Different landlord – similar issue

This is another issue that I have posted warnings on several times over the past few months.

It was reported recently that a Perth landlord was hit with a huge power bill after tenants ran a cannabis grow-house from his property.

The power bill was a whopping $85,000.

The report suggested crime gangs are most likely to target private landlords and will often provide a large upfront cash payment to cover several months of rent. While this is obviously good for cash flow reasons, there are heightened risks if regular full inspections are not made.

The way they organise themselves such a payment allows time for tenants to set up the growing operation.

On a different point, why a landlord would retain the electricity account in their name is beyond me.

Any landlord caught this way could face significant losses.

Apart from the damage and clean-up costs, affected landlords are exposed to loss of rental income while the home is being repaired, as such it can have a devastating financial impact.

Landlord’s need to protect their valuable investment and income stream with a quality policy designed specifically for landlords. The cost of insurance is a legitimate tax deduction and my strong advice is to seek the advice of a quality insurance broker.

Having said this, picking the wrong tenant who racks up a huge electricity or water bill is typically considered a business risk that is not insurable.

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Baby Wipes: not so flushable!

Here are some wipes that clogged pipework and caused an overflow situation. You can see there is no sign of them breaking down. From my article of 25 July 2017.

Back on 25 July last year I posted an article about sewers being blocked as a result of baby wipes being flushed down the toilet.

I would like to think someone of authority reads my blogs and actions results, in any event I read with interest that the maker of White King “flushable” wet wipes, Pental Limited (“Pental”), has been fined $700,000 for making false and misleading claims about the flushable properties of their wipes.

In the report it stated that in addition to marketing the wipes between 2011 and 2016 as “flushable”, Pental’s packaging and promotional materials included statements such as, “Simply wipe over the hard surface of the toilet and just flush away”, and “White King toilet wipes are made from a specially designed material, which will disintegrate in the sewage system when flushed, just like toilet paper”.

In the hearing, the company admitted this was not the case. “The court’s decision shows that businesses face serious consequences if they make false or misleading statements about the nature of their products,” ACCC Commissioner Sarah Court said in a statement on the subject.

Despite public awareness campaigns by water authorities to only flush the “three Ps — pee, poo and paper”, people weren’t getting the message, largely due to the misleading packaging. The result here and subsequent publicity will hopefully help get the 3 P message across.

This is yet another in a run of articles where I have been stressing the need for product recall insurance and also for companies to act honestly or they will face reputation damage and increasingly often statutory fines and penalties.

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Learning from the past to protect against today’s hazards

During the very hot summer of 2008-2009, that included the Black Saturday bush fires, our Melbourne office was left without power due to both the fires and the inadequacy of an electrical sub-station across the road.

As it is imperative for us to provide our claims services during periods of natural catastrophe, so we are able to assist people in need we installed a backup generator in our building. Some within the business questioned the cost of installation and the ongoing maintenance, but I felt that as part of our risk management and business continuity management plan installing the generator was the way to go.

We have had reason to call on it only about 4 times until this year. Due to power outages, often associated with storms, it has meant that recently we have been able to maintain phone, email and web services at a time of high demand.

This week the generator has come into its own. With the apparent uncontrolled or at best inadequately proliferation of high rise developments in the area, now that Melbourne has had its first taste of summer, the infamous sub-station across the road caught fire and will not be replaced for at least a week from the time of failure. Whether the privatised carrier simply puts back the same size unit or upgrades it to cover the increased demand no one can advise us.

The apparent reason for the failure was that at after 5pm there was an electrical demand surge when everyone came home and turned on their air conditioners and the system could not cope.

In any event the ongoing outages of power to the area have not effected LMI due to our addressing the issue when it first arose nearly 9 years ago. The generator kicks in every time there is a black out or equally damaging brown out.

Of course, we are not the only business in Melbourne feeling the effect of the infrastructure not keeping pace with development. I heard on the radio this morning that homes and businesses in Blackburn and/or Box Hill have power outages. South Australia had their own issues recently.

Bearing in mind, this is only the start of summer, this issue is clearly not going to be an isolated case and all businesses are encouraged to revisit the business continuity plan and if they do not have one, consider creating one.

The issue of inadequate infrastructure is not just limited to electricity. Storm water and telecommunications are also proving inadequate and I will share examples of this issue in upcoming posts.

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5 reasons why landlords should insist their residential tenants have contents insurance

house with for rent sign

Lately there has been a spate of house fires around Australia where the tenant has been uninsured. Having been doing claims for over 45 years now, I have witnessed countless times the devastating effect that not being insured has on someone.

When landlords lease out their commercial premises it is standard practice to at least have the tenant hold public liability insurance. This is a basic risk management measure to protect the landlord from becoming the last resort for most public liability matters, as these issues can often fall back to them as an occupier’s liability rather than a building owner’s responsibility.

With these two issues rolling around in my head, I have come up with 5 major reasons why I believe that all landlords of residential properties should insist and seek proof of their tenants having contents insurance.

 

  1. With home contents insurance the insured, typically, has $20 million dollars of public liability insurance. It often ranges from $10 to $30 million. The liability coverage afforded by a contents policy can include protection for some claims by a landlord to the tenant for negligence, say leaving something on the stove and accidentally setting fire to your property. The same goes if they leave the plug in the bath and flood your building.
  1. The liability coverage also provides protection to the tenant should someone come on to the property and injure themselves. Such a person would look to the tenant in the first instance and if their insurer sorts out the claim, you as the landlord are left out of it bearing in mind, even defence costs can be expensive and time consuming to you.
  1. In the event of a fire, the tenant’s policy provides coverage to remove the debris from the building. With no insurance, the tenant usually walks away leaving you with the mess. As it is not your property (items damaged in the fire) your insurer may not cover this cost.
  1. A tenant that has insurance shows that they embrace risk management and I would suggest this shows a better quality tenant who will also take other measures to safe guard both their property and yours.
  1. By insisting they have insurance you could be a saviour to them should there be a fire and they have that all important protection.

Contents insurance is inexpensive for most people. Less than $10 a week for approximately $50,000 of contents cover and as I say typically $20 million of that all-important personal and public liability.
Think about it, you could be helping yourself and your tenant!

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Tianjin Explosion – initial report

Source: BBC News

Source: BBC News

The explosions at Tainjin in China is the largest man made catastrophe loss in many years. The estimate of insured losses continues to grow and at last account was in excess of USD3.3 billion.

Putting aside the terrible loss of life and injuries caused by the explosions, the event once again highlights two issues, accumulation risk and supply chain risk.

Aon Benfield have published an initial report on the losses which continue to grow but while the numbers may have been superseded the report does highlight the issues. I attach a copy for those interested.Event Report – Tianjin Explosion (FINAL 20150819)

Another issue not really addressed in the report is the removal of debris. The costs if done correctly /safely will be enormous.

All these issues arise, albeit it in a much smaller way in most large fire losses and should be kept firmly in mind when an insurance program is put together or reviewed.

However, as businesses import and export more, the supply chain risk needs special attention. For example, while many ISR policies are endorsed to include port blockage coverage, the standard endorsement only covers the local port and not overseas ones. The importance of a quality marine insurance program with an insurer you know and trust and importantly  has also been highlighted with this event.

 

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Beware Another Cyber Scam

Danger Scam AlertOver the past few days, I have received  phoney fax messages sent to my email. The emails, which ask you to click on a link, which causes the damage as soon as you do. Please do not get caught with this or a similar scam. Never click on any link in an email without making sure it is legitimate.

Fax Message [Caller-ID: 1-407-987-4450]

http://ocscexpo.net/inbox/get_message.php [I have disconnected the link]

You have received a 3 page fax at Tue, 26 Nov 2014 12:39:14 +0000.

* The reference number for this fax is chd_did11-16986144087-10416275143-624.

View this fax using your PDF reader.

Thank you for using the MyFax service!

This was an easy one to defect. I do not have a fax program attached to my computer and I did not recognise the US telephone/fax number from which it suggests it was sent. I am not sure at this stage how it got through our junk mail blocker.

cyber with pages #2To learn more about other scams, do not forget to get a copy of Mannings Guide to Cyber Security and Insurance available here. Of course the irony of putting a link into this type of warning is not lost on me. It just shows how much we rely on the net and how easy it is to be caught if you are not diligent.

The risk of cyber attack is real. If you have not arranged insurance on your business please speak with your insurance broker.

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Question on Test for Under Insurance on a Business Pack Policy

bigstock-Questions-And-Answers-8042036The question today was:

———————————————————–

Good Morning Allan,

We would appreciate your interpretation as follows.

Refer attached Sunrise schedule with the sum insured & limit of liability clause a [cluster group] BPK wording.

Building Sum Insured/Declared Value (page x)                    $8,440,000

20% Extra Limit of Liability (page x+1)                                     $10,128,000

BPK Extensions of cover – A (page y)               “we do not pay more in the aggregate than the limit of liability shown”

Under-insurance (page y-1)

We are seeking clarification of the following:

Does this increase the Sum Insured/Declared Value by 20% therefore underinsurance applies to $10,128,000?

Does this increase only apply to Extensions of cover – A therefore underinsurance applies to $8,440,000?

We would appreciate your reply at your earliest convenience.

Feel free to call me on the number below if you wish to discuss further.

Kind Regards,

Paul [surname and email provided]

————————————–

Hi Paul

The simple answer is that the test for co-insurance is based on the lower figure, the one the client pays the premium on.

The 20% uplift is there to allow coverage for things like Removal of Debris and Extra Costs of Reinstatement and also a modest inflation factor should there be one between the start date of the policy and the date the building is actually reinstated. This figure needs to be higher than the declared value or traditional sum insured due to inflation.

The test for co-insurance is a “day one” test with the Insured expected to get this figure right.

The same goes with the 20% natural disaster uplift that some business pack policies now contain following a submission of a paper by LMI on behalf of your cluster group.  This, again, is the insurance industry showing a social conscience wishing to provide coverage to an insured, knowing that through the pressures of supply and demand the cost of rebuilding does go up after a natural catastrophe event.

With this benefit, the test for co-insurance under the policy you are referring to and most (not all) policies is the start date of the policy and, as such, the uplift is not designed to allow under insurance at the start date.

I hope this explains the situation.

Regards

Allan

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Should “No Frills” Home Policies Still Provide Full Protection in the Event of a Major Loss?

Business Ethics and Guidelines as a ConceptThis is a question I have been asking myself my and more as I check wordings for people when they ask me if their particular home policy is okay when they hear what I do. I typically go to LMI’s PolicyComparison.com on my iPhone, iPad or laptop. Most times I point out areas that are of concern such as very low limits for removal of debris, loss or rent, architects fees or other areas where I see the home owner has a major uninsured exposure.

With a 60% increase in man made and natural disasters since I started in claims 43 years ago, it is not surprising that more and more friends, family and total strangers ask me this type of question.

I am all for everyone protecting their home rather than going uninsured. If we make the reasonable assumption that many who elect to purchase the no frills, (let us be frank) cheaper policies, are the poorer in the community it is equally reasonable to assume that they will not have the funds or the means to borrow funds to make up for the shortfall in the coverage.

I am all for cutting out some of the nice to have “bells and whistles”, even things like glass and fusion. I am also in favour of larger excesses which are explained to the Insured.

But should the home burn down, then in my firm view, the policy should provide full protection and not have what I feel are hidden clauses, with ridiculously low sub-limits for the often forgotten extra costs of removing the debris, temporary protection and or loss of rent.

I mention I have been in insurance for 40+ years. I am saddened to realise that in many cases companies have lost their social consequence, which was a core value of the General Accident Insurance and many others that my friends within the industry worked for. I also feel that these sub-limits that any self respecting underwriter knows are completely inadequate are a breach of the insurers duty of utmost good faith.

Call me old fashioned, but I think the industry should be there at a time of real need for the customer. As it is now, customers feel far too often they have been tricked and cheated and the trust that our industry had and could justifiably be proud of is fast disappearing.

I would ask any home and contents underwriters to have a good look at the coverage your policy provides. Have the sub-limits been reviewed recently? Are they adequate to genuinely protect your customer. If not, do you job and provide the proper cover in the event of a major loss. I would ask the same of any broker who is developing a ‘no frills’ policy to combat the direct players.

If you want to sell purely on price that is fine but at least give the Insured the option to purchase the important add ons and which would bring the inadequacies to the customer’s attention.

Another way of  saying this is that if someone knowing the facts deliberately under insurers then they ought to lie in the bed they made for themselves. What is wrong is when the policy has, if we are honest with ourselves, hidden sub-limits that do not provide adequate protection no matter what sum insured is taken.

I say this as the most recent domestic claim that I mentioned in yesterday’s blog had the Insured crawling through her fire damaged (and very dangerous) home at night by herself trying to salvage what she could; photographs and the like, as she had no cover for temporary protection. It was only when my son Steve rang her that he learned what she was doing and warned her of the physical danger she was exposing herself to with a building likely to collapse at any time and with an asbestos risk. We owe it better to the insuring public no matter what policy they buy.  Neither Steve nor I want someone like this stressed out lady injuring themselves unnecessarily on our conscience.

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Limits of Liability v Sub-Limits of Liability v Schedule of Declared Values

Review Character Shows Assess Reviewing Evaluate And ReviewsI was recently appointed by the Chief Financial Officer of a company to cast a fresh pair of eyes over their insurance program. As I was going through the Industrial Special Risks (“ISR”) schedule I noticed a number of issues that needed to be remedied. Without wishing to embarrass anyone, I will discuss a few of these over the next few posts, particularly those that I see crop up quite often.

The first point I noticed was that the Schedule included a definition of “Buildings”, and another for “Machinery & Plant” etc. As I explained in 2 recent posts this is not necessary and if anything undoes some of the benefit of the ISR policy.

Rather than repeat myself, I attach a link to the two articles which not written for the particular concern, explain the reason why a definition is not required. If you are still not sure please let me know and I will go over this in more detail.

http://www.allanmanning.com/blog-question-definition-of-building-under-a-isr-policy-1/  

http://www.allanmanning.com/blog-question-definition-of-building-under-a-isr-policy-2/

The next and more important issue is that under the heading Limits of Liability, the Schedule listed what in effect was the Declared Values for the building at each location, the stock values, machinery and plant etc. This is simply not correct.

An ISR Policy is not a Business Pack Policy with sums insured or limits for each category of asset. There are several types of amounts to be shown on the Schedule. Limits of Liability, Sub-Limits of Liability and Declared Values. They should not be confused.

The Schedule of Declared Values is what the premium is primarily based upon and which the test for co-insurance will be made against. It was never designed to be a Limit or Sub-Limit of Liability.

On the first page of the ISR just after the Operative Clause (the clause that sets out on what conditions the policy will respond. The actual words read:

Whereas the Insured named in the Schedule has paid or agreed to pay to the Insurer(s) specified below the Premium shown on the Schedule, now the Insurer(s) agree(s), subject to the terms, Conditions, Exclusions, Memoranda, Warranties, limitations and other provisions contained herein or endorsed hereon, to indemnify the Insured as specified herein, against loss arising from any insured events which occur during the Period of Insurance stated in the Schedule or any renewal thereof.”

The very next clause of the Policy sets out the extent to which the Insurer will meet claims. This reads”

Provided that the total liability of the Insurer(s) at any one Situation shall not exceed the appropriate Limit or Sub-Limit(s) of Liability as stated in the Schedule or such amount(s) as may be substituted therefore by endorsement or memorandum hereon or attached hereto and that each Insurer specified below shall only be liable to contribute to any loss covered by this Policy that proportion of the loss as is specified beside its name.” [emphasis mine].

No where in this clause does it refer to Declared Values only to the Limits and Sub-Limits of Liability.

For reasons that I have stress in my ISR Master Class, the Limit of Liability should always be higher than the value of Declared Assets at the largest location. There are two main reasons for this.

After any property or business interruption claim, once the claim has been calculated in accordance with the relevant basis of settlement the claim is subject to three tests.

First a test for under insurance. Under a standard Mark IV or Mark V ISR property claims are tested with  85% co-insurance. whereas business interruption is tested with 100% average or co-insurance.

The second test is against any Sub-Limits. A good example is flood. If the loss after the application of co-insurance is greater than the Sub-Limit then the claim payment is limited to that Sub-Limit.

The third test is the Limit of Liability. Here the total liability of the Insurer is capped to the Limit of Liability. Additional benefits provided by the policy such as Removal of Debris or Extra Cost of Reinstatement are not paid in addition to the Limit of Liability but out of it.

On the subject of additional benefits, not all items claimed are subject to average and removal of debris, extra cost of reinstatement, and employees clothing and tools of trade are but a few. This is one of the two main reasons that the Limit of Liability should always be higher than the total of the Declared Value at the ‘target’ or largest location.

The second major reason the limit should be higher than the Declared Value is that there may be some escalation of costs between the start date of the policy, the time period against which the adequacy of the Declared Values will be tested by the Co-Insurance test and the date of the final repair. With a loss perhaps occurring 364 days after the start date of the policy and you then add a reasonable period to reinstate the asset it may be several years later. Having a separate an higher Limit of Liability is a great benefit introduced by the drafters of the ISR wording. These underwriters and brokers clearly had protection for the Insured top of mind.

Having the Declared Values listed as Limits of Liability under the ISR does away with one of the major benefits of this great policy, the Australian ISR.

I am often torn between explaining an issue in sufficient detail to make it clear but at the same time, I am mindful that readers do not like long articles. If you would like to learn more please read chapter 2 of my book, Understanding the ISR Policy volume 1 – the Mark IV.

As with any policy, the schedule needs to confirm with the structure of the policy wording and certainly not unintentionally limit what is standard coverage. To do so makes for a very uncomfortable time in the witness box.

In my next post I will discuss the difference between Accidental Damage, Specified Damage and Unspecified Damage.

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Disappointing News Following NSW Bushfires

bigstock-Two-children-looking-at-big-fi-35770451 (1)The recent article in the Sydney Morning Herald about the delays in home owners having their debris removed,  is yet another example of why home owners should not rely on either charity or government to bail them out in the event of a loss.

I understand that over 200 homes were destroyed and $3 million was kindly raised by charities. That equates to $15,000 per home. That is  not going to furnish a home, let alone rebuild it.

Governments want to appear to be doing the right thing,  like the Victorian Government offering to organise the clean up, but government is simply not set up for this type of event. Insurers are.

If people were encouraged to be fully insured it would take a burden off the government, reduce the consequential bad press and it would not erode the good work that charities are doing to raise money for so many worth while causes, such as cancer research, helping the poor etc.

I agree with the Federal Government’s decision to stop handing out welfare after an event that is easily insured for. This may sound harsh but there is only so much disposable income that the community has and to me, it should not be wasted on those that took the gamble and did not insure. The same could be said for our taxes. I would rather see the money be used for education and health and not used on a few that elected not to protect themselves.

I do not agree with the New South Wales government’s decision to impose high taxes on insurance, which is a huge disincentive for people to insure and to insure fully.

I attach a copy of the article which at the time of writing was available at

http://www.smh.com.au/nsw/fed-up-bushfire-victims-clear-their-own-homes-20131124-2y3ol.html

Bush fire article

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