There is a lot of talk about an insurance market in transition. But what does this mean for you as a business owner. In short, it means premiums are on the rise. But here is a bit more about why this is the case.

Rate increases and tightening terms are inevitable in the current environment as insurers absorb the impacts of increasing weather claims, claims inflation, reinsurance pressures and increasing volumes of smaller claims.

There has been a general trend towards increased spring and summer monsoonal rainfall across Australia’s north during recent decades, and decreased late autumn and winter rainfall across southern Australia.

For Australia as a whole, an increase in the number of dry days is expected, but it is also likely that rainfall will be heavier during wet periods. It is likely (with more than 66 per cent probability) that there will be fewer tropical cyclones in the Australian region, on average, but the proportion of intense cyclones is expected to increase.

One effect of widespread damage is known as ‘demand surge’. This is where repair costs spike up as a result of the large amount of work that needs to be carried out by a limited supply of repairers.
 
As the Insurance Council of Australia (ICA) pointed out in its submission to the National Disaster Insurance Review (NDIR) last year, many communities are becoming more prosperous and densely populated. Consequently, construction and rebuilding costs increase annually, as do the values of the individual assets.
Reinsurers are also feeling the effects of the increased frequency in natural catastrophe events. Earthquake losses in 2011 have made the biggest impact compared to prior years where tropical cyclone activity contributed heavily to annual catastrophe loss activity. Even excluding earthquake events, the 2011 losses surpassed the average of recent years.

Most insurers are adjusting pricing, and in some instances deductibles, to ensure that they continue to be able to deliver sustainable products to customers. While the increases will be spread across products and geography, there will be higher increases in those areas that are more exposed to weather related claims, in particular Northern Queensland, and in those products where rates have not been keeping up with underlying inflation.

Publisher: Alex Bodnar - Authorised Representative of Insurance Advisernet. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: The information in this publication is of general nature as a service to interested parties. This article is not intended to provide a complete discussion of the subject and should not be taken as advice. While the information is believed to be correct, no responsibility is accepted for any statements or opinion or error or omission.

Did you know it is possible to invest superannuation money in a term deposit?

Term deposits provide returns that are steady and predictable. And at the moment there are some great rates around! 

Term deposits can be a good way to reduce volatility in your super fund, and consequently reduce the anxiety that many people experience with fluctuating investment markets.

In the past, some people chose to set up a self managed super fund so they could access term deposits. However in recent times a number of the larger superannuation providers have begun to offer simple low cost funds with built in term deposit options.

Timeframes for a term deposit in super typically range from 6 months to 5 years. As a general rule, the longer the timeframe, the higher the interest paid.

Be mindful however, that term deposits normally have to stay in place until the end of the chosen time period. This principle still applies when the term deposit is inside super. In some cases it may be possible to switch or withdraw early, but there is likely to be an extra fee payable and/or some loss of capital. This means that if more attractive interest rates become available, or you decide to allocate more of your super to growth options, it may be expensive to switch out before the end of the chosen term.

Also bear in mind that over longer time periods, growth investments such as shares typically outperform cash and fixed interest investments. While that may not have occurred in recent years, superannuation is a long term investment for most people.

One strategy being deployed more often these days is to use a combination of term deposits and share based investments within super. The term deposit provides stability and predictability, with the more volatile share based component giving exposure to higher long term growth. This strategy can be implemented within most modern super funds, or in a self managed fund. The overall appropriateness of this strategy, and the best mix of components, will vary between individuals.

Author: David Scott, Principal, ICT Wealth Financial Planners, AIIA.biz Expert.

ICT Wealth is a boutique financial planning firm that has no ownership by any product manufacturer. We choose to be licensed through AMP Financial Planning. The investment managers and insurers we use include a broad range of leading names and specialist stockpickers.

Disclaimer:  ICT Wealth Pty Ltd, ABN 98 138 155 852, is an authorised representative of AMP Financial Planning Pty Limited (Australian Financial Services Licence No. 232706. Information contained in this article is of a general nature only and does not take into account your personal objectives, financial situation or needs. Accordingly you should consider your own objectives, financial situation and needs before acting on this information.

Here is the latest news from our insurance IT specialist broker Insurance Advisernet on the typical rates movements that Insurance Advisernet are seeing in the insurance market (current as at June 2011).


 
If you want a very competitive quote for your business insurance, call commun-iT's IT specialist broker Alex Bodnar on 02 9964 7333.

Publisher: Alex Bodnar - Authorised Representative of Insurance Advisernet. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: The information in this publication is of general nature as a service to interested parties. This article is not intended to provide a complete discussion of the subject and should not be taken as advice. While the information is believed to be correct, no responsibility is accepted for any statements or opinion or error or omission.

Under-insurance can have wider ramifications than some business owners realise, particularly when it comes to cleaning up after a catastrophic event.



Even before you start to repair or rebuild, cleaning up is costly. But it’s all covered by insurance isn’t it?

After going through the trauma of a natural disaster or other significant event such as a major fire, many business owners are surprised to find that there is a cap on the amount they can claim for the cost of removing debris. 

These are known as sub-limits and can be a set figure, say $100,000, or a percentage, usually 10% of the sum insured.  Neither of these may be adequate for a business which is under-insured.

In a recent example following the floods in Queensland, a building owner was surprised to learn that the cost of pumping out an underground carpark was $500,000.

The Managing Director of risk assessment advisers, LMI Group, Dr Allan Manning, warns that many sums insured may not be sufficient to cover clean-up, particularly if the debris includes toxic or dangerous waste such as asbestos products.

“In recent claims involving a paint manufacturer in one case, and a supplier of agricultural chemicals in another, the relevant State Environmental Protection Authority (EPA) insisted on very stringent procedures to remove the debris including the burying of the contaminated material in large concrete canisters.  This resulted in the cost of removing the debris exceeding the cost of rebuilding the damaged building,” he said.

Dr Manning said the location of the building, for example on a main road, may also have an impact on cost. 

“This may involve traffic diversions or special parking permits. All this adds to the cost. In more remote locations the expense of removing environmentally dangerous debris can be considerably increased if there is no tip nearby that is licensed to receive the waste material.

“There have been reported cases where the EPA is not certain themselves on how to best dispose of some debris. This can mean the storage of the material for an extended period until agreement can be reached on how disposal is to take place, which again involves more cost.”

Another problem arises if a tenant abandons their debris leaving the landlord to meet the cost of removal. “An allowance for this eventuality is recommended as the time taken to track down and seek recovery from the tenants often slows down the reinstatement process. This is particularly the case where the tenant elected not to insure, not insure adequately or not insure for flood where the loss was caused by flood,” he said.

Dr Manning said an important aspect of typical packaged policies was that cover for the removal of debris usually included the insured’s liability to clean up nearby property as well as roadways, railways, and waterways.

“What many people do not appreciate is that Environmental Protection Authorities have the power to order an insured to remove the debris that escapes from their premises as a result of a fire regardless of what caused the fire. Remember that the soot and smoke from a fire does not necessarily go straight up and come straight down where it started. Similarly, water used to fight the fire will not necessarily be confined to the insured’s property.” 

Talk to us about adequate cover for cleaning up after a disaster.

Publisher: Alex Bodnar - Authorised Representative of Insurance Advisernet. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: The information in this publication is of general nature as a service to interested parties. This article is not intended to provide a complete discussion of the subject and should not be taken as advice. While the information is believed to be correct, no responsibility is accepted for any statements or opinion or error or omission.

The natural disasters that have hit Australia over the summer have led to a number of hard luck stories about businesses finding they were under-insured. It’s too late to check your policy after a disaster strikes, whether it is caused by Mother Nature such as a storm, a devastating fire caused by an electrical fault, or man-made, like theft or vandalism. 

Experience shows that many small and medium enterprises which do not have adequate insurance protection do not survive these setbacks.

A survey by the Insurance Council of Australia of the small to medium sized enterprise sector found that less than two thirds have adequate insurance. According to the survey, 26% of all small to medium enterprises do not have any general insurance and sole traders are the most exposed with 40% having no cover.

Many SMEs are not aware of all the cover they might need. For example, of those insured businesses which had lodged a claim in the previous 12 months, 19% were for business motor insurance, 16% for burglary and theft and 13% for machinery breakdown.

Machinery breakdown covers equipment such as freezers, refrigerators, ovens and mixers and loss of stock as a consequence of the breakdown. Yet despite this being the third highest type of claim, only 43% of those insured felt this type of cover was applicable to their business.   

If you have a number of individual policies covering different risks, you should get advice on how to pull it all together in a package tailored to your type of business.

The advantages include simplicity, a wider range of covers, including some you may not get by taking out individual policies, and some cost advantages because of the reduced number of transactions.   

The typical covers in a package include:

• Fire, storm and malicious damage to your business premises and contents; 
• Business interruption is another essential cover which helps you stay afloat by protecting against loss of profits if your operations are disrupted by damage to your business by specific events such as fire or storm damage;
• Machinery breakdown as mentioned above;
• Fidelity covers theft by an employee of money or stock;
• Public liability covers you for unintended death or injury to a member of the public or damage to their property while they are on your premises;
• Product liability comes into play in the event of an unintended death or injury caused by a product which you supplied, sold, serviced or repaired;  
• Personal accident and illness cover is particularly important if you are a sole trader or your business has a small number of partners. 

Publisher: Alex Bodnar - Authorised Representative of Insurance Advisernet. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: The information in this publication is of general nature as a service to interested parties. This article is not intended to provide a complete discussion of the subject and should not be taken as advice. While the information is believed to be correct, no responsibility is accepted for any statements or opinion or error or omission.

Unprecedented scrutiny of insurance since the catastrophic flooding which hit south-east Queensland and Victoria in December and January will determine how policyholders are protected in future disasters.

Following widespread confusion amongst owners of inundated properties about what they were covered for, and a range of definitions of flood being used by insurers, the Federal Government initiated reviews to develop a standard definition and to examine the availability of cover to individuals and businesses for damage and loss associated with flood and other natural disasters. 

The Federal Treasury issued a discussion paper on a uniform definition of flood to be used by all insurers to either cover it or exclude it in their policies:
    
    "Flood means the covering of normally dry land by water that has 
    escaped or been released from the normal confines of:

• any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
• any reservoir, canal, or dam."

Brokers Support Standard Definition 

Brokers’ views have been represented by the National Insurance Brokers Association (NIBA). In its submission NIBA agreed that a standard definition will go a long way towards ending policyholder confusion, but questioned whether an alternative form of words should be used.

“The difficulty with the term ‘flood’ is that a consumer’s understanding of what the term may or may not mean...is very broad, as is the case with the typical dictionary definition,” the submission said. NIBA also suggests that policyholders could be advised on where to obtain information on the flood risk of their area, for example from the local council, and encouraged to seek advice about what cover they need from a licensed expert if they are unsure.

NIBA warned that the standard definition and other proposals would not address some issues that commonly arise in relation to flood claims, notably, what is the cause of the damage if there is a mixture of flood water and storm water, yet flood is excluded in the policy. 

A solution could include making an independent expert’s opinion as to the cause of damage binding on both parties and legislative changes clarifying what happens to claims when flood water and storm water combine. 

“Appropriate advice from professionals such as insurance brokers can assist in reducing confusion and the proposed change will make it easier for insurance brokers to advise their clients,” NIBA said in its submission.

Disaster Insurance Paper Released

Meanwhile, the Natural Disaster Insurance Review, established by Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, has just issued a discussion paper looking at a range of issues, including how to make flood cover more widely available to property owners.

The options in the paper are full flood cover, with all insurers compelled to offer cover for all insured properties, an opt out provision that allows property owners to insure without taking flood cover, and the status quo in which insurers are free to offer or not offer cover.

The paper notes that under the first option disputes over whether the damage was caused by storm or flood water would be eliminated, but property owners in flood prone areas would pay substantially higher premiums unless there was some form of subsidy or discount.

Funding for such a subsidy would need to come from governments (taxpayers), councils (ratepayers) or insurance (other policyholders), all of which required further examination.

Issues for Small Business

The paper also looked at the specific problems facing small businesses, the majority of which do not have flood cover.  Small business owners, who are more likely to use a broker, have more specialised insurance requirements, are more price sensitive and less likely to purchase additional cover such as flood insurance.

The number of insurers providing small business insurance is limited, and any compulsion for them to provide insurance cover could see some withdraw from the market, reducing competition and pushing up costs.
 
NIBA CEO, Noel Pettersen, said anecdotal feedback from brokers with clients in flood affected areas showed the lessons learned were much the same as for householders -- be aware of the likely impact of flood on your business, heed warnings from the authorities and be prepared, if possible, to move stock and equipment.

“Brokers have said they would welcome flood cover being more widely available, but priced separately so the client could decide whether they wanted to pay the additional cost,” he said.

Insurers want Broader Debate

Insurers have also expressed concern that a requirement to include flood cover in all policies would override individual underwriters’ appetite for risk and would not discourage householders and businesses from building in 
flood-prone areas.

They have called for a broader debate on how governments at all levels deal with mitigating flood risk, including mapping, planning, zoning and building standards.

The Federal Attorney General, Robert McClelland touched on these issues when he recently told a conference that perhaps the Federal Government should consider putting more funds into mitigation and resilience measures rather than just doling out relief payments after each disaster.

“Put simply it is counter-productive if government assistance acts as a disincentive to people taking steps to build their own resilience – such as taking out insurance. I believe we need to be more strategic and more ambitious than 
just getting people back on their feet – only to be knocked down again.

“We need to look at minimising our exposure to disaster risks over the short, medium and long term – and this means focussing as much on prevention and mitigation as on recovery,” he said.


Publisher: Alex Bodnar - Authorised Representative of Insurance Advisernet.  A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: The information in this publication is of general nature as a service to interested parties.  This article is not intended to provide a complete discussion of the subject and should not be taken as advice.  While the information is believed to be correct, no responsibility is accepted for any statements or opinion or error or omission.