Blog Question: Increased Cost of Working

Thinking smiling woman with questions mark above

“My client is an electrical & refrigeration contractor with an ISR policy with both Sections 1 & 2 insured.

A minor amount of sales takes place at their premises being retail and counter sales. 95% of all other business activities are conducted away from the premises on site.

Historically the Insured has had Insured Gross Profit across all their activities however this is overkill as the BI policy would not respond to a claim in relation to site work.

Can the Section 2 cover be structured along these lines:

Insured Gross Profit cover for retail/counter sales as they appear in the Insured’s accounts;

Plus a separate “Increased Cost of Working” first loss limit for all other business activities plus;

Plus a separate Additional Increased Cost of Working limit?

Karl” [surname and email provided]


I responded to Karl the following:

“Hi Karl,

The issue here is more than the insured having a loss at their premises. If there was a prevention of access or wide area damage, then the insured could not trade for a few weeks. Even if it was just one major customer and they could not relocate their major resources to some other work, then they would be funding their wages and the contribution that the sales make to their overheads themselves.

The good thing about an electrician is that if there were to be a fire, or say storm damage, it could be that they do not lose the sale but it is just a delayed sale with the potential for additional sales. It really depends how long it will take before approvals are given before the insured can start as to whether or not they would suffer a loss at all. However, the issue always is how are they going to fund it in the short term? Let’s say it is 3 months that they don’t have any sales, this is not deemed to be an increased cost in working / additional increased cost in working and the insured have to self-fund it themselves.

What they could do is get additional overdraft or some short term loan if they are able to and the interest component would be claimable as an increased cost of working.

I’m not sure what the premium saving that would be achieved is, but in a soft market albeit, I assume this client is in Queensland, I’m just not sure that the saving in the premium is worth the additional risk.

If the Insured is insisted upon taking this approach and if I were the broker I’d be low to be recommending it. You could just declare the revenue at the location where the Insured has their premises, clearly stating that as the only situation and the only profit that is being declared.

One further thing that comes to mind is that if the insured purchases all their supplies through this location and have their write up on the job for the products sales allocated to this location, they may in fact be suffering a loss across their entire business greater than is being suggested by the retailing counter sales and this would need to be looked at carefully.

If this is not an issue then going back to where I was, you would declare your value for retailing and counter sales only, give the location and put the declared amount, being sales less purchases. Then have a figure across all locations for additional increased cost in working,  I would recommend that this be for a minimum of 2 years.

You’re not able to have increased cost in working. The reason is the increased cost in working has a series of tests including economic limit test and a soul purpose test which by the fact that you’re not insuring the gross profit at the other locations could never be triggered. The only cover available would be the additional increased cost in working which has no such tests.

I hope this helps.



Read Me View comments

More attempts at scams to be careful of

Scam AlertI have received two very similar scam emails today. Please do not let yourself or your clients get caught by them.

Hi Allan Manning,

We are emailing to bring your attention that, despite previous notices, there remains an unpaid amount of $ 1,262.93 in respect of the invoice(s) attached to this letter. The invoice was due for payment on 24 April, 2016.

Our credit terms state that full payment within 3 days and this amount is now over 10 days past due.

If the full sum, as set above, is not cleared within 5 days of the date of this notice, we will start legal action, without alert, for a court order commanding payment. We may also commence insolvency proceedings. The costs of court proceedings must also be paid in addition to the financial obligation.

This email is being sent to you according to the Procedural Direction on Pre-Action Conduct (the PDPAC) contained in the Civil Procedure Guideline, the Court has the power to sanction your continuing failure to act.

 We are hoping for a immediate reaction to this communication.

Thank you.

Sally Bruce

General Electric Empl Fcu

+61.02.8907.0444 x 023


The second one read:

Hello Allan Manning,

We are contacting to alert you that, despite previous reminders, there remains an unpaid balance of $ 1,803.67 in respect of the invoice(s) contained in the current email. This was scheduled for payment on 29 April, 2016.

Our credit terms state that payment en-full within 3 days and this total is now over 10 days overdue.

If the full invoice total, as set above, is not paid within 7 days of the date of this email, we will initiate legal action, without alert, for a court order commanding payment. We may also commence insolvency proceedings. The costs of court proceedings must also be paid in addition to the debt.

This email is being sent to you according to the Practice Direction on Pre-Action Conduct (the PDPAC) included in the Civil Procedure Code, the Court has the power to sanction your continuing failure to act.

We look forward to your timely reaction to this email.

Thank you.

Vanessa Evans

Davis Street Magnet School
+61.02.8668.6000 Ext: 068

Read Me View comments

Hot Works Exclusion Revisited.

Builder handyman with construction tools. House renovation backgI have been helping a sole trader who was working on the roof of a client’s property. His role as a plumber was to install a solar hot water system.

During the process, he heated a pipe to silver solder it together. He did this as he thought it was a better job than using the new plastic tubing and crimping it.

Whilst conducting his work he realised that the roof had a bitumen based sisalation and he thought that he took significant risk prevention measures to stop a fire starting.

The process included using a piece of fibro/cement sheeting which is a non-combustible material which he laid over any visible sisalation.

In my experience, this would have worked fine had he been using a grinder as while the material is non-combustible, it does transfer heat. He was not aware of this and clearly during the heating of the pipe process with the open flame torch the bitumen sisalation caught fire causing significant damage to the home.

It was only after the event that the Insured became aware that the Policy he had arranged with his direct Insurer, had a hot works exclusion. As with most of the Policies out in the market that have such an exclusion, it was buried deep into the policy and did not set out what the terms and conditions or the requirements of the Australian standard for hot works entailed.

Australian standards are not free, but in the case of this particular standard it costs in excess of $200 to purchase. As part of my involvement in this I did a straw poll of a number of plumbers that do work in the Insurance industry and not one of them advised that they had the standard or had been trained on it. The Insured in this case, stated exactly the same.

The introduction of this standard is a relatively new exclusion in liability policies having only started around 20 years ago and is becoming more and more popular. To me, it creates a real moral dilemma for the Insurance industry. On the one hand, the incorrect use of a blow torch or a welder does constitute a hazard but this is a normal part of the trade of a plumber, a welder, a panel beater and a raft of other trades people.
In this case as a sole trader, the plumber found himself with all of his assets fully exposed and no insurance policy to cover his defence costs let alone the replacement cost of the home and contents.

An alternative to having the exclusion buried in the policy is to impose an endorsement based on the occupation code. I prefer this option as at least it brings it closer to the client’s attention and shows up on the Policy Schedule.

Even here, I still feel that it is not quite right as the client is still required to purchase the standard. I think the exclusion should set out the key features that they should keep in mind. This to me is only a couple of paragraphs. Having said this, the reality is that the Australian standards are so onerous that I doubt any trades person, in particular the small to medium business sector, could ever comply with them, particularly if they want to have any chance of winning a job price wise.

I was going to write a very detailed point on this but when I searched the topic hot works on this blog, I found that I have written something back in 2014 which I think still stands as correct today. Here is a link to the article if you would like to read more.

At the end of the day, our industry was set up to protect our communities economy and our Insured’s. If we fail in this basic duty by marketing policies that fail to protect risks that our customers would expect to be covered for, then we risk either further legislation or an alternative form of protection being sought.


Read Me 2 Comments

Blog Question: Erection All Risk – Basis of Loss Settlement Clause

Thinking man and question mark

I received a question through the blog as follows:

In the event of any loss or damage the basis of any settlement under this Policy shall be
a) In the case of damage which can be repaired – the cost of repairs necessary to restore the items to their conditions immediately before the occurrence of the damage less salvage, or
b) In the case of a total loss – the actual value of the items immediately before the occurrence of the loss less salvage. However, only to the extent to the costs claimed had to be borne by the Insured and to the extent they are included in the Sums Insured and provided always that the provisions and conditions have been complied with.”

What does this mean?” Arthur [surname and email provided]



I assisted Arthur with the following:

“Hi Arthur,

Property insurance typically has  1 of 2 methods to calculate the amount that is to be paid when a claim arises.
The first is called Reinstatement and Replacement, commonly called ‘new for old’. This means that if say a roof was damaged and was 20 years old, the insurer will repair or replace the roof in the event of damage to a condition as new. This means the insured / policy holder gets a new roof without having to contribute to the replacement cost.

The second method, and the one in your example, is what is known as an Indemnity Basis of Settlement where the settlement is based on the pre claim condition of the property – not its replacement cost.

Taking the roof example again, if it were to be damaged and it was half way through its life, the insurer would only pay half the cost to repair or replace it. The policy holder would have to contribute the other half plus the policy deductible.


Having said all that, if it is an Erection All Risks policy I would expect it would all be new materials and so no deduction for age or it’s pre claim condition would be warranted. If the policy covered some existing structure or equipment then it becomes an issue.

With Indemnity settlements their can be disputes over what the amount of any deduction should be where the insurer and policy holder have different views on the age, condition etc, therefore how much is a fair deduction from the claim payout for the damaged property.

The second part of the clause states the insurers maximum payment is the sum insured and nothing more. This is normal and reasonable as this is what the insurance premium has been based on.

The final part states that any claim is subject to the other terms, conditions and exclusions of the policy. This is quite normal but it is important that the policy holder understands all of these to avoid any misunderstandings or to ensure that they do not do something that voids the coverage afforded by the policy.

I hope this explains everything for you.




I hope this assists all of your to understand the Basis of Settlement some more.

Read Me View comments

Tips on cleaning gutters

drainIt never ceases to amaze me just how wide this blog is read. In response to an earlier post on one of my pet hates in building construction, undersized box gutters,  I received a very polite note advising me of a site which provides tips in how to clean gutters.

With Autumn well and truly upon us which means lots of falling leaves in many parts of the southern hemisphere and more wet weather I thought it timely to share the advice which can be found here.

Remember the old adage, a stitch in time saves 9 and this is certainly the case with water damage prevention v water damage.

One last thing, while home maintenance is of course important. But so is your safety. Too many people are injured or worse, killed working off ladders or slipping off roofs. If it is the least bit dangerous or you are over 55, I would strongly suggest you get someone to do it professionally.

Thanks Steph for sharing.

Read Me View comments

Disturbing findings from the Wye River fires


A friend of mine’s family holiday home destroyed in beautiful Why River. Photo courtesy of Channel 9.

The findings from a CSIRO report released into the Wye River and Separation Creek bushfires and as reported in The Guardian, ‘Houses built after Black Saturday fires fared worse in Wye river fire, report finds’.

Part of me cannot believe it. We have the slowest most expensive most bureaucratic local authority planning process in any jurisdiction I do claims. This causes unnecessary emotional and financial stress on home and building owners often to the point of failure of the business. The owners feel completely helpless in the process and see the cost of construction increase substantially and their design, usable space etc often drastically changed. For what. In this case a worse outcome than before.

The other side of the coin is that designing a building to withstand a raging bush fire is no easy task with clearly the best strategy to have an adequate fire break around the structure. But here again you run foul of local authorities who put great emphasis on preserving trees even when they pose a treat to life and property in a severe storm or fire.

It certainly is not an easy problem to fix but it is something I would like to see the insurance industry have more influence over in both the design phase and in speeding up the approval process to something that is half reasonable.

Read Me View comments

Suncorp and IAG Research Initiative to be congratulated

Source: Bureau of Meteorology

Source: Bureau of Meteorology

It was pleasing to see that IAG and Suncorp will join forces with James Cook University to study the impact of tropical cyclones on strata properties in the region.

As we all know, the industry has taken a lot of poor publicity for rate increases that were certainly necessary and to actually have some detailed research completed to accompany the excellent work of the Federal Governments Auditor-General Department will hopefully help explain the risk issues to the industry critics.

Read Me View comments

Business Continuity Awareness Week!


Business Continuity Awareness Week
16th – 20th May 2016

This week is Business Continuity Awareness Week!

An important week for businesses around not only Australia, but the globe. This week highlights the importance of being prepared as a business for those times when disaster or disruption occurs. The Business Continuity Institute brings us this important week because ‘we all know that when the lights go out, the walls come crashing down and the IT infrastructure is beyond just switching off then on again, it is vital to have a business continuity plan, something that will help us manage through any disruption. But there is so much more to business continuity than this, and the aim is to bring out some of these ideas during the week.’

An important message from the Institute during this time is ‘business continuity is not just an overhead, it is a good investment’.


LMI Group will be releasing the new ContinuityCoach soon that will allow Small to Medium enterprise businesses to generate their own business continuity plan. It will assist with not only the generation of the plan, but also the process of implementing and testing the plan as well as activating when required. Keep watching this space !


Read Me View comments


Today the new look LMI Group YouTube launches! LIVE NOW

LMI Group are working behind the scenes to bring you demystified insurance jargon on all topics within insurance that will assist brokers, insurers and everyone looking to buy insurance or wanting to understand more about it.

Today we have gone live with two videos for you “Insure your stuff properly” and “This WILL save your business” which will provide you with a clear, concise and slightly humorous approach to understanding these sometimes complicated topics.

You can find the channel here: 

And I encourage you to subscribe as each week we will bring you new videos to watch, learn, understand and even share with your colleagues or friends who may want to understand too.

I, and LMI Group, look forward to sharing more of our videos with you, and please, if you would like to see a particular topic covered, send it through to us either in the comments or to



Read Me View comments

Lottery Syndicate Winners Coverage

One winning ticket on pile of losing entries in lottery or rafflAs we take LMI and our eServices internationally we are seeing the different covers available in other jurisdictions. It was only a few weeks ago, that we noticed in just one UK policy a coverage for “Lottery Syndicate Winners”. At the time we thought it something in the insurers marketing department had come up with and that, like shark attacks would be little if ever used.

Then a few days ago I see in the news an article, a bit closer to home, where 14 employees at a company in Sydney won a jackpot overnight and all instantly pocketed $3million each. Lucky for them!

This instantly caught my attention as the reality of the situation set in, whilst unusual, the effect of these 14 employees handing in resignation to their place of employment, all at the same time, would cause substantial interruptions to the operation of that company, if they were to do so. This, what seemed trivial cover at the time, now looks like it should be considered in all Business Insurance Policies and is not just a bit of marketing hype.


Read Me 1