Please take a minute and have your say

I appreciate that it is a very busy time for many people in the insurance industry, but the survey for this year’s Mansfield Awards for Claims Excellence closes at 8am on Tuesday.

So please take a few minutes over the weekend and have your say on who has done the right thing, lifted their game, let you down or anything in between.

A reminder that the Mansfields is not based on a nomination process and every insurer and underwriting agency is open to win. There are no fees to either complete the survey or to be included in the survey.

The awards themselves are a not for profit initiative with the purposes of, as the name suggests, recognising and claims excellence, driving positive change in the insurance industry, and rewarding the claims team that do great things for their insureds, the company and brand insurance.

To have your say please visit http://www.surveygizmo.com/s3/1639869/Claims-Survey-current 

If you would like to come along and help celebrate the champions of claims, please go to http://www.mansfieldawards.com.au/ to reserve your place.

Thank you in anticipation of your time.

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Dame Joan Collins thoughts on claims preparers

When Steve and I were over in London last, we met with the director Alex Balcombe of Harris Balcombe one of two firms vying for the title of the longest running claims preparation company in the world. They are one of the foundation members of the International Institute of Claims Preparers (“IICP”) and now have the 6th generation of the one family still involved.

Alex had to cut the meeting short as he had just been appointed to a claim for the well known English actress, author, and columnist Dame Joan Collins.

Now all the rectification work has been completed and the claim settled, Dame Joan offered her time to do a testimonial. What resonates with me in the interview is the way she explains the strength of the relationship that develops between the Insured and the claims preparer as they help them through a very difficult time of their lives. Like so many of the LMI team, the claims preparer becomes part of the Insured’s family.

To view the short video go to https://www.harrisbalcombe.com/video-testimonials/dame-joan-collins/

Well done Alex, it is this sort of care that we demand in our membership at the IICP.

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Thanks InsuranceNEWs and all those that wrote

Just a quick post to thank Terry McMullan and the team from InsuranceNEWS for picking up on my blog post on Monday about the effect that the Australian Government’s decision to remove Insurance Loss Adjusting from the Skilled Migration Program will have on our industry.

A number of people saw either the InsuranceNEWS article or my blog post and have written in expressing their concern. The deadline for this is today so if you have not already, please complete the public submission on why this proposal will be damaging to both the insurance industry and the Australian people generally at https://www.jobs.gov.au/consultation-skilled-migration-occupation-lists

To be clear, we are looking to ensure the Insurance Loss Adjuster profession (599612) remains on the STSOL (short term) and preferably moved to the MLTSSL (medium long term) lists.

This, I think, all comes down to few people really understanding the value of general insurance, and the claims function in particular. We see this with the number of claims to the Financial Ombudsmen Service and the need for government enquiries.

This demonstrates the importance of the Mansfield Awards for Claims Excellence, set down for July 5 in Sydney.

Besides brokers and insurers helping the cause, we have also had help from those who know people in government and working with senior personnel within the major loss adjusting firms operating in Australia, we will be seeking to meet with government advisers and politicians to explain our cause.

Thanks again to all those that are helping in trying to have the decision to remove loss adjusters from the skilled migration occupation list overturned..

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Natural Perils – learn more about floods, hurricanes, sinkholes, and volcanoes with Disaster Week on SBS

Coinciding with the release of LMI’s ContinuityCoach.com Version 2.0 next month, SBS is kindly running a 4 part series of documentaries on Natural Perils.

While Natural Perils are only 1 of 12 categories of risk that ContinuityCoach addresses, it is an important one with not all necessarily covered by insurance.

Sinkholes: Deadly Drops’

Imagine if your backyard just disappeared one day – falling into a hole that opened up in the ground. Or if your house split in two when a sinkhole collapsed underneath where you live. This documentary looks at the destructive force of sinkholes, which can occur suddenly, taking property and lives down into the earth with them. Combining first-hand accounts and geological explanations, this three-part documentary series provides a fuller understanding of the naturally occurring, potentially deadly phenomenon.

Watch Sinkholes: Deadly Drops on Sunday 17 June at 7:30pm (AEST) on SBS.

 ‘Killer Floods’

We’ve seen some devastating floods in Australia and tsunamis hitting our neighbours in the past couple of decades – surges of water that have left hundreds of thousands dead and caused billions of dollars’ worth of damage. Examining the way a number of landscapes have been changed, scientists hypothesise whether cataclysmic deluges could be the cause and not gradual erosion. They also try to determine what the cause of the floods might have been and whether ones of that magnitude could strike again.

Watch Killer Floods on Monday 18 June at 8:30pm (AEST) on SBS.

‘Killer Hurricanes’ (Cyclones Typhoons)

Hurricanes, typhoons, and cyclones kill 10,000 people on average a year, and can cause immense damage to infrastructure and residences. But were these super storms any more or less powerful throughout history? That is the focus of this documentary, which sees scientists looking at evidence of hurricanes from up to 1000 years ago, starting with the Great Hurricane of 1780, which struck throughout the Caribbean and killed an estimated 22,000 people. What do their findings suggest about what we can expect from hurricanes in the future? I think we all know the answer to this one.

Watch Killer Hurricanes on Wednesday 20 June at 8:30pm (AEST) on SBS.

‘Killer Volcanoes’

While many natural disasters have a localised impact, volcanic eruptions can cause mayhem on a global scale. So while Australia may think we avoid this one, do we? With more than 1500 active volcanoes in the world, of which about 50 erupt each year, this is an occurrence we are all too familiar with today. And while some volcanic activity from throughout the centuries is well known (such as the Vesuvius explosion that consumed Pompeii), scientists in this documentary analyse evidence of what might have been the largest eruption in human history.

Watch Killer Volcanoes on Friday 22 June at 8:30pm (AEST) on SBS.

 

Being in business is all about managing risk. While natural perils are certainly one to consider, another big one to consider is caused by humans. As with all our eServices, a great deal of work has gone into the coaching/training element to assist brokers and their clients identify, evaluate, and treat risk in their business.

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R.M.S Titanic – Launched 106 years ago today

Today is the 106th Anniversary of the launching of the Royal Mail Ship Titanic in Belfast, Ireland.

As we all know, the 40,000 tonne ‘unsinkable’ ship struck an iceberg on the 14th April 1912 sinking early the next morning, the 15th April 1912 with a loss of around 1,514 lives.

Lloyd’s of London paid out £1,000,000 (modern day equivalent over £107,500,000) within 30 days of the sinking. To put this into perspective, total payouts on all marine claims by Lloyd’s that year was approximately £6,500,000.

Early in my career, I was told that there is no such thing as a prestigious account. The Titanic was marketed as a prestigious account and as a result, a very favourable premium of only £7,500 was charged for the £1,000,000 sum insured (and we think rates are cheap today!).

Being the avid collector that I am, I recently acquired a plate and cutlery which were manufactured for the Titanic but never made it on board. The items were put aside in a warehouse to replace theft and breakages, but with the sinking of the vessel, the items never got to be used. They now have pride of place in the reception of LMI Group’s head office in Melbourne.

Earlier this year, I received a piece of coal that had been recovered from the wreck of the Titanic and I think this is where my collection will finish.

I never thought I would be lucky enough to own a piece of this history, let alone 4. 

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Are Interest Costs claimable as an Increased or Additional Increased Cost of Working?

This is a question often put to me as some loss adjusters and insurers push back when it is claimed.

If I start with the actual wording from the Australian Industrial Special Risks policy which is found in many other policies, it reads:

“The Insurance under this Item is limited to Loss of Gross Profit due to: (a) Reduction in Turnover; and (b) Increase in Cost of Working, and the amount payable as indemnity there under shall be:…

…The additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.”

If the Insured needs to pay a deposit on replacement stock or machinery or even make a fortnightly pay-roll and need to borrow funds to keep the business afloat, while the business has been disrupted due to an Insured Event, or because the Insurer has not made sufficient progress payments to allow them to fund this expenditure from insurance monies, then to me, in any interpretation of the Increased Cost of Working definition, the Insured is entitled to claim the additional interest that they have incurred in consequence of the damage.

I stress, the interest expenditure cannot be existing interest, for that should be included as an Insured standing charge in any event and be fully covered under the Item No. 1 (a). The two tests, being sole purpose test and economic limit test, obviously would both apply.

In view of the relatively low interest rates that are currently being charged around the world, I do not expect that the interest charges, unless the claim was protracted for an extended period of time and the amount borrowed was significant, would not pass the economic limit test. If it did not, or the Insured only had additional increased cost of working cover only, then the Insured would be able to make the claim under “Item No. 4 (Additional) Increased of Cost of Working”.

This reads:

The insurance under this item is limited to increase in cost of working (not otherwise recoverable hereunder) necessarily and reasonably incurred during the Indemnity Period in consequence of the Damage for the purpose of avoiding or diminishing reduction in Turnover and/or resuming and/or maintaining normal business operations and/or services.

Here, the coverage goes further and states that the expenditure only has to be made to maintain normal business operations. Therefore, it goes without saying that if the insured had to borrow additional funds to maintain normal business operations and/or services then the interest paid to do so would be an additional increased cost of working.

Claims for this item are a relatively new phenomenon, typically brought about by the fact that some insurers are no longer willing to make reasonable progress payments to assist the insured during the initial phases of a loss. In fact, some insurers insist that the Insured incur the costs under Material Damage before they will reimburse them. In such cases, if their insurer has failed them and they have had to rely on the banking or other finance sector and incurred a cost to do so, then surely this is a legitimate Increased Cost of Working. To deny such a claim is a clear case of wanting the cake and eating it too.

To me, this is such an obvious increased cost of working, I cannot understand why it is being refused so often.

Perhaps, if it continues the only alternative will be to have it tested by the courts, but to me, it is a lay down misere.

 

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Have your say for the Mansfield Awards

The second annual Mansfield Awards for Claims Excellence will take place on Thursday, 5th July evening in Sydney.

If you have not put your name down as yet, please visit the website.

Unlike other awards, where people nominate and the award can be given to the person who provides the best proposal, these awards are based on a survey as well as data obtained from the Financial Ombudsmen Service.

If you would like to have your say and participate in the survey with claims service you have received, either as an Insured, insurance broker, or repairer, you can do so at ClaimsComparison.com.

 

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Blog Question: How do you deal with Increased Cost of Working incurred during a Waiting Period (Time Excess)?

I received this question which comes up from time to time.

Hi Prof. Manning,

As we know, the increased cost of working (ICOW) of Business Interruption (BI) insurance, that certain expenses may be incurred following loss or damage to try and maintain business activity, such as renting alternative premises, hiring additional staff and additional advertising.

What happens if the interruption is shortened under deductible days as a result of ICOW being incurred?

How can I deal with ICOW incurred during a waiting period?  which cost is payable?

How the average daily value deductible shall be deal ?

Looking forward to your reply,

Many Thanks

[name withheld]

 

In this situation, there are a few options. Under the principle of Utmost Good Faith, and typically to comply with a condition within the policy, the insured must take ALL reasonable steps to mitigate their loss. This means, incurring the increased cost of working costs as soon as practical to mitigate the loss, not only during the time of the waiting period, but in the balance of the indemnity period.

The second option is to wait until the time excess has expired, however as I say, this would be in breach of a policy condition and fly in the face of the principle of utmost good faith.

The way I have treated this is to try and be fair to all parties. I look at not when the cost was incurred, but to whose benefit the expenditure has meant. For example, during the Longford Gas Crisis in Victoria, Australia in 1998, the gas supply’s were cut to thousands of businesses in the state of Victoria. The expected period of disruption was not known and everyone was clambering to look for alternative ways of mitigating their loss. This included for some, changing out jets from natural gas to liquid petroleum gas (“LPG”), and installing LPG tanks. This was a significant cost to large manufacturing companies.

 

The loss occurred on a Friday afternoon and this installation work may have occurred over the weekend when the manufacturing site was not operating in any event. Therefore, while the expenditure was incurred during the waiting period, or time excess, the benefit was all to the insurer from Monday morning when the plant was able to return to normal, due to the expenditure incurred during the waiting period. In that case, I recommended and insurers accepted that the expenditure should be paid in full as the benefit from the expenditure was all to their benefit.

In other cases, say for a restaurant, the peak days for the restaurant were Friday night, Saturday lunch, Saturday evening, Sunday lunch and Sunday evening, as it was the grand final weekend for a major football league, many restaurants were closed on the Monday. As it turned out, the period of disruption was a total of 10 days. Again, here I apportioned the benefit received against the expenditure. Let’s assume that the expenditure was incurred on the Saturday morning which allowed the restaurant to operate Saturday lunch & dinner and Sunday lunch & dinner, closing for Monday in lieu of a day off on the weekend and was open for the next 6 days. In this instance, I would apportion the expenditure again based on the benefit to the Insured during the waiting period and the Insurer during the balance of the indemnity period. Here, I did not use days but rather the revenue generated on each of the days and portioned it for the benefit received by the Insured in the first 48 hours and then the Insurer for the balance of the indemnity period.

Every senior loss adjuster and claims preparer, who deals with business interruption claims, believes that time deductibles or waiting periods are more trouble than they are worth. In my book, Business Interruption Insurance and Claims, I have outlined just 4 of the major problems with time deductibles.

What would be fairer and easier, certainly from a quantification point of view, would be a straight monetary excess/deductible.

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Insurers forget “utmost good faith” at our peril

I get so frustrated when I see dishonesty in any part of the insurance claims process. I fully support all efforts to stamp out genuine claims leakage and dishonesty on the part of the Insured and or repairers who milk the system. But equally if an Insurer is acting with scant disregard to the principle of utmost good faith I am equally appalled.

Before I outline a situation that prompts me to write this post, I want to explain what claims leakage actually is.

One definition is:

Claims leakage is defined as the difference between the actual claim payment made and the amount that should have been paid if all industry leading practices were applied. • Leakage is caused by deviations from established industry or company standards and leading practices. [Source Ernst and Young].

I do not like this one as it speaks of ‘established industry or company standards’ which in themselves may be stacked against the Insured. I have never liked the way that jewelry is insured as it is stacked against the Insured paying premiums on sums insured jewelers and insurers know the Insured will never get all of. You would be staggered at how many people think they have been ripped off by their insurer following a jewelry claim but many in the Industry justify it as it has always been done that way.

Another is:

Dollars lost through claims management inefficiencies that ultimately result from failures in existing processes (manual and automated). In other words, it’s the difference between what you did spend and what you should have spent on a claim. The cause can be procedural, such as from inefficient claim processing or improper/errant payments, or from human error, such as poor decision-making, customer service, or even fraud. Claims Leakage is often discovered through an audit of closed claim files. [Emphasis mine – Source: International Risk Management Institute, Inc]

My own definition is:

Claims leakage is the difference between the amount paid on a claim compared to the Insured’s genuine entitlement under the contract of insurance.

I am the first to appreciate that Insurers pay directly or indirectly, vasts amounts of money to builders, panel beaters and a raft of other suppliers and trades. As such they are in a good position to negotiate favourable terms on the basis of the quantity of work directed to them and also the fact in some industries that payment is guaranteed.

At the same time this cannot be an abuse of power and drive businesses into the red or creating a situation where the only way the supplier or trade can make a reasonable profit is by cheating the Insured. I.e quoting for 2 coats of paint and only applying one is a common example. Another is not replacing all the damaged building parts that are not normally visible, that is say wall or ceiling framing.

It appears that at least one insurer has done a deal with a flooring contractor to supply and lay carpet. This is fine.

An Insured suffered damage, lodged a claim and the supplier produced a quotation that was sent direct to the Insurer. The Insured was then offered a cash settlement and found that no other carpet company could do the work for the amount quoted. In desperation the Insured went back to the original company that provided the quote only to be told that they could not do the work for the amount quoted.

Finding that they could not get their damaged carpet replaced The Insured pushed and finally received a copy of the quotation. As it is the Insured’s home, they should be provided this to ensure it is the same quality as before, that what was quoted they receive etc but it was only when the Insured really pushed and would not take no for an answer did they finally get the quotation.  This is what was written at the top of the quotation:

 

Note: this is an image of the exact words and not my retyping the words but I have removed the name of the firm pending possible legal action.

You can image how the Insured feels about their insurer, the repairer and the insurance industry in general. It just adds to the stereotype image of our industry.

When we were appointed we contacted the repairer and they were very upset the client had their original quote. We asked for a quote from this repairer that they would honour and despite their promises, we have never received a quote.

Stepping away from this claim for a minute. If an Insured submitted a quotation like this in reverse, that is that it clearly did not fairly represent the true loss suffered by the Insured, i.e. in the case of an Insured knowingly submitting a quote higher than the true value, it would be regarded as a serious breach of the principle of utmost good faith.

Why is it any different for the Insurer? If it can be proved that, what you could be forgiven for thinking, that is the Insurer has entered into an arrangement that appears to be allowing them to low ball genuine losses, then to me it is a serious breach of the utmost good faith principle. How many other Insured’s have been short changed by this arrangement?

And we continue to wonder why insurance rates so poorly on the trust scale.  I keep coming back to the words of Lord Mansfield more than 250 years ago:

“Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.”

If any reader finds that they or one of their clients is in the same boat as here, please insist on a copy of the quotation and certainly do not accept any offer until it is received and or you are satisfied that you can have the work done properly for the amount offered. All of us in the industry have a duty to protect the insuring public and brand insurance.

For my part, I will meet with the Insurer and see if I can get this one sorted fairly.

 

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Guest Post – What does home insurance cover?

I often get requests from people and organisations seeking to make a guest post on my site. Unless it is meaningful and is not a straight product flog I will certainly share and embrace their articles. (You would be staggered how many requests I get from gambling sites).

This guest post is from Alex at Lendi.com.au.

What does home insurance cover?

 

The Wye River bushfires that took place in 2015 on Christmas Day destroyed over a hundred homes, with The Insurance Council of Australia at the time estimating total losses to be worth $38 million.

Property losses were significant, and while government grants were given out to those who were unable to return to their home, $1,300 would not have made much of a difference to the many homeowners that turned out to be underinsured.

According to data from RACV Home Insurance, 65% of the members who had their homes destroyed by the fires were underinsured, some by over $100,000. This is an alarming reminder of the importance of understanding your home insurance policy and what it does and doesn’t cover.

 

Home insurance and contents insurance

 

So, what does home insurance cover ? Well, there’s a reason it’s also referred to as building insurance. Most policies do not protect your personal belongings, but rather cover the cost of repairing or rebuilding the actual building structure itself, including any outer buildings, garages, and permanent features within the home, such as light or a built-in wardrobe.

It provides you with financial protection against external events that are out of your control, such as natural disasters including fire damage, hail, and wind, or man-made damages including vandalism, arson, and theft.

However, you should be aware that most policies do not cover particular events such as earthquakes and floods. If you live in an area where these events are more likely to occur, then you may need to take a closer look at your policy options.

If you want your personal belongings covered in case they are damaged, lost, or stolen, then you would need contents insurance. This covers personal possessions in your home such as electrical equipment, clothes, furniture, tools, and jewellery. Many homeowners bundle their home insurance policy with contents insurance into a combined policy so that way everything is covered.

As for home insurance policies, there are two different types to choose from:

Total replacement cover

Total replacement cover is a type of home insurance that, as the name suggests, covers the cost of rebuilding your property to the state it was in prior to being damaged. This is the best option if you want to reduce the risk of being underinsured.

However, only a few insurers currently offer total replacement policies, and you may find that it takes some time to receive the funds if you are to suffer a total loss, as a full assessment will need to be carried out by the insurer to calculate the cost of rebuilding the property.

Sum-insured cover

A sum-insured cover is the more common home insurance option and will only cover you up to a set amount to rebuild or repair your property. The set amount is selected by you and often referred to as ‘the sum insured.’

Since you can only receive up to a set amount, there is a higher risk that you will be underinsured, as most people do not have the expertise required to accurately work out how much it would cost to rebuild their home.

It should also be noted that limits, caps, exclusions, and other conditions vary between insurers, so when you are choosing a policy be sure to ask questions and carefully read the product disclosure statement. Take your time to shop around, so you find the best cover for your needs.

Homeowners that do not fully understand their insurance policies could end up finding themselves to be underinsured at the time disaster strikes. Be sure to do your research and read over the fine print. You don’t want to end up losing your home because of a natural disaster, only to find that you won’t be able to afford the repairs.

As well as taking the time to understand your insurance cover, you should also make a point of regularly reviewing your policy, as over time life circumstances can change, along with your possessions and your home.

Think back over the last year before you blindly renew your policy. You would be surprised at how many homeowners forget to mention an expensive home renovation to their insurance providers. Failure to do so could leave you at risk of not being adequately covered, so it’s worth taking the time to review your policy on a regular basis.

 

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Thank you for sharing Alex.

I would support the position that with some no sum insured policies the time taken to finalise the claim in the event of a total loss can be much longer to agree than with a sum insured policy. I ended up working with around 12 such people following the Wye River fires being engaged around 12 months after the fires. Most disagreements were over the amount of reinstatement.  It is therefore important to use both LMI PolicyComparison.com and LMI ClaimsComparison.com to compare the features and benefits and also the claims service as part of your decision making process.

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