Terrorism Levy – Another hidden tax on insurance – You will be surprised just how much – a whopping 45% of terrorism levy collected.

Where do we start on this thorny issue…

Point 1.

Report after report urges governments to remove taxes on insurance. The Federal Government’s Productivity Commission inquiry on “Competition in the Australian Financial System” released earlier this year is the latest to do so. In fact, every time the issue has been looked at, going right back to the Royal Commission into the collapse of HIH, has made this recommendation.

Point 2.

I strongly believe the way that the terrorism levy is determined on Australian businesses is seriously flawed. While I have written on this many times, I would explain that the fact that the Terrorism Levy is based on a percentage of the premium fails to match the rate of the levy with the risk.

Insurance premiums on property and business interruption are determined by a large number of variables with natural catastrophe losses being a major determinant, but other factors such as investment income, claims ratios in general, to name a few, are all involved. During bad years for the insurance industry, like the year we had the Brisbane Floods, Cyclone Yasi, and 6 other declared natural disaster events (2010) premiums increased. Despite the risk of terrorism falling during the same period, the terrorism levy did not reduce to counter the effect of the increase in premiums. This has, in effect, created a giant windfall to the pool.

Then, when premiums started to fall again 5 years later with normal competitive forces in the Australian Insurance Market, the pool had to increase the terrorism rates in 2015. The current rates are now:

  • 16 per cent for Tier A, [ the Central Business District in Sydney, Melbourne, Brisbane and other cities with a population over 1,000,000 – interestingly not Canberra]
  • 3 per cent for Tier B, [Urban areas of all State capital cities and cities with a population of over 100,000;
  • 6 per cent for Tier C. [Those postcodes not in Tiers A or B]

The reason for this was that as insurance premiums fell the current percentage rate applied to insurance premiums to determine the levy was insufficient.

Now with a toughening market, premiums have been on the rise for some time but the rates did not reduce in the last review and will not for at least the next three years.

The key issue here is that the levy is not linked to the risk of terrorism, it is linked to the vagaries of the insurance market. If any other product was priced this way ASIC or APRA would be, I suggest, having a field day.

It is worse for those in NSW and Tasmania as the fire service levy is charged on not only the premiums but also the Terrorism Levy.

As an aside, I would hate to be a business along George Street in Sydney which is seeing the tram upgrade works drag on and on, being hit with higher insurance premiums, the terrorism levy and a fire service levy that was promised to be removed.

Point 3.

Now where is the terrorism levy going?

The 2017 Annual Report, (See: ARPC_Annual_Report_2016-17) which shows Australian Reinsurance Pool Corporation (“ARPC”) paid the government $147.5 million in 2016/17 as a dividend, and since the start of the scheme the ARPC has paid the government $697.5M in fees and dividends.

Page 46. Table 2.15 shows Gross Premiums written for 2016/17 was $121.9 million, (which is less than $147.5M paid to the government). If this is not a tax then I do not know what is.

Year to date $1.545 billion has been paid in terrorism levy with the government being paid $697.5M. This is a whopping 45%. I am sure every Australian insurer would love a dividend of 45% of premium income. I would start an insurance company myself!

My argument is that the Federal Government needs to start with itself and reduce the hidden tax on Australian businesses.

In fairness, the report does say that the retrospective portion of the dividends (no dividends were charged in the early years) is set to end in 2018.

I would like to see the entire dividend dropped and the value of the pool increased to the point that the level of reinsurance could be reduced and the levy itself reduced. This is on top of a fairer system of calculating the levy introduced, one linked to risk not a percentage of premiums.

 

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New General Insurance Product Class introduced on LMI RiskCoach

Hazard Index from LMI RiskCoach showing all 13 classes of general insurance including Corporate Travel for the insurance broking as the occupation.

I am pleased to advise that the team at LMI Group have now added Corporate Travel as the 13th class of general insurance on which we provide risk and insurance information to our subscribers through LMI RiskCoach.

Besides a wealth of general information about this important class of insurance we have included Corporate Travel in the Hazard Index and Risk Specific questions and points to consider for over 5,000 occupations.

The idea behind introducing Corporate Travel to LMI RiskCoach is to assist insurance brokers and advisers to introduce this class of insurance into the conversation with their clients and use this as an aid to selling, an education piece and as a protector of their professional indemnity program.

The reason we chose Corporate Travel is due to the amount of travel people in Australia and New Zealand undertake and the sheer volume of claims that arise in this class.

We already have Corporate Travel up on LMI PolicyComparison.com and LMI ClaimsComparison.com in Australia and while we have leisure travel up as well on LMI ClaimsComparison.com we are working on this as a complete new class on LMI PolicyComparison. I will post an article when this massive piece of work is completed.

Regular users of the popular site will see that we have changed the name of “Machinery and Electronic Breakdown” to simply Equipment Breakdown in line with current market practice.

RiskCoach on the Go is also being updated with these changes and we will advise when the changes, which have to go through the relevant app stores, are completed.

The team at LMI and I would like to thank the invaluable assistance we received from the team at TravelCard Real Time Travel Insurance in developing this entire new product class on LMI RiskCoach.

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Business Continuity Awareness Week 14 – 18 May

As part of my doctoral research into how small and medium enterprises can, with the assistance of the insurance industry, better manage a crisis, I came to appreciate the benefits of business continuity plans.

They not only are of great benefit at the time of a critical event, in that they allow an organisation to manage the crisis better and therefore recover quicker, they also have a lot of other benefits.

In my own businesses, it forces me to spend time on working on the business itself and not just be caught up in the myriad of day to day issues that I am doing in the business.

By adopting a risk management approach to all decision making, it makes me think about the threats to the organisation as well as the benefits that may arise. I then work out how I can better maximise the opportunities benefits while minimising the threats.

Through this research and going through the process now for over 10 years, I have become a champion of Business Continuity Management Planning and therefore strongly support the Business Continuity Institute’s Business Continuity Awareness Week.

The whole reason I did the research study in the first place was to reduce the number of businesses that failed after a major insurable event. While many of the books, services and even this blog that I developed since then have been to aid people better understand risk and insurance, it was the business continuity piece that proved to be the most difficult.

While there are consultants available to assist organisations through the process, the cost is prohibitive to most small and medium enterprises. At the other end of the spectrum there are free templates available but they offer no advice and I have seen companies struggle to try and put something together over 2 years of trying.

To find a middle ground I developed LMI ContinuityCoach.com which has just been revamped and released for trials as Version 2.0. This provides much more than just a paper template but rather the smart form technology we have in LMI BIcalculator which us allows us to coach the user through the process. The new version produces a detailed insurance report which links back to LMI RiskCoach and captures the necessary information to assist the broker and the Insured determine their insurance needs, looking at it from the point of view of adequate protection. Using LMI ContinuityCoach internally has certainly been one of the reasons for the ongoing success of LMI Group.

If you would like to learn more about LMI ContinuityCoach or business continuity in general please do not hesitate to write via the comments section or the ask me a question section.

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Which small businesses have mandatory data breach reporting obligations? + 1st Quarter statistics

Another topic I have written a lot on is the Federal Government’s mandatory reporting regime.

I have been asked many times to explain the obligations on small business and so I outline them below. After that I provide some stats at a high level on the first quarter reporting.

From 22 February 2018, the Notifiable Data Breaches scheme (“NDB scheme”) requires a wide range of organisations to report data breaches that are ‘likely to result in serious harm’ to the individuals whose personal information is affected by the breach. They will also be required to notify the Office of the Australian Information Commissioner (“OAIC”).

The NDB scheme applies to organisations that already have obligations to secure personal information under the Privacy Act 1988 (Privacy Act). Generally, this does not include small businesses that have a turnover of $3 million a year or less.

However, there are a few exceptions. Organisations that fall under the following categories will have mandatory data breach reporting requirements, regardless of their size:

  • Health service providers (including, for example, private hospitals, day surgeries, medical practitioners, pharmacists, allied health professionals, gyms and weight loss clinics, childcare centres, and private schools);
  • Organisations that trade in personal information;
  • Credit reporting bodies;
  • Employee associations registered under the Fair Work (Registered Organisations) Act 2009;
  • Organisations that opt-in to being covered by the Australian Privacy Principles under section 6EA of the Privacy Act.

The NDB scheme will also apply to small businesses in these categories that are based overseas if they have an ‘Australian link’.

[ Note An Australian Link generally extends to the overseas activities of an Australian Government agency (s 5B(1)). It also applies to organisations (including small businesses covered by the Act, outlined above) that have an ‘Australian link’ (s 5B(2)). An organisation has an Australian link either because it is, in summary, incorporated or formed in Australia (see s 5B(1A) for more detail), or where:

  • it carries on business in Australia or an external Territory, and
  • it collected or held personal information in Australia or an external Australian Territory, either before or at the time of the act or practice (s 5B(3)).

Further information about entities that are taken to have an Australian link is available in Chapter B of the APP Guidelines.]

Tax File Number (“TFN”) recipients (which is any person in possession or control of a record with TFN information) will also need to comply with the NDB scheme in relation to their handling of TFN information. This means that if TFN information is involved in a data breach, a TFN recipient will be obligated to meet the requirements of the NDB scheme.

Organisations that are not covered by the NDB scheme are encouraged to use the information on notifying individuals under the scheme to create or review their data breach response plans.

Being transparent when a data breach occurs is central to meeting community and consumer expectations. 94% of Australians believe they should be told when a business loses their personal information. Informing individuals about a data breach is one step that organisations can take to demonstrate that they take their responsibility to protect personal information seriously.

And as a practical measure, notifying individuals at risk of harm can provide them with the opportunity to reduce their chances of experiencing harm. For example, individuals can resecure compromised online accounts. This can reduce the potential impact of a data breach overall.

As always, I recommend every business and or organisation to review or develop a business continuity management plan and obtain, and or review their, Cyber Insurance and to discuss the many and varied options available with their insurance broker.

Now to the Ist Quarter reporting stats:

Key statistics from the first quarterly report include:

  • Top five sectors that notified the OAIC of eligible data breaches included health service providers (24 per cent of notifications), legal, accounting and management services (16 per cent), finance (13 per cent), private education (10 per cent), and charities (6 per cent).
  • 78 per cent of eligible data breaches were reported to involve individual’s contact information. 33 per cent were reported to involve health information and 30 per cent to involve financial details.
  • 51 per cent of the eligible data breach notifications received indicated that the cause of the breach was human error. 44 per cent of breaches were reported to be the result of malicious or criminal attack, and 3 per cent the result of system faults.
  • 59 per cent of data breach notifications reported that the personal information of between one and nine individuals was affected. 90 per cent of data breach notifications related to breaches involving the personal information of less than 1,000 individuals.

The key point for me here is that just over half were through human error. No matter what systems we have in place, it is people risk that is our greatest risk in so many areas of our organisations and cyber security is no different!

 

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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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Changes to the New Zealand Residential Tenancies Act and to PolicyComparison in Australia on methamphetamines.

The Residential Tenancies Amendment Bill (No 2) has just passed the Select Committee stage of the New Zealand legislative process. The Bill will change the Residential Tenancies Act (1986) in ways that will affect general insurers in the following areas:

  1. clarifying the state of the law regarding tenants’ responsibility for careless damage to property, including insurers’ rights of recovery;
  2. requiring landlords to disclose information about their insurance arrangements to tenants; and
  3. setting rules for testing properties for contaminants, including methamphetamine.

I will be watching carefully the final outcome of the process as I see rules for testing properties for methamphetamine being mandatory here. This as I have reported on a few times is becoming a big issue in Australia.

Following my last post, my colleagues at LMI PolicyComparison.com conducted a review of our existing Landlords comparisons to see whether any addressed this. She found that currently only  2 policies provide cover for Chemical Contamination. One had  a sub-limit of $20,000 and the other $10,000.

Currently this is being shown under the “Additional Information” section of our comparison.

They then carried out a full review of all the Landlords wordings to see whether any one else offered similar cover and found that they don’t and none of them had specific exclusions relating to it.

As a result to assist users of our comparison service the team have added a new cell into our existing comparison template so that we can show the cover offered.  The cell is to be called “Chemical Contamination – Manufacturing Storage or Distribution of Any Controlled Drug” as the cover does not specifically mention methamphetamine’s but rather any controlled drug. Most Landlords wordings have a broader exclusion for pollutants which can include chemicals and we currently have an Exclusion cell for “Pollution other than Involving Animals, Terrorism or War and Nuclear Activities” in which we detail these exclusions.

The team did not stop there and checked the Home and Contents comparisons and wordings to see whether this is addressed anywhere in them and found that none of them have provided cover for chemical contamination. This did not surprise me as an occupier should know what is coming into their  house and if they allow such substances, it would be unfair to have the insurer pay for the clean up.

Regarding chemicals, the review showed that there is usually an exclusion for pollutants, which can include chemicals, and we put this in the existing exclusion cell – “Pollution other than Involving Animals, Terrorism or War and Nuclear Activities”. Chemicals are also commonly excluded when it comes to (a) Any process of cleaning involving the use of chemicals other than domestic household chemicals and/or (b) Contamination by chemical and/or biological agents, which results from an act of terrorism. Neither of these relate to the cover we are talking about.

The most common exclusions relating to drugs are:

  • Any property illegally in Insured’s possession stored in a dangerous and illegal way or any equipment connected with growing or creating any illegal substance
  • Liability arising from or in connection with or involving committing or attempting to commit a criminal offence including the manufacture distribution and/or supply of illegal substances or drugs
  • Liability and loss or damage when Insured is under the influence of an illegal substance or drug or loss or damage was caused or contributed to because Insured possessed supplied or consumed illegal substances or illegal drugs
  • Insured’s possession supply manufacture or consumption of any illegal substances or illegal drugs

We currently have an exclusion cell for “Use of Alcohol or Drugs” in which we place all the above mentioned exclusions.

I may offer more comment when the New Zealand Legislation goes through and or after we have completed a similar review on LMI PolicyComparison.co.nz comparisons.

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Consider vehicle security when you purchase your next car

I read with disbelief that luxury car manufacturer, BMW has been reported in an article in the Daily Mail newspaper which caught my son Steve’s eye while he was in the UK, that they (BMW) are unable to prevent thieves from using a simple relay box to break into their top of the range model vehicles. Furthermore, the car giant, renowned for its excellence in engineering, continues to refuse to take any responsibility for the many of their customer’s cars that are being stolen.

While owners of the latest BMWs think they benefit from the new key-less ‘comfort access’ system, which deactivates all in-car security merely by approaching their car with the key fob in their pocket, . Unfortunately, thieves simply use a relay box that is available to anyone on the internet, and this device provides them with the ability to activate the same signal from the fob while it is still in the owner’s home.

Understandably BMW has received a great deal of criticism for what appears to be its uncaring, pass the buck, it is not my problem, attitude from crime fighters, who are also calling for greater controls on the online sale of devices designed to assist criminal activity.

No doubt this security issue will be reflected in higher insurance premiums for owners of these vehicles which in fairness to BMW is not confined to just their brand.

Before that issue however, there is an interesting exclusion in many motor policies regarding keys left in vehicles. If the stolen vehicle is stolen and then recovered with absolutely no sign of a physical break-in etc, no doubt further questions will be asked of the Insured in respect of the keys.

One way that seems to work to protect vehicle owners is that they can secure their car key fobs in box or the like which has a shield that stops the thieves, much like some wallets or credit card holders.

It is certainly an issue that I will keep in mind when I get around to upgrading my aging vehicle. Perhaps I am better off with the older technology but I also see the great benefits in driverless technology moving forward.

I think however this is something that we all need to keep in mind.

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NSW introduces new laws to curb the serious issue of distracted drivers

I have posted several articles over the past few years on the very serious issue of people texting and generally being distracted by their mobile devices while driving. One post covered the terrible case where in February this year, a 22-year-old man, who allegedly took his eyes off the road for up to 20 seconds to use his phone, seriously injured two policemen setting up a random breath test. That 20 seconds of mobile phone use in a car travelling at 60km/h was equivalent to driving blind for 330 meters, Parliament was told. As a result, one of the police officers had part of his leg amputated. See http://www.allanmanning.com/phones-and-driving-do-not-mix/

Even on Saturday as I drove out of my own street onto a round about, I was nearly involved in a collision with a driver who was clearly not watching the road. Thankfully my wife and I could see the driver was not watching the road and we avoided the certain collision.

I therefore welcome the new measures taken by the New South Wales government to curb this very real problem. That is, people simply do not realise their addiction to social media, text messaging and emailing is putting people’s lives, including their own, at risk. This is despite more than 40,000 people being fined by NSW Police for illegal mobile phone use in the 2016-17 financial year.

In trials by One Task, a Sydney technology company, of speed cameras to spot illegal use the cameras detected more than 400 Sydney-siders using phones illegally in a 12-hour period.

NSW will be the first place in the world to introduce speed-camera-style technology to detect and crack down on illegal mobile phone use by motorists and while it will no doubt have a revenue benefit to the government, I do believe the primary reason for the new laws is to reduce the numbers of people killed or seriously injured on the road.

The new rules have been passed by NSW Parliament and they also extend to mobile drug testing which will now include cocaine and tougher penalties for drivers under the influence of drugs.

While motor vehicle policies have an exclusion for drivers being under the influence of alcohol or drugs, only a few have introduced exclusions for texting while driving. While I strongly support such an exclusion, I think it should be in line with the under the influence exclusion and still protect the owner of the vehicle but make the driver ultimately responsible for their dangerous actions.

 

 

 

 

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A statistic that will surprise some but not all

General insurance covers such a broad range of products it is extremely difficult, if not impossible, to be across them all.

One product that has taken off and is often seen being advertised on television is Pet Insurance.

A recent government report highlighted the concentration by 1 insurer in this space. Clearly they do it well and many brands are with partners they have selected as being credible.

With this background you can understand why I was nearly going to title this post – “Pet Insurance – more brands than a dog has fleas!” 🙂

The purpose of this note is to make sure people are aware that while they be shopping around and thinking they are looking at different insurers and or product offerings, they may well not be.

LMI PolicyComparison.com does have a comprehensive comparison of the features of benefits in this class for subscribers to the service as they do 20 plus classes of general insurance. Meanwhile LMI ClaimsComparison.com compares the claims service which along with the features and benefits of the policy should be considered with any insurance purchase, rather than just making the buying decision on price alone.

The table below shows who owns what brands and the source of the information.  Being buried so far into the report, is one of the reasons I thought it worth sharing the information.

I would also add that I know from PolicyComparison.com that RAC have a product as well that is underwritten by RACQ while Pet Cover is a second brand underwritten by MS Amlin Syndicate 2001 at Lloyd’s.

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Product Recalls Australia – 18 April 2018

This week’s product recalls includes the following:

Gardenia Home Garden Décor Pty Ltd – Bio Ethanol Fireplaces – various models

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Porsche Lizenz- und Handelsgesellschaft mbH & Co KG — Porsche Wooden Car Blue/Black

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GM Holden Ltd — SAAB 9-3 and SAAB 9-5 MY 2006-2011

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Toyota Motor Corporation Australia Limited — Toyota Kluger

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Daimler Truck & Bus Australia Pacific Pty Ltd — Freightliner Trucks

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Lovesac — Kidsac

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Polaris Sales Australia Pty Ltd — ACE 500 / 570 / 900 single seat vehicles (MY2017-2018)

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Polaris Sales Australia Pty Ltd — Polaris RZR 570 side by side vehicle (MY2017-2018)

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Polaris Sales Australia Pty Ltd — RZR XP Turbo and RZR XP4 Turbo side by side vehicle (MY2016-2018)

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Polaris Sales Australia Pty Ltd — RZR XP 1000 and RZR XP4 side by side vehicle (MY2014-2018)

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Polaris Sales Australia Pty Ltd — RZR XP 1000 and RZR XP4 side by side vehicle (MY2014-2018)

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Daimler Truck & Bus Australia Pacific Pty Ltd — Mercedes-Benz Actros & Arocs Trucks

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For more product recalls please visit the website: https://www.productsafety.gov.au/recalls/browse-all-recalls

 

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