Here are some questions we get asked the most. If you have a question that isn’t listed here, feel free to contact us.
Traditionally Professional Indemnity (PI) Insurance was purchased only by the likes of Accountants, Lawyers, Engineers, Financial Planners and Medical Practitioners – by its very nature it was designed for those pure white collar professions – usually a requirement for membership to their Professional Associations or Licensing to Practice requirements.
We have in recent times seen an increasing number of industries purchasing PI cover, outside of these “traditional” Professions. What must be noted is that Public & Products Liability policies exclude in some way or another “the rendering of or failure to render professional advice or services and/or any related error or omission” usually where a fee is charged for this professional advice or service.
What does this mean? It is a “grey” area, which unfortunately with Contracts of Insurance, can leave clients with uninsured losses that they thought were covered by their Public & Products Liability policy.
There is no quick answer, and a thorough review by your Insurance Broker of all facets of your business is the only way of determining whether or not you require PI Insurance to fully protect your business.
In more recent times, traditional blue collar trades such as Electricians & Plumbers are purchasing PI cover on a more regular basis, because they do provide their clients with “advice” for fee, with such advice being considered knowledge that particular trade holds over and above the normal lay person. PI Insurance is now readily available for dozens of white and blue collar industries.
How many times have I heard that in the last 15 years in the industry: “My brand new brick and steel building which cost $500,000 to build would never burn down. We’ll just insure it for $250,000 to save on insurance premiums”.
Tragically a recent ASIC study confirmed that up to 80% of all insurance consumers in Australia were under-insured by 10% or more.
This trend can also occur over time, with consumers capping their increases to sums insured to the “indexed” increases that the insurers automatically include at each renewal – usually tagged at low single digit inflation rates. Between 2000 and 2005 CPI increased by 17% BUT building costs rose by 33%.
What our clients need to understand is that Insurers have “under-insurance” clauses in most commercial property and business interruption, and some domestic property insurance policies. These policies state that if the client is under-insured, then that client becomes a “co-insurer” of the property.
In the example above where the client has insured a $500,000 building for $250,000 the insurers policy deems that client to have taken 50% of the risk, so all claims are only paid out by the insurer at 50% of the loss. So the client cannot falsely believe that ALL CLAIMS up to $250,000 will be paid in full. A smaller loss for example such as malicious damage via an attempted burglary, which causes $50,000 damage would see the insurer pay $25,000 and the client left to foot the other $25,000 because they were deemed to be “co-insured” for the 50%. In this case the fact that they had a brick and steel building that would never burn down is very cold comfort when finding that other $25,000 from their own pocket.
When you consider the protection (with premiums generally tax deductible for businesses) that the insurance policies provide to your business and financial wellbeing, insurance really isn’t expensive at all. People just don’t like paying for something they are not likely to use.
However if you do need to claim, insurance cover can become your best friend, particularly if it has been properly arranged by a Professional Insurance Broker – who will risk profile exactly what cover you need so that you don’t have any nasty surprises if you come to claim something that is not covered.
Commercial Insurance in Australia, particularly in NSW and Victoria is the most highly taxed in the world. Clients may find the following web link frightening when it compares Australian taxes on insurance to the rest of the world –www.notaxoninsurance.com.au/Content.aspx?catId=95 – with country Victoria taxed at over 100% of the actual insurance company premiums.
An example below might leave some clients shocked at these hidden taxes, based on a commercial property insurance policy in country Victoria: Insurance Premium = $100 + Terrorism Levy 4% = $4 – cumulative total $104 + Fire Brigade Levy 63% of the cumulative total = $65.52 (yes that is a tax on a tax) – cumulative total $169.52 + GST 10% of the cumulative total = $16.95 (yes that is now a tax on a tax on a tax) – cumulative total $186.47 + Stamp Duty 10% of the cumulative total = $18.65 (yes that is now a tax on a tax on a tax on tax) – TOTAL CHARGE TO POLICY HOLDER = $205.12
In essence for a policy that the insurance company charges the client $100, the taxes to the State and Federal Governments bring this cost up to $205. It is therefore worth asking, is insurance really all that expensive, or are the taxes just pricing insurance out of peoples reach?
CIP is an acronym for Certified Insurance Professional. According to ANZIIF or the Institute (The Australian and New Zealand Institute of Insurance and Finance), CIPs are insurance professionals who:
distinguish themselves through an Institute qualification or recognised equivalent
maintain up-to-date technical skills and knowledge through a program of professional development
abide by ANZIIF’s Code of Ethics.
The CIP program run by the Institute sets the standard for professionalism for the insurance and financial services industry. So if your broker has CIP status you can be sure they operate according to the best standards of professional practices and integrity. It demonstrates a high level of specialisation and expertise attained through completion of the Institute’s internationally recognised education programs.
Having CIP accreditation also provides an invaluable tool for Australian financial services professionals to show that they are maintaining compliance with ASIC RG 146 and for professionals in Hong Kong and Singapore to demonstrate that they are meeting their continuing professional development requirements in their country. The Institute actively promotes CIP throughout the financial services industry and broader community as the symbol of insurance professionalism.
A strong regulatory framework governs financial service operations in Australia. This framework has evolved over time, most recently improved by the introduction of the Financial Services Reform Act through changes to the Corporations Act in 2001.
The APRA is the body which licenses and regulates financial service businesses. This includes banks, general insurers, life insurers and fund managers who are licensed to operate in the country (particularly in relation to capital adequacy). For insurers, this occurs where the insurer carries on an insurance business in Australia.
ASIC regulates the distribution activities of financial service businesses. This includes banks, general and life insurers and fund managers, but also intermediaries such as insurance brokers and underwriting agencies.
Although ACCC (Australian Competition and Consumer Commission) regulates competition and consumer protection issues for most businesses in Australia, ASIC is the body responsible for regulating financial services businesses in this regard.
(Information sourced and edited from the Gold Seal, Gold Book.)
How can I get a discount?
Some insurers offer discounts or other incentives for policyholders who:
install smoke alarms, sprinkler systems and monitored intruder alarms
are senior citizens
are loyal and long-term policyholders.
Insurance Excess An excess is the self-insured part of any loss. It’s the amount you must pay for each claim. In most cases, the insurer will deduct this amount from your claim payment.
You can often choose to lower your premium by opting for a higher excess for claims relating to your home and its contents.
Can I under-insure or over-insure? Make sure you don’t under-insure the contents of your home. Make realistic estimates of the replacement value of your possessions and update this inventory at least once a year. Remember to include GST. If the value of your possessions is greater than the amount of contents coverage specified in your policy, have it changed accordingly.
Don’t under-insure your home either. Your building sum insured does not include the market value of the underlying land. In most cases it should include the costs to demolish the house and any council fees or architects fees to rebuild or repair.
To fully understand how much insurance you need you should read your PDS and understand what insurance companies consider your Home and Contents to be. Generally, Insurance Brokers cannot give you advice on how much your home or possessions are worth. You should consult a licensed valuer if you have any doubts.