I  use a combination of tools to write my blogs one of them provides me with a list of terms being searched for at the moment, one of the most searched terms is of course “cheap insurance” what most people don’t realise is that cheap insurance is not what you should be searching for, instead you should be checking for the financial rating of the company or comparing the policy’s of than insurance companies to each other in order to get the best coverage.

Cheap insurance is like buying a cheap frypan from the warehouse, sure it will cook your steak but you will be replacing it in 6 months time and ultimately it will cost you more over the long-term than if you bought a slightly more expensive one. The vital thing to realise here is that insurance is not like a product you buy off the shelf, it’s a legal document that you purchase with an agreement between you and the insurance company on how you will be reimbursed when you suffer a loss.

Everyday I either hear or read on websites in the comments section about someone saying the insurance companies are rackets or they ripped them off. The reality is that these people are just ignorant…period Insurance companies pay out 100% of “valid claims” what this means that if your contract says that you are owed it they will pay it, the main problem is that people buy cheap insurance without reading the policy wordings and then jump on the NZ Herald website without listing in their comments that the company they where dealing with was less than reputable or that they didn’t read the policy wording. At the moment I have a contents, car, professional indemnity, public liability as well as various key man and life insurance policy’s.

I could easily buy these off cheaper providers but I know that when I have a claim that the service and cover will just not be there. This is why I don’t buy my insurance from my bank as I know that the contents policy’s they have while okay will not serve me as well as my cover I have arranged via Vero. If you want to save money on insurance you need to look at the long-term and not the short-term,

Quick update for those of you wondering how the Christchurch Earthquake settlement process is going, these figures can be found on the EQC website at this link and are updated weekly. Out of 437,550 events as a result of the Christchurch Earthquake 85,794  have been settled  and 351,756 are still open. It is important to note thought that of that figure 186,564 have had a claim payment made.

Land claims $5,949,266

Building claims $2,456,437,44

Contents claims $388,235,982

Total payments to date: $2,850,622,693

The below is excerpts from a summary of the issues from Radford Lawyers on the Bridgecorp Case and its possible implications on the insurance industry it is important to note that the document I have taken these excerpts from is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice.

It is mearly an very interesting read into the Bridgecorp Case and its possible effects on the insurance industry here in New Zealand and Australia

The Bridgecorp companies held a directors and officers policy (D&O) with QBE under which:

• the limit of indemnity was $20 million for any one claim and in the aggregate.
• the directors were indemnified in respect of certain liability that they might incur in their  acts or omissions as directors.
• cover was provided in respect of any costs that the directors might incur in defending any such proceedings seeking to establish such liability.
• defence costs were subject to a sub limit of $500,000 but covered within the overall limit of indemnity.

The directors also took out statutory liability insurance with QBE in 2000 providing them with cover for defence costs incurred in respect of claims based on a breach of their statutory obligation up to a limit of $2 million for any one claim and in the aggregate.

The directors sought cover under the statutory liability insurance first to pay the relevant defence costs and the limit was exhausted. There was no issue of this policy being caught by the charge. This would appear to be because it did not indemnify the directors against liability to pay any damages or compensation, only their own defence costs and certain fines and penalties.

The directors then resorted to the D&O policy for the ongoing defence costs.

The Bridgecorp companies advised QBE that they asserted a charge over the moneys payable under the D&O insurance policy for the amounts they intended to claim against the directors in civil proceedings under section 9 of the Law Reform Act 1936 (LRA).

This was essentially because the defence costs formed part of the overall limit of indemnity and paying out the defence costs would have eroded to amounts the Bridgecorp companies would have been entitled to under the charge on the policy.

As a result QBE advised the directors that it could make no further payments until the Bridgecorp companies and the directors reached agreement on the allocation of funds under the policy.

No agreement was reached and the directors sought a declaration that the section did not prevent QBE from meeting its contractual obligation to reimburse the directors their defence costs.

The Bridgecorp companies asserted that if the section did not prevent the defence costs being reimbursed, the policy limited the amount payable to $500,000.

RESULT

The High Court found that:

• the charge comes into existence before liability is declared to exist by a court or tribunal or liability. This is because the charge is created at the time of the happening of the event giving rise to the claim for damages or compensation (ie the time the Bridgecorp group collapsed).
• the charge will come into existence even if the quantum of the claim is not determined (ie claim by claimant is not quantified as was the case in Bridgecorp).
• the charge applies to all insurance money that is or may become payable in the future (ie irrespective of the fact the insurer has not accepted the claim and/or where the insured has not established that the claim is covered by the policy as was the case in Bridgecorp).
• if the potential claim is less than the policy limit the charge would only extend to the amount of the likely claim and its associated costs.
• the charge has priority over all other charges affecting the insurance money. In relation to charges arising under the section, they have priority according to the date of the event giving rise to the charge.

There are limits to the scope and application of the charge:

• the valid payment by an insurer without actual notice of the existence of the charge will, to the extent of the payment, constitute a valid discharge of the insurers obligations under the policy
• where the insurer establishes that it is entitled to disclaim liability under the policy or where there is a vitiating factor in its formation (eg fraudulent non-disclosure), no charge will exist.
• if an insurer makes a payment under a policy indemnifying an insured against a liability to pay compensation or damages when on notice of the charge (other than a payment in satisfaction of the charge) where the liability of the insured to the claimant could genuinely exceed the applicable policy limit, the payment made with knowledge of that charge would risk being made on an ex gratia basis and not reduce the limit of liability of the policy.
• This will apply to defence costs payable to the insured where they are included within the over limit of liability. It is arguable that if there is a separate limit not included in the overall limit for defence costs that this amount is not caught by the charge.
• it is open to some argument as to whether payments to section 48 beneficiaries making a claim under the policy are affected by reason of the use of the word “insured” in s9, which could be argued to only catch payments to the contracting insured in some circumstances.
• insurers are only exposed if there is “actual notice” of the charge but the term is not defined. The introductory parliamentary speech to the NSW section referred to it being incumbent on the claimant to notify the insurer of the existence of the charge, and it being unreasonable to require an insurer to have to satisfy itself as to what claims may be made against it. There is a clear risk that mere notification of a potential claim could constitute “actual notice”.
• the charge’s priority is dependent upon the time the event giving rise to the claim happened rather than time of notice of the charge and insurers would need to assess all competing notified charges before paying.
• It is arguable that a charge should not apply to a claims made and notified policy that wasn’t in existence when the charge was created.
• Insurers may be exposed to an argument that they are acting in breach of contract or breach of utmost good faith or have misled insureds if no mention is made of the possible effect of the charge provisions. This may unfairly advantage insureds affected by the sections over those in other states who are not.
• Insurers (including excess of loss insurers) need to consider if they should fund the defence outside the scope of the policy limit on an ex gratia basis to reduce potential exposure.
• Class action settlement will be made difficult because the charge is in favour of all potential claimants. As not all potential claimants usually participate in the class action, their agreement would appear to be needed.
• Insurers need to consider the jurisdictional issues that arise regarding the extent to which the State/Territory based legislation can create a charge over insurance funds held outside the State/Territory. However, if a claim has a sufficient connection to NSW, ACT or the NT any payments made an insurer (eg defence costs or settlements) could be still caught. This could see offshore insurers obtaining business as they would not typically be subject to the provision for offshore assets.
• Insurers need to review liability exposures having regard to the Bridgecorp decision to identify what past payments may be exposed (ie those paid when on notice) and what the status is of current claims and ensure their financial statements properly account for these.
• Insurers will need to form views on the above and have procedures in place to manage these complex issues.

This sound byte is from Karl Armstrong at NZI and is a reply to a recent urban myth that the insurance companies are sitting on claims money ear marked for Christchurch.

We keep hearing a persistent rumour that our reinsurers have paid us out in full, and we’re avoiding paying claims so we can earn interest on this money.

The truth is we want the rebuild to get underway as much as anyone! In fact, we do not receive reinsurance money until after we have paid out on a claim, and we are definitely not holding back huge sums of money to earn interest.

Since September 2010 IAG has paid out over $900 million to its NZI, Lantern Insurance, State and Corporate Partnerships customers. That’s more than $1.7 million per day in earthquake claims and will continue to authorise and pay out on claims as they are finalised

The Insurance Impact of Canterbury Earthquake

The Canterbury Earthquake has its highest impact on the NZ-resident insurers as well as the non-insurers, in the context of the insurance policies. The re-insurance claims will be recorded for the quarter in September 2010, the initial period when the earthquake had occurred. The re-insurance claims on non-residents will however be determined by the size of the affected policymaker`s claims on resident insurers, as well as on the amount that the resident insurers will draw form the overseas re-insurers in order to meet the claims. According to the statistics, the approximate reinsurance claims on non-resident insurance is estimated to be $1.7 billion.

Impact of re-insurers claims on BOP and IIP statistics:

The primary impact of the cross border transactions resulting from the re-insurance claims will directly affect the BOP and the IIP statistics.

Impact on current accounts:

For the September 2010 quarter, the total re-insurance claims will be recorded in “current transfers, non-life insurance transfer debits”, the value is estimated to be -$1.7 billion i.e. negative debit, an inflow in the debit account. However, for the quarter after September 2010 the estimated value of $1.7 billion will be revised according to the changing demands of the industry.

The estimated value for the September 2010 quarter represents the claims on the non-resident re-insurers whether lodged or still expected to be lodged, settled or unsettled. 

Impact on financial accounts:

Assuming that none of the claims have been settled until 30^th September 2010, the total re-insurance claims on the non residents are estimated to be $1.7 billion for of trade credits for the New Zealand`s trade credits abroad. However, the claims for the quarter after 2010 will be revised if necessary.

IIP Statements:

The outstanding, expected and unexpected, balance sheet claim of New Zealand`s resident insurers is estimated to be $1.7 billion for the September 2010 quarter. Since the claim would be on their non-resident insurers, they would directly be affected. However, necessary revisions will be made after the 2010 quarter.

When the claims would be settled the assets for the financial account transaction would be reduced for that period. This would include investments abroad, trade credits negative debits. The settlements implied after the measurements for the changes in the bank i.e. nostro/vostro account balances, that would be measured for the Quarterly International Investment Survey, would be the counterpart entries to reduce asset transactions. These settlement transactions are represented in the item category “other investment deposits”. The outstanding balance sheet value of unsettled claims carried as an asset in the IIP will fall as the re-insurance claims are settled, in turn reflecting the financial accounts transactions as well.

Thus, the expected impact of transactions resulting from the Canterbury Earthquake would be directly affecting the insurance, re-insurance policies, financial assets and liabilities, tourism and other services, and the trade in goods, in turn directly influencing the BOP and IIP statistics. The BOP and IIP statistics account is the country`s balance sheet of financial assets and liabilities with the rest of the world, directly influencing the insurance claims as well.

Below is a summery of a news letter we recently got from Vero Liability, for those interested in taking up the offer from them please contact us

The new provisions of the Building Act 2004 come into force on 1 March 2012. Full details of the LBP scheme are available on the Department of Building and Housing website www.dbh.govt.nz/lbp

Many policies are unlikely to respond to the new exposures for building firms and trades people.

Vero Liability is offering cover for the new liabilities under its Statutory Liability and Public Liability policies (including LegalEdge and SME products).

Statutory Liability

The amended Act provides for:

• New statutory offences with a maximum fine of $20,000
• A complaints process to a statutory board
• Vero Liability acknowledges that the Building Act is, implicitly, an insured ‘Act” under its standard Statutory Liability policy but the functions of an LBP are deemed by VL to be a separate business activity which must be declared and agreed.
• The key to applying for and explicitly effecting the cover is that the Business Description must include ‘Licensed Building Practitioner’. You must instruct us specifically to this effect and a completed supplementary declaration must be submitted for mid-term endorsements and also for new business and renewals.

Significant features of this endorsement wording:

• It applies to restricted building work carried out by the Insured only
• costs inclusive limit of $100,000 in the aggregate
• costs inclusive excess of $1,000
• prosecutions will only be made against individual tradesmen, but the three-part Insuring Clause in the Statutory Liability policy will accommodate any indemnification from an employer
• the definition of Defence Costs in policies will cater for representation at complaints hearings.
• this is a ‘claims made and reported” cover

 

Public & Products Liability
The building industry perceives that the LBP regime will lead to an increase in claims against builders for third party financial loss arising from errors and omissions in the performance of restricted building work.

An errors and omissions cover is available as an extension to its Public Liability policy (including the Legal
Edge and SME products).
This extension is available to building firms who employ LBPs and to individual LBPs, on application only, with a completed supplementary declaration

• Significant features of the extension wording:
• The Insured can be a sole LBP or a firm employing LBPs
• Covers third party claims for financial loss by way of damages
• Covers Defence Costs
• Costs inclusive limit of $250,000 and in the aggregate
• Costs inclusive excess of $2,500
• It applies to restricted building work carried out by the insured only
• No cover if no relevant current licence held
• Includes cover for past employees
• Excludes claims under guarantees or warranties or
• Failure to complete work on time or to an agreed standard

 

NOTE: This cover is designed specifically for ‘trades” licence holders and their employers. For Architects and Registered Engineers who hold Design and/or Site
Licences we would expect that their existing Professional Indemnity policy would operate with an amendment in the Business Description to include ‘Licensed Building
Practitioner”.

Summary
The legislation coming into effect on 1 March 2012 has been watered down considerably since it was introduced in 2006, but there are still uncertainties as to how it will play out not only within the insurance industry but more particularly within the building industry at large.

Public liability Insurance Explained

A question I get a lot from potential client is what exactly is public liability insurance?

Public Liability Insurance also know as General Liability Insurance is a type of insurance which protects you against any claims made by any third parties who make claims against you as a result of injury or harm to someone else’s property as a result of your business activities. So to put it in plain english, it is insurance for when you damage someones property or cause them some sort of physical injury.

Now, this is the part where people brush it off and say ‘well we live in good old New Zealand, where no-one sues anybody plus ACC will cover them if they get hurt! Sorry to break it to you but your dead wrong….For starters since the recession hit people in New Zealand are a lot more happy to sue each other, especially when money is tight at the moment.

First off lets cover the ACC component – yes ACC will cover most claims related to physical injury but where we have a grey area is in regards to psychological injury, hence the need for Public Liability.

2nd the matter of physical damage, let me give you a quick example of a recent claim.

A Business lets call them “Bobs Builders” rents out an office, on a Friday afternoon they decide to have a few beers…one thing leads to the other and as the staff knock off they go home, except one of the staff went to the bathroom and forgot to turn off the bathroom tap with the plug in the sink, which then over the weekend flood the office. On Monday they come into work to discover they have caused $10,000 worth of carpet damage to their office, the insurance company of the building owner takes them to court to recover the costs of the damage they have done to the building. Sounds silly but this sort of claim is quite common and a good example of where if you didn’t have it you would be fitting a large repair bill out of your profit.

Why you should be looking at getting Trade Credit?

First off you should note that Trade Credit Insurance should not be confused with factoring as they are not one in the same products. This is a common mistake that businesses make when they are approached about Trade Credit. For clarity we have listed below the difference between the two products.

Factoring is a finance product that pays you for your accounts receivable by you selling them to a third party called a factoring company with the factoring company taking a cut in exchange for you having the money then and there. This helps with your cash flow by ensuring that you are getting paid promptly however the money is at risk should the account receivable you have sold not pay his invoice to the factoring company who at that point can claw back any money that they have paid you.

Trade Credit on the other hand works by insuring all or part of your accounts receivable against insolvency of individual customers, so basically it works by insuring against the failure of a company to pay for goods or services provided by you to them on credit terms, this applies to both the domestic markets here in New Zealand and also the overseas export markets.

A good example of where Trade Credit would have been used here on New Zealand are the recent increase of companies going into receivership such as The BBQ Factory or Whitcoulls.

In the case of Whitcoulls many of the creditors were never paid, as liabilities such as bad debts were not part of the sale of the business. So this left creditors out of pocket for large amounts of  money that where owed by the REDgroupRetail Group who where the owners of Whitcoulls.

If you are looking at getting Trade Credit then you need to fall into one of the following

• Be an Exporter, Importer, Distributor or Manufacturer
• Sell a Product or Service
• Offer payment terms on goods and services you sell
• Trade on an open account and not always trade under a letter of credit

If you fall into the above then you are a business that would be considered ideal for Trade Credit and it is important to note that banks will potentially view you in a more favourable light if you need to borrow more.

There are both Short Term and Long Term Benefits of Trade Credit as listed below

Short Term

• Quick replacement of working capital in the event of a claim
• Cash flow protection
• Credit Managment Assitance

Long Term

• Bad Debt Reduction
• Potential to borrow more from the bank
• Grow into new markets with confidence.

In my professional opinion I would advise anyone that is involved in the Exporter, Importer, Distributor or Manufacturer industries to take a serious look at getting a Trade Credit policy in place in the current economic climate.

Is Car Insurance Set to Rise in 2012?

When it comes to car insurance premiums, prices have increased in the last 2 years from where they previously where, a big driver in this is the insurance premium corrections that are being applied to insurance policy‘s as a result of the Christchurch Earthquake..

Using an example of a current renewal that I have been working on, a 1995 Toyota Surf with a insurable value of $10,500 previously cost the client a total of $499 per year including GST and Fire Service Levy’s, that same car has renewed this year for $599 which is a 20% increase on last year’s premium. At the moment initial estimates are that car insurance will be set to increase at least a minimum of 10% on last year’s premiums as a result of insurers looking over their books and making underwriting changes.

Of course there are ways, if your premiums start looking high, to cut the cost.

One way is to pay your car insurance in a lump sum as opposed to monthly instalments as this can save you an average of 8% per as most people do not realise that you pay more if you elect to pay your premiums monthly as insurers and premium funding companies charge for the privilege to be able to make monthly payments to your insurance.

If you don’t have the funds in the bank to make a lump sum payment then people might want to use an low interest cent credit card to pay for the policy – the cost of which can be lower than the amount charged by the insurer.

You also need to look at combining your insurances with one provider as if you place your car insurance and house or contents policy’s in one place then you will qualify for a multi-policy discount for purchasing both from a single insurer, helping you to save on car insurance and your house or contents policy.

When discussing your quote with your insurer, specifically ask about any other discounts you may qualify for, such as low-mileage driving which is currently offered by NZI, or the installation of car alarms or immobilisers.