleaner and who does not. Believe me this is proving a Godsend to us.

So many things come out of a claim like this including the importance of a good quality home and contents policy to protect our own possessions. This is where you need a good insurance broker to advise you.

This ability to check the entire market on a product feature is also of huge benefit to us during our natural disaster response.

If you are not sure how to use this feature or need any assistance on the product please let me know and I will arrange someone to contact you.

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A reminder, make that a plea, to record the Uninsured Working Expenses where required on a business interruption schedule

A Venn diagram of overlapping circles with the words Best PriceAt LMI we have had a real run of claims we are attempting to calculate where the policy, such as an ISR or one of many of the business packs out there which call for the Uninsured Working Expenses to be listed on the Schedule where none have been listed. This of course creates all sorts of issues, potentially the most damaging for the Insured, a penalty for under insurance.

Turning back to the question of whether the Uninsured Working Expenses need to be listed, in such cases I think the easiest way to explain the answer is by way of example.

Let us assume that the insured or their broker calculated the Declared Value for Business Interruption for a particular client as follows:

Sales                                                                                           $1,000,000

Opening Stock                                     $100,000

Plus Purchases                                    $500,000

Goods Available for Sale                        $600,000

Less Closing Stock                               $100,000

Cost of Goods Sold                               $500,000                           $500,000

Accounting Gross Profit                                                                 $500,000

Less Uninsured Working Expenses in addition to Purchases

Freight                                                 $100,000

Packaging                                            $100,000

Selling Expenses                                  $100,000

Total Uninsured Working Expenses

(excluding Purchases)                           $100,000                           $300,000

Insurable Gross Profit                                                                  $200,000

If the broker  failed to show the Uninsured Working Expenses on the Schedule the loss adjuster acting for the Insurer would turn to the definition of Gross Profit set out in the ISR Policy which defines insured Gross Profit as:

“GROSS PROFIT

the amount by which:

(a)      the sum of the Turnover and the amount of the Closing Stock and Work in Progress shall exceed

(b)      the sum of the amount of the Opening Stock and Work in Progress and the amount of the Uninsured Working Expenses as set out in the Schedule.

Note: The amounts of the Opening and Closing Stocks and Work in Progress shall be arrived at in accordance with the Insured’s normal accountancy methods, due provision being made for depreciation.”

[emphasis mine]

If there are no Uninsured Working Expenses set out on the Schedule as the definition requires then, the loss adjuster will typically only allow Purchases. In fact, there is one loss adjuster in Australia which is reluctant to even grant this expense as uninsured.

The loss adjuster would then calculate the insurable Gross Profit in accordance with the policy for the purpose of testing for under insurance as follows.

Sales                                                                                           $1,000,000

Opening Stock                                      $100,000

Plus Purchases                                     $500,000

Goods Available for Sale                  $600,000

Less Closing Stock                               $100,000

Cost of Goods Sold                              $500,000                           $500,000

Accounting Gross Profit                                                                    $500,000

Less Uninsured Working Expenses in addition to Purchases

None listed                                                                                              $0

Insurable Gross Profit                                                                $500,000

The test for Under-insurance/Average would in this case then be:

Declared Value

Value at Risk as calculated by the Policy     X       the Loss

This equals:

$200,000

$500,000            X        the Loss

The Insured would therefore only receive 2/5 of their loss or 40%. The cruel  irony is that if there were savings in the Uninsured Working Expenses of freight, packaging and selling expenses these would have been deducted from the loss adjusters calculation of Loss of Gross Profit before the test for Under Insurance/Average and so would have copped a double-whammy.

My strong recommendation is that the broker should list the Uninsured Working Expenses on the Placing Slip and that they should in turn be listed on the Policy Schedule. This is in the spirit of the important underlying principle of insurance, namely Utmost Good Faith, so that everyone knows the rules before the claim and no one is unfairly penalised.

So, brokers please always list the Uninsured Working Expenses on the Schedule. If at this time of the year you are reviewing the Schedules coming back for your 30 June renewals and you seen the Uninsured Working Expenses are not listed, please have them included by endorsement.

Underwriters, please do not accept a placing slip which has a declared value for Item 1 Gross Profit, using an ISR as an example, where there are no Uninsured Working Expenses. If there are to be none then, the ISR policy ought to have an endorsement moving the coverage to Gross Revenue.

If you would like to learn more about business interruption, a couple of free places to learn are www.bicalculator.com under the BI Explained tab or read the free ebook, Mannings Guide to Business Interruption.

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Disclaimer: This post has been prepared as a guide and is not intended to be exhaustive. While the utmost care has been taken in the preparation of the article, it should not be used or relied upon as a substitute for detailed advice or as a basis for making a business, financial or insurance decision.
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Risk Management is not set and forget

IMG_3456Last week I was doing an insurance health check on a very complex program for an insured having been engaged to do the review by their broker for 25+ years.

The business had grown and was now exporting and entering a period of rapid growth and they felt that a fresh pair of eyes over the account would give them comfort and provide a value added service to their client.

In the review, it became apparent that a storage facility housed key parts that were necessary for their servicing division and to meet their contractual obligations.

While it was a small value its importance prompted me to seek to carry out an inspection. When I did so I found quite a few housekeeping issues that worried me and broker, client and I were pleased that I took the time.

One of the key concerns that the landlord and co-tenant in the building had decided to store a heap of Extruded Polystyrene Panels (“EPS”) [see photograph] up against the external wall of the building occupied by the Insured.  What is not in the photograph is a derelict car and a heap of other rubbish stuck around the rear of the building by the landlord which would be a magnet for any youth looking for “fun”. I also do not like things left up against the fence which can be an aid to get over the fence in either direction.

This all greatly increased the risk of fire either by a deliberate arson attack or by the accident ignition of the huge stack of EPS.

If you are not sure of the hazard posed by EPS please go to LMI RiskCoach and look at the short course on the subject.

I am yet to determine which grade of EPS this paneling is, but my immediate recommendation was to have the Insured have the landlord remove it immediately. I also recommended that the Insured’s risk and insurance manager visit the site regularly to ensure that this sort of risk had not crept in unnoticed.

Risk Management is not a set and forget thing. It does need regular checks/audits by the Insured to ensure that all risks confronting a business are identified and that the appropriate risk treatment,here removing the unnecessary hazard has been carried out. There are lots of things you can do with risk, remove it, transfer it, accept it, insurance it to name a few. The only thing you should never do is ignore it!

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Blog Question: claim money to wrong bank account

online banking internet bank account serviceGood afternoon Allan. I am in need of some advice and hope you can help.

I have a client who had a legitimate claim paid by the insurer however, when asked for bank account details to deposit the claim settlement into the clients account  the client made a mistake with one number in the bank account number. Subsequently the money was paid into an incorrect account. Our client has therefore never received payment.

I’m wondering if you have heard of this happening before and if you have any thoughts on who needs to take responsibility.

  • Has the insurer fulfilled their obligations in paying the claim if the insured has never received payment?
  • The bank told the insurer they have been unsuccessful in their attempts to recover the money from the lucky customer who did receive the money into their account but say they cannot disclose the customers details due to Privacy Act provisions. Can they merely wipe their hands of the matter?
  • Does our client have to cop the loss because they made the mistake by providing a wrong bank account number?

An interesting one. Hoping you can provide some guidance.

Thanking you,

Ian [Surname and email provided]

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I rang Ian for more details and it is one of those claims where it is a comedy of errors. There were in fact two claims and both insurers drew cheques which were sent to the wrong broker who appear not to have passed them on to the client, the correct broker or back to the insurer.

When the client chased the money both insurers offered to pay the money electronically but the client made a mistake with one digit on the account and both insurers paid it into the nominated account which belonged to someone else.

If this had been a cheque under the Banking Act, (1959) the insurers may have still been liable for the mistake but it is completely different with electronic banking.

If the mistake is picked up within 10 days then the problem can be reversed by the bank and the money retrieved. This is what happened with one insurer but the mistake was not picked up on the second insurer until well after the 10 days. This insurer had in fact paid their money over much earlier.

What is not clear to Ian or myself is whether the client received an email notification that this insurer had paid the money into the account. If they had the mistake may have been able to be picked up earlier.

This is really bad luck for the client as banks try hard not to have consecutive account numbers at the same branch so that they have a double check that the BSB (which stands for Bank State Branch) and the account number match. This suggests to me that it was not the last digit that was written by the Insured incorrectly but another of the numbers that makes up the account number and that this account number was at the same branch. This is quite a fluke.

The other issue is that most businesses on seeing the error would refund the money. Not all and the account holder is refusing to do so.

On my understanding of the position, by keeping the money the account holder is committing an offence and the only right of recourse is to go to the police and get them to find out who it is and contact them in the hope that the involvement of the police scares them into refunding or paying over the money to the rightful owner. Here it is not a large sum and it remains to be seen if the police will get involved.

The matter has been taken to the banking ombudsmen (Financial Services Ombudsmen) who advised that the bank had done nothing incorrect and could not be expected to make good the loss.

The insurer for their part could well argue they have paid the claim in accordance with the Insured’s written instructions and they cannot be help responsible for a mistake by the client.

I always recommend that besides the BSB and account number that the name of the account holder be shown as well and ask that an email confirmation of the remittance advice be provided so that the Insured knows when the money should hit their account and work done to reverse it within the 10 day window I mentioned before.

The amount here is not large, around $2,500 to $3,000 but this is still a lot for a small business and the broker is going to ask the insurer to take a fresh look at it as while the Insured made a mistake, it was because they were rushing as they needed the money and the cheque had been sent to the wrong place in the first place by the insurer. It will be interesting to see how this goes. Logically, I think it boils down to whether the Insurer should have issued the electronic remittance advice and if they did issue one. If they did and the Insured failed to report the money not hitting their account, I think they are in the position they now find themselves through their own actions.

It is a lesson to us all. It is vitally important that the account details like all information provided to an insurer is 100% correct. The old adage about “act in haste, repent in leisure” is very true for clients when it comes to insurance.

As always if you have a different point of view or have something to add, please leave a comment.

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Comparisons now available at PolicyComparison

Comparisons now available at PolicyComparison

As a service to our valued subscribers, we list below the policy comparisons that have been added to

Australia’s premier policy comparison website in the last month. You can now view these comparisons at

www.PolicyComparison.com.

AI Insurance Comprehensive Car Insurance – ComprehensiveCar_0615
AI Insurance Smart Box Car Insurance – SmartBoxCar_0615
Allianz Classic Motor Insurance – POL139CLUB_1014
Allianz Prestige Motor Insurance – POL140CLUB_1014
Ansvar Insurance Limited Landlord Insurance – POL595FIANS_0215
APIA Caravan Insurance – AP02576_0515
ARGIS Insurance Farm Extra Insurance – CASL-GLA-ARGISFarm_0515
Berkley Insurance Australia IT Professionals Liability Insurance – BIA-ITProfessionals_1014
Bingle.com Pty Ltd Car Insurance – B03204_0615
Bingle.com Pty Ltd Third Party Property Damage Car Insurance – B03203_0615
CGU Insurance Ltd Fundamentals Home Insurance with Flood Cover – PID1259-F_REV6_1214-CV458-F_REV1_0415
CGU Professional Risks Insurance Medical Establishments Indemnity Policy – P0038_REV9_0415
CGU Professional Risks Insurance Professional Indemnity Insurance – CGU-PI_1212-P0091_REV5_0515
Chubb Insurance Company of Australia Ltd Peoplesure Corporate Travel Insurance – 15CTPDSPW_0515
Club Marine Limited Pleasurecraft Insurance – CMLPOL_0215
Commercial and Trucksure Fleet and Heavy Haulage Insurance – QM1954_0415
Hollard Insurance Co Pty Ltd Listed Events Home Insurance – SC10089_0213
Hollard Insurance Co Pty Ltd Residential Landlords Insurance – SC10257_0213
IUA (Interruption Underwriting Agencies) Interruption Insurance – QM2443_0515
NRMA Insurance Easybiz Business Insurance – G001215_0515
NRMA Insurance Easybiz@home Business Insurance – G012717_0515
NRMA Insurance Home Insurance – (QLD) – G013947_0515
Resilium Business Insurance – R00026_0314
Resilium Business Insurance for Professionals – R00027_0314
Resilium Trade Insurance – R00028_0314
SGIC Easybiz Business Insurance – G001536_0515
SGIC Easybiz@home Business Insurance – G012742_0515
SGIO Easybiz Business Insurance – G001411_0515
SGIO Easybiz@home Business Insurance – G012741_0515
Zurich Australian Insurance Limited Directors and Officers Liability Insurance – PCUS-009742-2015_V7_0914

We 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.

Should you have any queries, please feel free to contact us. A Contact Us button is provided for this purpose

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the word ‘unsubscribe’ in the subject line.

Kind Regards,

The LMI PolicyComparison Team

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A Good News Claims Story

IMG_0288In April last year, Bolwell Corporation suffered a major fire that could easily have been the catalyst for the entire business to fail.

Through the good work of their insurance brokers, M & R Insurance Brokers, they had a quality insurance program arranged with a reputable insurer, Allianz Australia who, upon hearing of the loss, worked with their loss adjuster Bob Richards of Cunningham Lindsay to do what ever they could, within the coverage afforded by the policy, to assist in mitigating the loss and providing regular and timely progress payments.

Part of the recovery process was for the Insured to temporarily park their caravan manufacturing business which allowed them to focus on their truck parts division. As a result no lost sales were sustained in the truck parts business.

With that important part saved and shored up, the Insured moved back into their caravan business and as part of that, they are being featured in a television show appearing on Channel 10, the show being What’s Up Down Under and also attending a number of caravan shows around south-east Australia.

The Insured asked Allianz if they would like to have Allianz signage on the van and or other promotional material at the shows at no cost to Allianz as a genuine thank you for the way that Allianz had worked so hard to assist them in their recovery.

After having fought so many battles of late to have genuine claims paid, this was a great claim to be involved in. Everyone involved worked together to get a fair and reasonable outcome in a timely fashion. I thought that the Insured’s offer was a great recognition of the appreciation that the shareholders and management team at Bolwell felt towards Allianz as their protector in their genuine hour of need. Well done to all concerned.

To me, it is a much bigger advertisement for the importance of quality insurance with a reputable insurer at the time of a crisis. Not a company that moves you from being a customer to a cost centre the moment you have a loss. The choice of broker, loss adjuster and claims preparer are all important but at the end of the day, it is the insurer who holds the cards and can ensure or destroy a company when they are vulnerable.

The grand re-opening is coming up soon and I know that Allianz will be justifiably one of the key guests of honour.

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