Wear Orange Wednesday – WOW Day – Wednesday 23rd May 2018

This Wednesday is WOW day, Wear Orange Wednesday, an initiative by the SES who are encouraging everyone to wear something orange to work or school to show your support for the SES volunteers.

 

Who are the SES?

“The State Emergency Service (SES) is the name used by a number of volunteer organisations in Australia that provide emergency help during and after declared (natural or otherwise) disasters, typically flood, storm or tsunami. The SES also assist in other emergencies, such as vertical and road crash rescue and medical emergency. In other scenarios the SES may provide a support role to other agencies, particularly police and fire. The SES is operational 24 hours a day.”

Source: https://en.wikipedia.org/wiki/State_Emergency_Service

 

They aren’t asking for much and I think in any way we can thank and show support for the wonderful work our SES volunteers do, we should get behind.

I hope all of you can show some support with the hashtag on all social medias #THANKYOUSES

They have made a brochure with some other things you may like to do to help support, here.

 

Some other things to look out for on the day that may be turning orange include:

NSW – Don’t be surprised to see an orange dinosaur on the M1 Pacific Motorway at Somersby as Ploddy from the Australian Reptile Park gets an orange facelift.

VIC – Landmarks in Melbourne and across the country will be ‘flooded’ in orange this WOW Day in support of SES volunteers, including the MCG, AAMI Park, Bolte Bridge and the Melbourne Star.

WA – A number of iconic locations across the State will be lit up in a magnificent orange in support of the SES volunteers, including the Bell Tower, Elizabeth Quay, Parliament House, Yagan Square and Perth Concert Hall. Why not also take a drive by the Swan River in Nedlands to see how the Eliza Statue is showing her support?

 

 

Read Me 1

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.

 

Read Me 4 Comments

A Changing of the Guard – Financial Ombudsmen Service (FOS) soon out and Australian Financial Complaints Authority (AFCA) coming soon (1 November 2018)

The Changing of the Guard

The Australian Financial Complaints Limited (AFCL) has received authorisation from the Minister for Revenue and Financial Services, the Hon. Kelly O’Dwyer, to establish and operate the Australian Financial Complaints Authority (AFCA).

Both the Minister (media release) and AFCL have issued a media release, and announced the new members of the AFCA Board. In case you have not seen either, I would advise the following key points.

Under the Minister’s Authorisation, AFCA will commence accepting new complaints on 1 November 2018. All financial firms will be required to be a member of AFCA by no later than 21 September 2018. Ninety-eight percent of current members of the Financial Ombudsman Service (FOS) have already completed the annual assessment and member declaration to ensure a smooth transition to AFCA.

AFCA will, over the next few months, be putting in place the necessary infrastructure, staff and procedures to be ready to receive complaints from 1 November 2018.

In the interim, AFCA will operate the FOS scheme and will deal with any existing FOS disputes under the current FOS Terms of Reference. The operations of FOS, including staff and members will be transferred to AFCA.

The AFCA Board will also continue working with the Credit and Investments Ombudsman (CIO) Board on the necessary arrangements for a transfer of its members and operations to AFCA. There will also be ongoing collaboration with the Superannuation and Complaints Tribunal (SCT) during the transition process.

Next steps

One of the early actions of the new AFCA Board is said to be to consult stakeholders, including current FOS members, CIO members and superannuation trustees, relevant industry bodies and consumer organisations, on the proposed AFCA terms of reference (to be known as the Rules) and on an interim funding model for the new scheme.  I will write over the next month with further information on these consultations which are currently planned to commence in June 2018.

An interim AFCA website – www.afc.org.au –  is already up and going to enable the Authority to provide regular information and updates on the commencement of AFCA, including information about consultation on the AFCA Rules.  Information is also available on the FOS website.

It is reported that a full service AFCA website will be ready by the commencement date of 1 November 2018.

If anyone has any questions regarding membership of Australian Financial Complaints Authority or any other questions regarding AFCA commencement, it is recommended you call them on 1800 931 678 or email membership@afc.org.au.

For my part, I will watch the new organisation with interest. General Insurance is so complex and many of us fear that well established legal precedents including the application of the Insurance Contracts Act will not be followed as we have seen far too often of late in the current organisation when those making the decisions are not sufficiently trained or experienced in the industry. With a mega body handling so many different types of financial products this issue may get worse not better.

The second issue is, will the new Authority publish the data on complaints that FOS currently provide annually? This is an important service that I for one would hate to see disappear or get mixed in with a bigger unintelligible report in the new mega Authority.

But to be fair, we need to all give the new Authority every chance and we wish them every success in their very important role.

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Address at the ASIC annual forum by the Hon Kelly O’Dwyer MP

With many of us concerned about the loss of trust in the insurance industry by the public, the increasing number of complaints and some of the practices being adopted I thought I would share the address by the Hon. Kelly O’Dwyer MP in her role as Minister for Revenue and Financial Services at the ASIC Annual Forum on 19 March.

I have marked in red the areas that I particularly found of interest.

Check against delivery

Thank you, it’s a pleasure to welcome you to the Australian Securities and Investments Commission (ASIC) Annual Forum.

This is the first time I have officially shared a public forum with the new chair of ASIC since the announcement of his appointment late last year, and I want to congratulate James Shipton on his new role.

Some of you might know that James and I share a fairly quirky heritage in that James’ father, Roger Shipton, was a former Member for Higgins, and I am the current Member for Higgins.

However, we had never met until he was headhunted for this role from the United States.

I am sure James will bring to this important job his considerable experience in corporate regulation, both as a practitioner and in academia, as well as, as a regulator. His unique international perspectives in Europe, Asia and the United States will be an asset.

ASIC has an incredibly important role in Australian business.

Australia’s reputation as a great place to invest, to set up business and to employ people, rests in no small part to the confidence we place in the work of our regulators, especially ASIC.

So it is fitting that the theme of this year’s ASIC Annual Forum is — ‘maintaining trust’.

This is because trust is fundamental to all our dealings in financial services, doing business and investing.

And maintaining trust requires constant vigilance.

It raises many questions — for financial professionals, for regulators, for the industry as a whole.

And the ‘maintaining trust’ theme also poses implications for the Government — ones that we are working hard to address.

So in my time today, I want to make some announcements relating to ASIC, as well as share some thoughts on recent developments and the Government’s priorities in the year ahead.

ASIC leadership

When it comes to the leadership of ASIC the Government strongly believes it’s crucial that the ASIC Commissioners have the right mix of skills, knowledge and experience.

As I mentioned, we have recognized that James Shipton brings a strong set of skills and international experience to the role of ASIC Chair.

And I would like to announce today that the Government also intends to create a second Deputy Chair position in ASIC to build on and strengthen ASIC’s leadership and give ASIC greater flexibility to administer their new powers and increased responsibilities resulting from recent law changes. 

This move will bring ASIC in line with its regulatory brethren at the Australian Competition and Consumer Commission (ACCC).

This important step will also support ASIC to engage more closely with its stakeholders and assist to better communicate its role, its priorities and how its resources are allocated.

I am currently seeking the required approvals under the Corporations Agreement with the States and Territories, and intend to introduce legislation to make the necessary amendments to the ASIC Act in the coming weeks.

I am also pleased to announce today the reappointment of ASIC’s current Deputy Chair, Mr Peter Kell, and also Commissioner John Price.

I want to thank them for their tremendous work to date, and I look forward to their continued contribution.

The Government will make an announcement regarding the new Deputy Chair on introduction of the legislation.

Statement of Expectations and Competition mandate

In line with the theme of ASIC’s leadership and future direction, it is with great pleasure that I announce the Government has settled on the new Statement of Expectations for ASIC.

The new Statement of Expectations acknowledges that ASIC, as the market conduct regulator, has the challenging task of balancing several objectives aimed at facilitating efficient capital markets and promoting trust and confidence in the financial system.

It reflects the notion that for ASIC to be a successful regulator, it will need to continue to have an open and sound working relationship with its regulated population and counterpart regulators.

It further recognizes how critical it is for ASIC to communicate its key decisions and regulatory outcomes to the public and demonstrate clearly how those decisions and outcomes align with ASIC’s legislative and strategic objectives. This is particularly essential now that ASIC is being funded by industry.

Competition mandate

The new Statement of Expectations will also reflect a new competition mandate for ASIC.

It is my belief that ultimately it is competition – not regulation – that is the best means of ensuring consumers get value for money in financial services.

I think that everyone agrees that both consumers and financial services providers — particularly new entrants — benefit from a more competitive financial system.

To this end, the Government will legislate to add consideration of competition to ASIC’s mandate, consistent with the Government’s response to another of the Financial System Inquiry recommendations.

This new mandate will require ASIC to consider the effect that its work and the exercise of its powers will have on competition in the financial system.

Including competition consideration in ASIC’s mandate complements other key initiatives undertaken by this Government to support competition.

This includes tasking the Productivity Commission to review competition in Australia’s financial system and funding the ACCC to undertake in-depth inquiries into specific financial system competition issues.

The Government looks forward to receiving ASIC’s response to the Statement of Expectations from its new Chairman.

As for recent developments in reforms, there’s plenty to discuss, but I’d like to focus on a few key items.

New financial adviser standards

Earlier last year, the Turnbull Government established the Financial Adviser Standards and Ethics Authority (FASEA) – a body comprising industry, consumer ethics and education experts – to raise the education, training and ethical standards of financial advisers.

Since the appointment of its CEO, Dr Deen Sanders, FASEA has been working hard to provide the industry with certainty on the new requirements.

I am pleased to note that shortly FASEA will be releasing new draft guidance on the education pathways for all existing advisers.

Under the proposal, existing financial advisers will need to undertake a relevant degree or one or more bridging courses, including a specific course on the Code of Ethics that will be developed by FASEA.

Advisers who have not previously undertaken a degree, or who have undertaken a degree that is not in a related field will need to reach degree-equivalent status.

And advisers who have previously completed a degree in a relevant discipline will need to complete between one and three bridging courses, to bring them up to date with current ethical and professional standards. Some advisers will need to complete additional study.

However, it is important to remember why these reforms are necessary – repeated instances of inappropriate or just plain bad advice has significantly eroded trust and confidence in the financial advice sector.

Every adviser has a role to play in rebuilding that trust, and these new educational requirements are a critical step towards professionalising the sector.

Ultimately, the professionalization of the advice sector will be in the best interests of all advisers, existing and new, because it will ensure enduring consumer trust and confidence in the financial advice sector.

The consultation on FASEA’s draft guidance will be open until the end of June this year. I encourage you all to participate.

Whistleblower protections

Now turning to protections for whistleblowers.

In the summer just gone, we introduced a Bill into Parliament to implement significant reforms to Australia’s whistle-blowing regime.

The Bill will provide stronger protections for insiders who break ranks and expose corporate misconduct and, for the first time, establish whistleblower protections for people who disclose information about tax misconduct.

The Parliamentary Joint Committee’s report on whistleblower protectionsmade 35 recommendations to strengthen Australia’s regime and I am pleased to say the Bill addresses the vast majority of those recommendations, and the Government is currently considering those that remain.

The new whistleblower Bill delivers on the Turnbull Government’s commitments in the 2016-17 Budget and as part of the Open Government Partnership – National Action Plan, to provide new protections to tax whistleblowers and to strengthen whistleblower protections in the corporate sector.

Under our Bill, a wider range of whistleblowers will be protected from a wider range of egregious conduct, and for those who do suffer reprisals or retaliation for blowing the whistle, the path to compensation will be simpler and easier.

And we are delivering a framework which will improve corporate governance practices and facilitate effective law enforcement.

Our Bill is a major step forward for whistleblowers in Australia, and we look forward to Labor and crossbench support for these critical reforms.

Financial products

This year the Government is also progressing reforms to address the mis-selling of unsuitable financial products to retail investors and consumers.

In December 2017, we invited comment on draft legislation for new design and distribution obligations for issuers and distributors, and a new product intervention power for ASIC.

The design and distribution obligations will ensure financial products are targeted and sold to the right consumers.

Now let me make clear from the outset, there is more work to do on these critical reforms. The feedback received from the last round of consultation raised a number of issues and the Government is carefully considering these.

When, and only when, these issues have been given full and deep consideration and after additional consultation  the legislative package be finalized and ready for introduction.

Under the new regime, firms will be required to identify the target market for their product, and will need to design the product for that market.

Further, both issuers and distributors will be required to take reasonable steps to ensure that products are distributed appropriately – that is, distributed to the target market only. These are significant reforms that will change the landscape for the sale and distribution of financial products in this country.

However, despite this, as many of would be aware these new obligations are not unprecedented – the reforms that commenced in the European Union in January this year also apply design and distribution obligations to product issuers.

To complement the new design and distribution obligations, ASIC will be given a new product intervention power.

This will give ASIC the power to intervene in the sale of a product, a product feature or practices related to the distribution of a product, in circumstances where ASIC perceives a risk of significant consumer detriment.

The products intervention power, like the design and distribution obligations, is also not unique globally.

The Financial Conduct Authority in the UK has for some time had the power to intervene in the sale and distribution of a financial product, if it is considered to be harmful to consumers.

And, the European Securities and Markets Authority has recently sought comment on proposed product intervention measures for their market.

The design and distribution obligations and the product intervention power are complementary and interconnected, and I am confident that together they will represent vastly improved consumer outcomes.

These reforms were recommended by David Murray in his 2014 Financial System Inquiry report, and the Government accepted those recommendations in full.

Insurance

While I’m here, I’d also like to say a few words about the insurance industry as there are a few major developments on the horizon.

Life insurance report

At the end of this month, the Parliamentary Joint Committee is due to hand down a report into the life insurance industry.

Among the findings, I expect that the report will make recommendations on whether or not there is a need for further reform and improved oversight of the life insurance industry.

It will also focus on the sales practices of life insurers and brokers.

This report has long been awaited by the industry, government and indeed, many consumers.

Unfair contract terms

And, in the first half of this year, the Government will be consulting on changes to apply unfair contract term laws to life insurance contracts, as well as general insurance contracts.

This is in response to the Senate Committee report on the general insurance industry and the Australian Consumer Law Review.

While this will be a significant reform for industry, it is in the best interests of consumers and will bring the insurance industry into line with other financial services.

Mental health

Another issue, the insurance industry is currently contemplating with is claims for mental health related disabilities.

In October 2017, we saw the release of the Actuaries Institute Green Paper on mental health and insurance — a welcome development.

The paper highlights the large array of issues the insurance sector, and in particularly the life insurance sector, need to consider to support the large number of Australians who experience mental health conditions.

The list of issues includes things like definitions, data, rehabilitation and claims processing.

Given the incidence of mental health issues across the population, it is in the best interests of the community that the insurance industry, regulators and government work together to deal fairly and effectively with this issue.

I look forward to seeing further progress in this area.

Australian Financial Complaints Authority

Before I finish, I’d like to share some insights on the Australian Financial Complaints Authority (AFCA) — the new one-stop shop for all financial and superannuation disputes.

It will be landmark year for dispute resolution in Australia.

Parliament has passed legislation to establish the AFCA and we are currently putting in place the governance structure that will enable AFCA to start accepting disputes no later than 1 November 2018.

I recently announced that the inaugural Chair of the AFCA Board will be the Hon Helen Coonan.

And once a company is authorised to operate the AFCA scheme, I will make further appointments to the AFCA Board.

When the AFCA is up and running, consumers and small businesses will have access to free, fast and binding service to resolve all financial disputes.

The advantage of the new regime is that there will no longer be uncertainty, consumer confusion and cross-referral of disputes between dispute handling bodies.

Where a complaint covers multiple providers within the financial system, managing these complaints will be smoother under a one-stop shop.

What’s more, the AFCA scheme will also allow more small businesses to access external dispute resolution.

We have relaxed the definition of ‘small business’ so that in the case of a dispute related to a credit facility of less than $5 million, a business with fewer than 100 employees will be able to lodge a dispute with AFCA.

On top of that, AFCA will operate with significantly higher monetary limits than the existing external dispute resolution ombudsman schemes, so that those who have wrongfully suffered a loss will receive fair compensation.

We believe this will provide real outcomes for consumers and small businesses.

Closing remarks

Over the past 12 months there has been a lot of work done by the Turnbull Government in the regulatory space, and further work, as I have outlined, will continue this year.

Collectively, the initiatives that I have mentioned today will make a big difference.

They go to integrity and they go to transparent processes. And most importantly, they go to consumer trust.

We know that there is much to do.

However, it is at forums such as this where new ideas and experiences can be shared.

Our goal is not regulation for regulations sake.

Our goal is to provide the best regulatory structure for the free enterprise system to work as it should.

This will ensure that our country is seen as the best country in the world to invest in, and that our businesses and most of all our financial consumers can look forward to a prosperous future based on trust in that  regulatory framework. 

So, on that note, it is my pleasure to officially welcome you all to ASIC’s Annual Forum for 2018 and I look forward to your deliberations.

Thank you.


For my part I will continue to argue that builders, investigators and others handling claims are regulated so as they have at least a basic understanding of the fundamental principles of insurance, including the principle of Utmost Good Faith and understand the products that they are making decisions on coverage.

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Well done Chubb and Lockton on no longer selling Carry Guard (gun) insurance

I would like to add my support for the decision taken by insurer Chubb Insurance and insurance broker Lockton to no longer support the National Rifle Association (NRA’S) Carry Guard insurance program in the United States which did provide liability coverage for NRA members who use their fire arms in self defence.

This will leave a gap in coverage as most of the home policies I have reviewed do not offer this coverage.

This is another case in a long history for the insurance industry where they have shown a social conscience and used their influence for good.

Well done to both organisations.

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Vehicles requiring replacement airbags

Each week, I post a list of the items that have been recalled. Typically, these are a voluntary recall, but if something is dangerous a compulsory recall can be ordered by the Commonwealth or a State Government. Due to the reluctance of some manufacturers to carry out a voluntary recall of airbags that have reportedly killed 23 people worldwide, with one of these in Australia, plus 230 people known to have been injured around the world, many seriously, the Australia government has ordered a recall of some vehicles to have the potentially dangerous airbag replaced.

The government urges everyone effected to take this seriously, check if your vehicle is on the list below and if it is arrange to take it in for the free recall as soon as possible.

I have reviewed some of the injuries and they are horrific and involve people, including infants, of all ages. Therefore please take this one seriously and if you know anyone who drives one of the vehicles listed, please pass this on to them.

 

Here is the list:

CARS

It is critical that drivers with alpha airbags installed take immediate steps to have the airbags replaced because of a significant risk of injury or death involved in using vehicles with these airbags. Drivers with other recalled airbags should arrange for them to be replaced as soon as possible.

Make & model Year Range PRA No.
BMW 3 Series E46  ALPHA 12/2001 – 03/2003 2013/13576
BMW 3 Series E46 9/1999 – 8/2006 2013/13576
BMW 5 Series E39, 3 Series E46, X5 E53 2002-2005 2016/15581
BMW 5 series E39, 3 Series E46, X5 E53 2000-2004 2017/15881
BMW E70 X5, E71 X6 2007-2012 2017/16230
BMW E70 X5, E71 X6 2007-2012 2017/16298
BMW E70 X5 & E71 X6 2013 2018/16566
Chrysler 300(LE/LX) 2005-2012 2016/15516
Chrysler 300, 300C 2005-2010 2015/14742
Chrysler 300, 300C 2013 2018/16617
Dodge RAM 2004-2010 2016/15516
Ferrari 458, California, FF 2008-2011 2016/15430
Ford Mustang 2006-2014 2015/14924
Honda Accord, CR-V  ALPHA 2001-2002 2009/10969
Honda Civic  ALPHA 2001 2010/11785
Honda Accord  ALPHA 2001-2002 2011/12633
Honda Civic, Accord, Accord Euro, CR-V, Jazz, MDX  ALPHA 2001-2003 2013/13549
Honda Jazz  ALPHA 2004 2014/14438
Honda Accord Euro, Civic Hybrid, CR-V, Civic, Jazz 2003-2004 2014/14498
Honda Accord Euro, CR-V, Civic, Jazz, City 2002-2009 2015/14703
Honda Jazz, CR-V 2005-2007 2015/14702
Honda MDX, Accord 2001-2007 2015/14737
Honda City, CR-V, Insight, Jazz, Jazz Hybrid 2006-2012 2015/14819
Honda City, CR-V, Insight, Jazz, Jazz Hybrid 2011-2014 2016/15197
Honda Civic, Legend, Jazz Hybrid 2006-2012 2016/15198
Honda Accord Euro, City, CR-V, Jazz, Insight 2007-2011 2016/15496
Honda Legend, Odyssey, Accord, MDX 2003-2011 2016/15495
Honda Civic, Accord 2006-2011 2016/15494
Honda Accord Euro, City, Jazz & Insight 2012 2017/15856
Honda Legend 2012 2017/15857
Honda Accord 2012 2017/15859
Honda Civic 2001 2017/15860
Honda Jazz, Jazz Hybrid, Insight and Accord Euro 2013 2018/16523
Jeep Wrangler JK 2007-2012 2016/15516
Jeep Wrangler 2013 2018/16617
Lexus SC430 2000-2003 2013/13545
Lexus IS 250, IS 250C, 350, IS F 2005-2011 2016/15425
Lexus IS 250, IS 350, IS 250C, IS-F, LFA 2011-2012 2017/15846
Lexus IS250, IS250C, IS350 & IS-F 2013 2018/16536
Mazda2 (DE) 2010 2016/15522
Mazda2 2007-2015 2016/15521
Mazda RX-8 2008-2012 2016/15521
Mazda6, BT-50 2005-2011 2015/14761
Mazda6, RX-8 ALPHA 2002-2007 2015/14761
Mazda B2500 & B2600 2002-2011 2015/14760
Mazda6, CX-7 & CX-9 2006-2012 2017/16232
Mitsubishi GA & GB i-MiEV 2010-2011 2017/15990
Mitsubishi Lancer 2003-2008 2015/14936
Mitsubishi ML & MN Triton 2007-2014 2016/15523
Mitsubishi Pajero NS, NT, NW, NX 2007-2016 2016/15617
Mitsubishi Pajero NS & NT 2006-2009 2017/15991
Mitsubishi Pajero NT & NW 2010-2012 2017/16025
Mitsubishi Pajero NW & NX 2013-2017 2017/16465
Nissan N16 Pulsar, Y61 Patrol 2001 2010/11761
Nissan N16 Pulsar, Y61 Patrol 2001 2017/15940
Nissan N16 Pulsar, Y61 Patrol, D22 Navara, T30 X-Trail  ALPHA 2000-2004 2013/13542
Nissan N16 Pulsar, D22 Navara, Y61 Patrol, T30 X-Trail, A33 maxima  ALPHA 2001-2003 2014/14182
Nissan N16 Pulsar, D22 Navara, Y61 Patrol, T30 X-Trail, J31 maxima 2003 2015/14751
Nissan N16 Pulsar, D22 Navara, Y61 Patrol, T30 X-Trail, J31 maxima 2004-2007 2015/14752
Nissan D22 Navara, T30 X-Trail, J31 Maxima, Y61 Patrol 2007-2008 2015/14821
Nissan D22 Navara, Y61 Patrol 2009-2012 2016/15769
Nissan D40 Navara 2008-2014 2016/15228
Nissan D40 Navara 2006-2015 2017/16363
Nissan Tiida 2006-2012 2016/15383
Nissan C11 Tiida 2006-2012 2017/16363
Peformax Silverado, Sierra, Mustang 2007-2008 2015/14789
Subaru Impreza 2004-2007 2015/14715
Subaru Tribeca, Liberty, Outback 2004-2013 2016/15507
Subaru Impreza, Forester 2008-2013 2016/15766
Subaru Exiga 2010-2014 2017/16012
Subaru Liberty & Outback 2010-2014 2017/16013
Toyota Corolla, Avensis Verso, Lexus SC430  ALPHA 2000-2004 2013/13544
Toyota Echo, Rav 4  ALPHA 2002-2003 2014/14456
Toyota Echo, Rav 4 2003-2005 2015/14700
Toyota Corolla, Avensis Verso, Yaris 2003-2007 2015/14701
Toyota Avensis Verso, Yaris 2007-2008 2015/14794
Toyota Corolla, Yaris, Avensis Verso 2006-2011 2016/15709
Toyota Corolla 2003-2005 2017/15950
Toyota Corolla, Yaris & Rukus 2010-2012 2017/16010
Toyota Echo, Rav 4 2002-2003 2017/16014

MOTORCYCLES

Make & model Year Range PRA No.
American Honda Motor GL1800 2016/15440
Honda GL1800 Goldwing 2012-2015 2017/15906
Honda GL1800 Goldwing 2012-2015 2018/16522

TRUCKS

Make & model Year Range PRA No.
Volvo UD Trucks Quon & Condor 2011-2016 2017/16021
Volvo FH13, FH16, FM13 & FM11 2012-2017 2018/16581
Hino 300 Series Trucks 2011-2012 2017/16006
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When is it time to stop pretending to care about customers and actually start?

I reported on two claims recently which were completely and utterly off the rails. The first being a home where this would be the 4th Christmas the Insured would be out of their home despite having their insurers top of the range product. It was a bush fire situation and there was no suspicion of arson, it was just a case of the panel beater builders completely letting the Insured down. After 15 months of trying, we finally got a common-sense solution, but it has now been 6 weeks that the release has been stuck in legal. How to draft a release was one of the first things I learnt as a claims officer when I was 17 years old and I cannot understand how a claim that has been so terrible handled is dragged on so that it cannot be resolved before Christmas number 4.

I was equally dismayed this morning to see a comment in The Age (21st December 2017) where an Insured has said

“The insurance companies are hopeless I won’t use them, I’ll just try and sell these”

This is a response to the recent hail storm we had in Melbourne.

It is comments like these and the negative feedback from the Insured in the claims that I wrote about recently, which they are saying to their friends and relatives, which caused the great doubt of trust in our industry. An industry which has as its core principles, Utmost Good Faith.

If we don’t address this situation we will suffer as an industry in the long term.

Source: The Age Newspaper, Melbourne, 21 December 2017

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When does the Indemnity Period end?

At LMI Group, we have an issue which comes across, almost in waves, in regards to a number of claims which needs to be addressed before the next flavour of the month adjustment to reduce an Insured’s claim.

The one we have just overcome is where the adjuster has made a “notion” adjustment, without explaining the basis for it. Now, we have come across on a number of claims, particularly involving restaurants, clubs and hotels is for the indemnity period to be cut off by the loss adjuster and then the Insured being asked to prove that the loss extends beyond the period allowed by the adjuster and then also prove that the ongoing disruption is as a direct result of the damage or other insured event which gave rise to the initial claim.

One of the great frustrations for us is that often this judgment call is being made by a Forensic Accountant or an adjuster who has not been to the site, met the insured, or if they have, it has been only one short visit. Without understanding the insured’s business, their assumption that the business should have been back to normal may well be completely ill founded and at times appears to be linked to the fact that the initial reserve placed on the disruption by the adjuster or forensic accountant has proved to be inadequate. That means the claim is then being adjusted within the confines of that initial reserve.

With this background, I thought that it was appropriate to review the typical Business Interruption cover and in particular, to look at the onus of proof issue.

There are differences in the market with business interruption policies and so, for the sake of this exercise, I will use the Industrial Special Risks (“ISR”) Mark IV Modified wording.

The trigger for a claim under Business Interruption under the Mark IV ISR reads:

In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed “Damage”) and the Business carried out by the Insured being in consequence thereof interrupted or interfered with, the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.

Assuming that the loss falls within the triggering provision of the policy, it advises that the claim will be settled in accordance with the “applicable Basis of Settlement”. The Basis of Settlement reads:

The insurance under this item is limited to actual loss of Gross Profit due to: (a) Reduction in Turnover and (b) Increase in Cost of Working and the amount payable as indemnity thereunder shall be:

(a)   In respect of Reduction in Turnover:

the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Turnover.

(b)  In respect of Increase in Cost of Working:

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.

In both Section (a) and Section (b), the policy makes note that the Insured is to be indemnified during the Period of Indemnity. It is therefore important, that we look at the definition of Indemnity, which reads:

INDEMNITY PERIOD: The period beginning with the occurrence of the Damage and ending not later than the number of months specified in the Schedule thereafter during which the results of the Business shall be affected in consequence of the Damage.

In Summary, this definition states that the Policy starts on the date of the Damage, which may be before any disruption to the business starts and ends when the business is no longer effected in consequence of the Damage, or the number of months stated in the Schedule.

Often, it is a case of res ipsa loquitur which simply means, the facts speak for themselves.

Naturally, as part of the calculation and/or assessing process, the person preparing the claim and/or assessing the claim, would carry out tests to determine whether or not some other factor has arisen which has caused a downturn in the business, and for that matter, may have caused an upturn of the business, unrelated to the Damage which would have taken place had the Damage not occurred.

The reasoning behind this, is that at its heart, the traditional business interruption policy is a contract of indemnity. That is, of course, to put the Insured back to near as money will allow to the position they would have enjoyed but for the loss. I stress that this is the underlying principle of the majority of business interruption policies in the market, however, there are some policies which are in fact agreed value policies, where the Policy stipulates a formula which may well over or under indemnify the insured.

To ensure that the principle of indemnity is maintained, the policy contains what to me is arguably the most important clause in the contract of insurance and the one that creates the greatest conflict between the insured and the insurer.

This clause is the adjustments clause, which reads:

Adjustments shall be made to the Rate of Gross Profit, Annual Turnover, Standard Turnover and Rate of Pay-Roll as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during the relative period after the Damage.

While the Indemnity Period is not specifically mentioned in the clause, what is in effect occurring when the indemnity period is being cut short, is that the insurer or their agent is suggesting that the turnover that would have been achieved had the business not been affected by the Damage, would have been reduced for some other event, and as such, the period of disruption caused by the Damage is at an end.

Just as an insurer would take a dim view of an insured who came along with an unsubstantiated request to increase the standard turnover of the business, I’m of firm belief that if the insurer or their agent suggests that there is a special circumstance that reduces the standard turnover, then the onus of proof is on the insurer to prove this and not simply make an unsubstantiated claim that the business ought to have been back at that point.

I’m the first to admit that the adjustments clause is not an exact science and that no one can ever be 100% certain as to what the business would have achieved but for the loss, other than in the rarest of circumstances. There is always room for negotiation but both sides ought to provide some logical reason for any adjustment that they wish to make to the standard turnover. For the sake of completeness, I include the definition of standard turnover which reads:

STANDARD TURNOVER: The Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period.

To further put this into perspective, the position I hold is that it is inappropriate for an insurer or their agent to simply say that the business should have been returned to normal, say a week after a restaurant reopens when the business had a track record of performing well prior to the event and has recovered to their pre-damaged position at a period longer than was expected by the insurer for the Indemnity Period to be cut off unilaterally and the Insured required to prove that the ongoing disruption beyond their stipulated cut off point is as a result of the Damage.

In fairness, how can this ever be proved?

It leaves the insured in a helpless position, starved of cash and with no logical way they can prove the ongoing loss, other than for the fact that their revenue has not returned to normal. Whether I am acting as a loss adjuster or claims preparer, my role would be to carry out an analysis and look at industry figures, the possibility of new competitors entering the market and all other factors to see whether the position I have adopted in my calculation of the claim is fair and reasonable to all parties concerned.

I have never attempted to cut off an Indemnity Period without any reasonable foundation for doing so. It appears that we will be taking at least one of our current claims to court to examine this whole issue of onus of proof and I look forward to the outcome which may resolve this, to me, inequitable position that many insureds are confronting.

 

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Are we just giving lip service to the customer experience?

I attended an insurance breakfast last week and heard a number of people talk about the customer experience. I thought I would share just two claims that have crossed my desk.

Yesterday, one of the LMI team attempted to report a landlord claim on behalf of a family who have lost a loved one. He thought he was speaking with the insurer but it appears that it was a joint number of the international insurance broker and the insurer. On the one hand, the person taking the call asked the full name of our team member, the name of our company and then sought to get the date of birth of LMI team member. This is after refusing to provide his full name to us for our records. All we know is that it is Tom.

Clearly, the person would not allow us to report the claim but insisted that one of the executors do it. The executor thought this was a complete waste of time when he had provided authority to us to act on their behalf and he was also put through the same experience. The executor, concerned of identity theft, refused to provide his date of birth, he knew neither his sister’s broker nor the insurer would have his date of birth to check against anywhere. He too could not believe that despite asking all this information Wayne from the insurance company would not provide his surname so that he had a record of who he was talking to. He hung up in disgust.

Attempt three, the executor emailed the notification of the claim through to the insurer, only to have someone from the Philippines ring our office asking for “Wayne”. Our office was not permitted to report the claim, Wayne was not the executor but the second claims officer spoken. To my knowledge the claim has still not been set  up, none of us know a claim number nor if an adjuster is to be appointed. All I know is that any insurance, both personal and business, the executor has with that insurer will be reviewed on renewal, and to be fair so it ought to be.

Not for the first time since it was announced has an insured said to me, a full enquiry into the general insurance industry cannot come soon enough.

I try to defend our industry but how do I justify this stupidity.

In another example, a long standing client has been financing a personal loan of $500,000 to have their home fixed. The Insured has invoices for all trades totalling over $400,000 and we had a test quote from a builder who we know well and has done a thorough scope of works which has come in higher. The issue is the cash settlement offer is around $250,000, naturally the Insured will not accept it.

While this goes through the disputes process it means the client has had to find the extra funds to meet the repayments which means no treats, no holidays, no nothing. There is no doubt in my mind that what has happened is that a builder who knows they will never have to do the repairs and is on the insurers panel has provided an unrealistically cheap price to win favour with the insurer and the insurer are trying to force the client into accepting a low ball offer. This insured will not do so and will tough it out and again is anxious to make a submission to the enquiry.

Here I think it is down the actions of one person within the insurance company who appears from our side not to be treating clients close to fairly.

Whether the inquiry goes to this level is unlikely but we ought not be surprised if we continue to fail Insured’s when they need us that we will be faced with enquirers and greater regulation.

Addendum

Within minutes of posting this I received the following email which I have since received the okay to publish without any names.

Confidential

Hi Allan,

That is just disgusting.

I also happen to be [X]’s Claims Manager as well as running my own book as an Account Manager.

Confidentially I can tell you that no less than 6 times in the last 2 months I have had the identical ridiculous situation with [Y] of all Insurers.

3 claims were landlords. 3 claims were motor vehicle.

Again; the attitude displayed by the person on the other end of the line was nothing short of arrogant…and again no names were forthcoming from them.

I was a little sarcastic a couple of times, & mentioned that my own personal details (DOB etc) were of no assistance or consequence to them.

What is frightening is that, if your issues were NOT with [Y], then are we facing an endemic problem starting to materialise across our whole industry??

It is just so disappointing.

Keep up your good work.

Cheers – [Z]

Sadly I had to write to [Z] that our experience was not with the insurer he named! Clearly this is more wide spread than I appreciated. Why are they collecting all these dates of birth when the risk of cyber attacks is on the rise and at least with the claim we are dealing with inexperienced people cannot even read an email?

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Cheapest is not always best – Lessons for procurement officers

I spend much of my time speaking at conferences for various industries, where I encourage the business owners not to purchase their business insurance on price, but to carefully consider how important their insurance program is and the protection that it offers.

Increasingly, over the last few years. I have been questioning the true value of a procurement officer, for regardless of what the tenders say, it seems to come solely down to price, without considering the true value that a good service provider to the insurer provides, nor the cost of what getting it wrong does to the average claims cost and potentially to the brand of the insurer and insurance in general.

I will give two examples to demonstrate what seems to be happening more and more.

The first involves a couple in their 70’s who have had their home destroyed during a bushfire over 4 years ago. Clearly, the builder that won the rebuild never expected to win the job and thought the matter would be cash settled. They were then horrified to find that they in fact had won the tender to rebuild. After 2 years, work had not started on the property and the Insured, naturally, complained. The builders found themselves busy at that time and engaged another building firm to do the work and it went along swimmingly until the first progress payment went in from the second builder to the first and they realised that they were going to lose more money in having someone else do the work than they themselves completing it. The first builder, original tender winner, dismissed the second builder and took the project on. Sadly, they did not start doing any work since the dismissal of the first builder, by which time I was then asked to get involved rather than the client go to the media.

I carried out an inspection of the property and then attempted to meet with the claims officer concerned to express some very valid concerns of the Insured and items that I had seen during my site visit. My first email was ignored, so I sent a follow up one setting out just some of the issues, three of which were:

  1. Between the second and first builder, the floor had been propped up in the centre of the home with nothing more than a piece of 19mm x 35mm pine framing. This may have been acceptable while the home was being built to floor level, but once the upper level was on it, the floor had bowed by at least 10mm and I was concerned that when the home was jacked up to be made level again, any works inside including plaster finishes, tiling etc may crack.
  2. The builder had held discussions with the Insured and it was agreed that the home would be rendered at the Insured’s expense. No credit however had been given for the fact that the builder would therefore be able to use seconds bricks rather than first quality as originally quoted/agreed.
  3. Because the home had been left without a roof covering for so long, there was mould clearly visible on the floor, framework and particularly between the floor plate and the floor.

I got a very disappointing reply back suggesting that to the untrained eye the timber prop may appear dangerous, but it wasn’t, and secondly that the bricks were not seconds but mixed, and thirdly they completely ignored the mould.

Ultimately, an engineer confirmed that not only was the timber ‘support’ dangerous as I predicted, but was so weak that it may have caused the entire home to collapse. The claim officer had also misunderstood the difference between seconds bricks, being that they were not first, and second hand bricks which means they came from another site. The day after they received my letter, the builder was advised and immediately sheared up all the framework, hiding the mould that I had pointed out, without treating it first. Because of the hype around mould at the time, coupled with the age of the Insured’s (I would remind you they are in their 70’s and the wife quite frail), I thought I would have it tested. I then received a note advising I had vandalised the home.

I took the entire issue to the national head of claims for that particular insurer and while someone with more experienced was appointed, it still took a full 15 months to get resolved with the insurer agreeing to cash settle the claim. The cost of the claim had blown out by several hundred thousand dollars, combined with the fact that they will be paying rent until they can get a new home built themselves.

Insurance should be there to help people in their time of need.

This was a completely innocent fire from the Insured’s perspective (it was clear it was from the bushfire) and they will have been without a home for coming up to their 4th Christmas. This is unacceptable in anyone’s language.

The second example, involves an insured who had water damage in their home. Rather than engaging a loss adjuster to oversee the claim, the insurer decided to save money and send out a restoration company. It took 8 days for the company to even attend site, and rather than take a detailed inventory, they simply packed everything up, put it into a shipping container and assured the Insured that it would be unpacked at their warehouse, separated between wet and dry and that the wet items would be cleaned carefully and sterilized.

6 months later, it was found that the items were still in the shipping container and a vast majority of the contents, even those that were not originally damaged by water, had become affected by moisture and mould etc. Some antique furniture which had been beautifully French polished had been stripped back and sprayed with a cheap lacquer. Here, the insurer is trying to distance themselves from their agents, which of course, is unconscionable. Here again, a claim has blown out dramatically due to poor service delivery.

These are just two claims that have come across my desk, and for every one that does, I question how many others are out there. In both of these cases, how many people have these insureds discussed and expressed their disappointment with the insurance industry and the particular brands involved. The first one I had to get LMI Legal involved to resolve, and it appears from the approach on the latest water damage case, I will have to do the same, for at this stage there still appears to be absolutely no empathy for the Insureds position whatsoever.

While I am annoyed with the claim process, I think it all starts at the procurement stage. Buying services is not like buying washing machines. If you have a highly competent professional who has studied, has years of experience, then of course their hourly rate is going to be slightly higher if they are honest and only charge the hours they work. The existing procurement process, appears to favour the shortcut takers, or those who cheat the hours. Either way, the insurer misses out on engaging the right person for the job.

What disappoints me, and I feel should be called out more is that despite this being a huge dispute, the Insured has not been given any advice of the internal complaints procedure, their rights with the Financial Ombudsmen Service (FOS) etc. This confirms one of the many examples I have that some insurers are able to obtain a better rating with FOS.

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