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The Hidden Dangers of Average and Co-insurance Clauses
The Hidden Dangers of Average and Co-insurance Clauses

Posted on May 20, 2021 | by | Posted in Uncategorized

Most business insurance policies have hidden clauses that claim to protect the insurers from underinsurance by their policyholders. This is one example of a clause in a business policy:

Underinsurance

In case of damage to the property insured, our liability will only cover a greater portion of the Damage than the Sum Insured bears to 80% of:

a). where the Basis of Settlement is Reinstatement or Replacement, the reinstatement or replacement cost of the Property Insured;

b). where the Basis of Settlement is Indemnity, the value of the property Insured, taking into account wear, tear and depreciation; on the day of commencement of the Period of Insurance.

Underinsurance does not apply if the amount of damage is less than 5% of the sum insured.

 Every Situation insured is separately subject to this clause.

The numbers are roughly 85% within an industrial risks policy,  while some property owner policies can reach up to 90%. Many will apply this clause if a claim exceeds 5% of the sum insured with some waiting until it reaches 10%.

The question is, why do such clauses exist? Simple. It discourages insured clients from under-insuring. The thought is that if the client is aware of this clause, they are likely to update their sums insured regularly instead of relying on shortfall in case of a total loss.

In reality, if you’re paying a premium that’s based on a $700,000 sum insured but should have been paying it based on a $100,000 sum, then you’ve been only paying 70% of the risk. It makes no sense 100% of any minor claim up to $700,000 when in a total loss you would have only gotten 75%.

There is another way which is a Stop loss sum insured and some insurers use this to avoid problems with underinsurance. This acts like a sub-limit on policies where the policy will pay up to the sum insured limit. We find this process more commonly in Householder policies. The trouble with this is there is no incentive to make sure you are insuring for the full value of your risk even though you will be fully covered for any minor loss up to the sum insured. In theory would expect you would be paying more in premium to be covered fully for minor losses.

The thing is that if you have a total loss with both covers, you are still underinsured if you haven’t insured for the full value. Our recommendation is to insure your property’s full replacement value as much as you can. If you are under-insured by less than 15% of the full value, the Average Clause should not be applied to your claim.

 The Insurance Contracts Act 1984 details how an average is applied to a claim:

44 Average provisions

(1) An insurer may not rely on an average provision included in a contract of general insurance unless, before the contract was entered into, the insurer clearly informed the insured in writing of the nature and effect of the provision including whether the provision is based on indemnity or on the replacement value of the property that is the subject-matter of the contract.

 (2) Where the sum insured in respect of property that is the subject-matter of a contract of general insurance that provides insurance cover in respect of loss of or damage to a building used primarily and principally as a residence for the insured, for persons with whom the insured has a family or personal relationship, or for both the insured and such persons, or loss of or damage to the contents of such a building, or both, is not less than 80% of the value of the property, the liability of the insurer in respect of loss of or damage to the property is not reduced by reason only of the operation of an average provision included in the contract.

 (3) Where:

(a) the sum insured in respect of property that is the subject-matter of such a contract is less than 80% of the value of the property; and

(b) but for this subsection, an average provision included in the contract would have the effect of reducing the liability of the insurer in respect of loss of or damage to the property to an amount that is less than the amount ascertained in accordance with the formula

 AS/P

where:

A is the number of dollars equal to the amount of the loss or damage.

S is the amount of the sum insured under the contract in respect of the property; and

P is 80% of the number of dollars equal to the value of the property. the average provision has the effect of reducing the liability of the insurer to the amount so ascertained.

(4) In this section: value, in relation to property, means:

(a) if the relevant contract provides for indemnifying the insured in respect of loss of or damage to the property, the indemnity value of the property; or

(b) if the relevant contract provides for reinstatement or replacement of the property, the reinstatement or replacement value of the property; at the time when the relevant contract was entered into.
As the leading insurance broker in Perth, our professional advice is for you to be insured for all your property covers. It makes sense from an insurer’s perspective because it protects you from underinsurance.

How to Manage Bushfire Risks
How to Manage Bushfire Risks

Posted on May 20, 2021 | by | Posted in Uncategorized

As bushfires continue to engulf Western Australia and parts of the Northern Territory, the need to establish a national bushfire policy has never been more crucial. Proactive land management such as forest thinning and hazard-reduction burning play an important role in keeping bushfires at bay.

When executed properly, controlled burning helps limit a bushfire’s spread and makes it easier to suppress. Reducing the amount of flammable material is the main goal and thinning vegetation on roadsides can help in maintaining fuel breaks, thus enabling firefighters access to forests in case of an emergency.

Here’s what you need to know about managing bushfire risks to ensure the safety of you and your family.

Preparing for a bushfire

  • Local fire agencies suggest writing a bushfire survival plan that you can discuss with your family to help them become familiar with managing bushfire risks
  • Learn about the Fire Danger Ratings. Use them to determine whether or not an area is at high risk of bushfires
  • Children, elderly people, animals, and those with mobility issues should be moved away from danger as early as possible
  • If you live or are planning to travel in a high-risk bushfire area, pinpoint the nearest evacuation centre and meeting point. Plan the safest and most efficient route to get there
  • Stay up to date with the latest fire danger ratings by tuning in to your local radio station.
  • Don’t wait before taking action. It’s extremely risky to wait for signs of a bushfire before leaving the area. Always follow the instructions of the local authorities on when to leave your home, where you should go, and how you will get to the nearest evacuation point.
  • Alert your friends and family about your plans and whether you intend to stay or leave
  • Prepare a bushfire survival kit. The kit should consist of a battery-powered radio, waterproof torch, first-aid kit, medicines, wool blankets, toiletries, and overnight bags.

Driving during a bushfire

You should never drive through a bushfire until it’s your last resort. The road conditions are just too dangerous and it will take you longer than expected to arrive at your destination.

It’s also very dangerous to get stuck inside the car in the middle of a bushfire because they offer minimal protection against radiant heat. If you are forced to drive during a bushfire, keep these safety tips in mind:

  • Park your car behind a building or other solid structure. This helps to block as much radiant heat as possible. If you can’t find a solid structure, then pull over to the side of the road and away from any debris that may catch on fire.
  • Close the vents, wind up your windows, turn on your hazard lights, leave the engine running, and allow the air conditioner to circulate air inside the vehicle.
  • Get down as low as you can
  • Stay hydrated. Bring plenty of water along with you
  • If you’re parked in a relatively safe spot, wait for the fire to pass before proceeding to drive

Protecting your home during a bushfire

  • If you plan on staying home and protect your property against the bushfire, make sure everyone is wearing fire-retardant clothing
  • Move gas cylinders and other flammable materials away from your home
  • Pot plants, outdoor furniture, and doormats should also be moved to a safe distance
  • Check the main gas supply and turn it off. Check the gas cylinders and make sure they’re positioned upright with their relief valve pointing away from your property. Do the same with your A/C units.
  • Keep plenty of wet rags and towels nearby
  • Close the doors and windows. Fill in the gaps using wet towels
  • Take shelter until the fire passes. Be on the lookout for embers and extinguish them when they land.
  • If your house catches on fire, run to the nearest exit. Wrap a towel around you and take cover from a nearby building or other structure.

After a bushfire

  • Stay tuned to your local radio station for updates on where the evacuation points are
  • If you’ve evacuated, do not return to your home unless the authorities have deemed it safe to do so.
  • For those who’ve stayed home, continue to wear protective clothing and extinguish embers that land onsite
  • Call your loved ones and inform them of your status,
  • If you’re worried about where your friends and family are, you can contact the National Registration and Inquiry System on 1300-993-191. They will help you get in touch with your loved ones quickly.
  • If your home is unsafe to occupy after a bushfire, alert local police authorities about the situation. Check with your insurance company to see if you can claim temporary housing expenses or acquire an advance on your eventual settlement.  
  • It is the owner’s responsibility to secure their home after a bushfire. Ensure the outside doors can still be locked and that the entry points are covered and protected.
  • Contact a general contractor if you require professional assistance in boarding up the premises.
Asbestos Risk Management
Asbestos Risk Management

Posted on May 20, 2021 | by | Posted in Uncategorized

In recent years, countries like Australia and the U.S. have experienced huge asbestos-related payouts due to improper risk management. Businesses today are strongly encouraged to update their risk management strategies and include asbestos as part of the equation.

Most of the buildings in Australia that were built before the 1980s contain large traces of asbestos. Properties and establishments used fibrous cement sheets which mainly consisted of asbestos and have caused people to develop conditions like mesothelioma and asbestosis.

Each year, around 700 cases are diagnosed in Australia according to the Asbestos Diseases Research Institute. Managing asbestos risks has never been more important and there are two critical exposures that should be heavily considered:

There are two critical exposures that must be considered.

  • Property damage – asbestos contamination and cleanup
  • Bodily injury – health risks associated with prolonged exposure to asbestos

Claiming that an asbestos illness stemmed from a specific exposure to asbestos can be challenging. Once the cause has been determined, the compensation calculations are quite basic but are very expensive.

Asbestos removal

Insurers have to take into account the removal process of asbestos. They need to guarantee that the asbestos contractors are licensed and accredited and that the asbestos is handled safely according to specified regulations. Upon removal, the material must be transported to an EPA-controlled environment such as a landfill site or waste recycling facility.

Contractors should secure general liability coverage under a specific dedicated occupational liability policy setup. They should also take out cover for their own employees for more effective risk management. 

A commercial operator should be qualified to remove two types of asbestos:

  • Bonded asbestos found in roofing and eaves
  • Fibrous asbestos found around hot water pipes and cement sheets

Specific policies are available for residential, commercial, and industrial asbestos removal. Then also exists a procedural expectation, which deals with the method of removing and transporting asbestos. Regardless of what type of asbestos removal is planned, a business should not proceed without appropriate accreditation, qualifications, and insurance cover.

Asbestos risk management

For many businesses, asbestos risks are a long-term issue. Claims can take years to develop and while remedial cleanup is immediate, it will take years to determine whether the remedial work is successful or not. With general liability being “loss occurring”, any claims will fixate on the date the work was completed rather than the date the claim is made.

The downside with a “claims made” cover is that the insurer must run off the risk even if they have retired or closed their business. This equals maintaining a minimum cover over the years as very few asbestos issues are ever Statute barred. It is crucial that you check the wording of liability policies held by tradesman and not just their licensure to conduct asbestos removal.

Most of the standard public liability policies in Australia either have limited or no cover for asbestos. While a tradesman may be licenced to conduct asbestos removal, it doesn’t mean they’re adequately insured. Typically, a specific exclusion exists in an asbestos policy. To write this exclusion back in, it should either specify asbestos work or endorse the amendment of asbestos exclusion. You’ll find the endorsement is listed on the policy schedule.

Keep in mind that Certificates of Currency don’t always list such endorsements so make sure to ask if it’s mentioned specifically in the documents. If in doubt, a quick look at the insurer’s policy wording on the internet will help you make an informed choice.

Fines and penalties

Civil penalties can significantly impact the finances of a business.. Occupational health and safety fines can reach beyond $500,000 with environmental ballooning up to $5.5 million. Public liability and professional indemnity policies are likely to exclude coverage for fines and penalties which is something worth noting.

It’s best to ensure your entire business is covered against potential statutory fines and penalties. These can be covered separately though the extent of the Acts and will vary from policy to policy.

Any tradesperson or professional dealing with asbestos cleanup/removal can benefit greatly  talking to a group of knowledgeable insurance brokers like Matrix Insurance. Our team can assist you in managing the risks associated with asbestos and help secure the right cover for you.

Take note that you need a General Liability cover with the highest possible limits due to the claims taking 10 to 30 to manifest. A Professional Indemnity cover for those that just provide reports, inspections, audit, and advice advice are more suited to a “Claims Made” policy which means a more up to date sum insured.

Before you hire any asbestos remover or consultant, check to see if they have the right cover in place as mainstream or standard insurance contracts typically exclude anything that involves property damage or bodily injury caused by asbestos.

Why You Should Avoid Cheap Motor Trade Insurance
Why You Should Avoid Cheap Motor Trade Insurance

Posted on May 19, 2021 | by | Posted in Uncategorized

Understandably, businesses in the motor trade industry want to keep their insurance costs as low as possible. After all, you don’t want to overspend on insurance policies that you don’t need. But there are a couple of risks associated with purchasing cheap insurance cover that could put you in a vulnerable position.

This is especially true when buying motor trade insurance from an illegitimate source. When browsing the web, you may encounter a bunch of motor trade insurance offers that claim to have affordable yearly policy rates. Some even claim to offer sufficient cover for your business even if the price is too good to be true.

However, don’t fall for their deceptive tricks. These so-called insurance companies are in it to take your money and provide zero covers in return. Before purchasing motor trade insurance, it helps to research the company’s credentials and ask their previous clients for feedback so you can get a good idea of their services.

Risks associated with buying cheap motor trade insurance

It can be quite tempting to grab a discount insurance offer from a shady company but know that these offers come with their pitfalls. According to the Insurance Fraud Bureau of Australia (IFBA), fake insurances cost the economy around $2.2 billion per year. There are plenty of fake companies that sell auto and motor trade insurance to unsuspecting victims using exaggeration and non-disclosure.

Exaggeration refers to a policyholder deliberately inflating the amount of damage or loss for a higher payout. Non-disclosure, on the other hand, refers to the policyholder not giving full information regarding the client’s insurance policy. These types of insurance fraud deceive many insurers and contribute to a growing concern within the industry.

Perhaps the biggest risk to cheap motor trade insurance is that you’re likely to be underinsured. Even if the insurance company claims they’re an ethical business, your policy may feel fake because of the restrictions that barely cover anything regarding motor trading.

Lastly, your claims may be paid at a slow pace. Granted, this can happen even with well-known insurance companies, but if you’re paying for a relatively unknown company, chances are you’ll struggle with making claims. It makes sense because a company that specialises in very low premiums will be a bit stingy when it comes to returning some of that money from their customers.

What to consider when buying motor trade insurance

Whether your business engages in buying, selling, or valeting vehicles, having the right insurance is important so that you and your employees can confidently work on other people’s cars. That said, there are plenty of options available when it comes to motor trade insurance, all of which can make it difficult for you to choose. To help you make an informed decision, here are the three main questions you should ask yourself before buying motor trade insurance.

1. Where does your business operate?

Motor trade insurance policies typically cover stock, equipment, employer’s liability, public liability, and more. One cover that’s specific to this type of insurance is Road Risks which protects the insurer when driving customer cars or unsold stock. Keep in mind that a Risks only policy does not cover vehicles stored at a business address, so if you have a forecourt, showroom, or anything similar, it’s best to include premises cover in your policy for full protection.

2. Who drives the vehicles and what are they?

Most people tend to overlook the basics when it comes to motor trade insurance. The thing is that some trade insurance policies have restrictions on the type of vehicles covered. If you work on luxury cars and other unique vehicles such as performance cars, agricultural vehicles, commercial cars, or motorbikes, make sure to inform your broker in advance.

It’s also important that you choose the right people who will move the vehicles in your care. Whether it be a few approved drivers or several of your staff, having flexible cover for everyone in the business will help reduce your risk of financial loss. Talk to your insurer to ensure the people handling the vehicles are insured, especially if you employ apprentices or have staff that’s under the age of 25.

3. How much cover should you have?

Many policies will have an “indemnity level”. This figure is the maximum amount an insurer would pay in the event of a claim. If a claim’s value is higher than this, you may have to make up the shortfall yourself. Your broker will be able to assess the types of risk your business faces and check your indemnity limit is not too low.

Finding the right insurance for you

We know that dealing with insurance policies can be quite complex, especially if you’re new to motor trade insurance. To help you make an informed purchase, our team here at Matrix Insurance is ready to help. As one of the most reputable insurance brokers in Perth, we pride ourselves on providing our clients with the best insurance solutions possible.

Don’t let your business get exposed to the financial risks associated with motor trading. For more information on our services, contact us today and we’ll be more than happy to assist you.

Will your insurance protect you in a natural disaster?
Will your insurance protect you in a natural disaster?

Posted on April 29, 2021 | by | Posted in Uncategorized

News reports following Tropical Cyclone Seroja are causing mass shock and disbelief across the country as we take in the vision of a town that has been devastated.

Tropical Cyclone Seroja has been declared an “insurance catastrophe” with the damage bill expected to top $25 million in the coming days.

Statistics so far report up to 10 properties being destroyed, and significant damage to more than 150 homes and businesses in the town of Kalbarri and surrounding areas. Re-build of the town is expected to take up to two years, mainly due to WA’s skill shortage in the trade industry; but also because of the fact many buildings have asbestos which needs to now be removed safely.

Tropical Cyclone Seroja has caused the most damage in the region since Cyclone Elaine hit in 1999, which shows that while natural disasters may be rare, they do happen, and we need to be prepared for them.

Are you insured against a natural disaster?

In the wake of a tragic event, many people will take a look at their own circumstances. If the events of the past few days have shown us anything, it’s that there’s never been a better time to take a look at your own insurance.

According to research in the Disaster Recover Journal (Volume 13, Issue 2) after a natural disaster occurs, up to half of small businesses that suffer major losses will fail. Commercial or business insurance is a lifeline in the event of a natural disaster, as long as you are sufficiently covered.

When reviewing your business insurance, it’s important to note that not all policies are the same, and you should never assume that you are covered for everything.

While most policies will cover issues such as fire and theft, many standard commercial property policies may not cover losses from certain types of natural disasters, floods, and other major weather events. 

Some policies require you to have specific cover for natural disasters that are separate from the standard policy. 

Get the cover you need

If you’re in a disaster-prone area, it’s worth conducting a risk assessment of your business, and speaking to your broker to discuss a complete policy that suits your needs. 

Matrix Insurance has seen many instances where businesses simply were not correctly covered, and unfortunately, this can result in the business closing if a disaster occurs. 

The team at Matrix is happy to meet with clients and discuss their needs, and then tailor a package to suit. Often the ideal business insurance package will come from mixing different insurance policies into a single package, from business interruption to professional indemnity to natural disaster insurance.

It’s not worth taking the risk, and with Tropical Cyclone Seroja still very much in the news, all business owners should right now be taking a look at their own natural disaster insurance cover.

Contact Matrix Insurance today to discuss your policy requirements.

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