GST inclusive v GST exclusive wordings

As long term readers would know I have been campaigning against those insurance policies that require the sum insured to be GST inclusive. See from 13 May 2012 and from 11 December 2011.

In the December 2011 I explained that where Brokers or Insureds simply move from one policy to another the former where the Sum Insured is GST exclusive to one that is GST inclusive and not made the necessary adustment to the sum insured they found they were under insured.

As an insurer never bears the cost of the GST where the Insured has the abiltiy to claim a 100% Input Tax Credit (“ITC”) I felt strongly that it was against the underlying principle of utmost good faith to ask an insured to insure for a figure 10% higher when it would never be incurring the cost, unless the requirement was clearly brought to the attention of the Insured at the time the policy was taken out. It also means the Insured has to pay unnessary Fire Service Levy, GST and Stamp Duty on a portion of the Sum Insured he can never claim. This may be false logic if the insurer has decreased the rate to allow for the GST component of the Sum Insured.

I am pleased to say that one Insurer, Hollard Insurance have changed their busmess pack wording to be GST exclusive. I applaud them on the change and ask any other insurer that currently requires a business registered for GST to include the GST in the sum insured to make a similiar change.

In the meantime, I urge brokers to double check on that the policy they are recommending is GST inclusive or exclusive and then set the sum insured accordingly.

For the sake of completeness, I reproduce the wording of the change to the Hollard Product Disclosure Statement attaching to their Business Pack, but before I do, I would ask that brokers who have business with Hollard on their business packs, may consider that even though the change has gone through, they do not decrease the sum insured on the policy but leave it the same as from my experience the vast majority of insured’s are under insured. This has to be considered with caution and would not be good practice where you are certain the insured assets are over insured and or if they are under insured and need to be increased. Certainly do not decrease it where you were not aware of the requirement as I know many of you where in that position and it is great to see the change before anyone else got caught.

Business Pack GST Clause Amendment

We have revised the GST clause in our Business Insurance Product Disclosure Statement to align with the general treatment of GST by the market. Effective immediately, the following endorsement is to be added to all Business Insurance policies:

The ‘Goods and Services Tax (GST)’ clause on page 47 of the Business Insurance Product Disclosure Statement is hereby replaced with: Goods and Services Tax

If you are not entitled to an input tax credit on any part of the premium you paid for this policy, the sums insured, sub limits or limits of liability stated in this policy are inclusive of GST.

If you are entitled to an input tax credit on any part of the premium you paid for this policy, the sums insured, sub limits or limits of liability stated in the policy are exclusive of GST to the extent of your input tax credit entitlement.

In situations where we make a cash payment to you for the purchase of goods or services for which you are entitled to claim an input tax credit, we will only pay you an amount that is equal to your net cost i.e. your cost after claiming input tax credits.

The policy does not cover any amount of GST , or any fine, penalty or charge that you are liable for because of a failure to disclose or a misstatement made by you, in relation to your entitlement to an input tax credit for the premium. You must tell us if you become aware that the extent of your entitlement to an input tax credit for your premium disclosed to us is incorrect.

This new clause will be in effect for all claims with an occurrence date from 10th May 2012 onwards.

We are planning a revision of the Business Insurance PDS later this year at which time the above wording will be included in the printed document. Until that time this endorsement will be required for all new business and policies as they fall due for renewal

If you have any questions, please don’t hesitate to contact your Account Manager.”

Once again well done on this change.

Leave a Reply