Direct insurers PDS reviewed

The Council of Queensland Insurance Brokers (CQIB) recently conducted a review of direct insurers Home and Contents PDS documents. With over 150 insurers issuing PDS documents it was not possible to review them all, nor forensically analyze the ones that were reviewed in great detail. However, what was found was a number of statements in policy wordings that should be of concern to the buying public.

Before providing a few examples, it needs to be said that the direct insurers operate with the price-point being their key to achieving sales success. But do they consider that the quality of the cover may be compromised to keep the price down? We all want to save money and pay as little as possible, however the real cost emerges when the cheap premium cover fails to make good your loss. That’s the principle of ‘you get what you pay for’ in action.

Of course there is always better quality cover available but direct insurers call-centre staff, all company employees with sales targets, are well versed in presenting the premium savings to be made with their product and rarely, if ever, offer cover options or any advice relevant to your needs. An explanation of any shortcomings of their cover product, at claim time, is something else you’re unlikely to hear. Here are a few examples that rang the warning bells:

Accidental damage cover offered by direct insurer: Accidental damage accounts for approximately 8% of all home losses and 47% of all contents losses. It is an important cover, yet many direct insurers do not automatically offer this cover. You must request to extend the policy and then an additional premium is charged.

When you request the extension don’t be fooled as some insurers place insufficient low limits on the amount they will pay in the event of an accidental loss.

Fusion cover offered by direct insurer: Fusion losses account for about 11% of Home and Contents losses and yet, again, some direct insurers do not automatically include it in the policy. You have to request and pay extra for the cover. We found polices with sublimits (the maximum the insurer will pay) as low as $1,000, a sum that is not adequate to cover the cost of today’s household appliances.

Away from home cover offered by direct insurer: With the holiday season approaching, it is important to have your contents covered while you have items away from your home in a holiday residence. Several polices reviewed have no cover at all for this situation whilst others, once again, require you to request and pay extra premium for an extension of cover.

Business equipment and tools of trade cover offered by direct insurer: Many quality policies automatically include cover sublimits of $5,000 to $10,000 however the lower priced polices have little or no cover unless (you guessed it) an extension is requested and a higher premium paid.

Building compliance cover offered by direct insurer: Building Compliance – Home cover excludes any additional costs resulting from the building/s not being compliant with the most recent building codes, laws or regulations. This is a big issue for older homes, as all would all be affected. These extra costs of reinstatement are automatically covered under most comprehensive, quality cover policies.

Let the buyer beware and remember, your CQIB Broker has the knowledge and experience to advise, select and provide quality comprehensive policies, taking into account your needs, the policy wording, the insurer’s performance including claims settlement history, and price. Be vigilant out there when buying insurance.

It’s not unusual…

It’s not unusual…not for Lloyd’s

How many elephants can you fit in a jumbo jet? Would you believe ten! That was the very important passenger count in a shipment of (live)stock insured in 2004 by Lloyd’s of London.

Lloyd’s made its name by specialising in insuring the unusual, weird and wonderful so it came as no surprise to be asked to cover the 36 hour transatlantic flight of ten elephants. “A mammoth task”, said Robert Wells, livestock underwriter at Lloyd’s XL syndicate. Thanks to sound risk management and thorough planning, the flight, memorable to at least 10 on board, went without a hitch with cargo delivered safely.

Elephants in transit are just one of many unusual insurance risks taken on by Lloyd’s. A two-headed albino rattlesnake was another. Although only covered against restricted perils because an earlier insured snake had died, this one ended badly too when, in an apparent disagreement between the respective heads, fatal consequences occurred when one head bit the other.

And, perhaps verging on the disgusting, a Lloyd’s insured, frozen sculpture melted after builders accidentally disconnected the freezer it was stored in. The work was a life-sized cast of the artists head made from 9 pints of the artists blood. The claim submitted was for approximately one million pounds.

The cleaning bill was not recorded. An insurance icon since 1688, you can bet there are many more stories of quirky covers in the annals of Lloyd’s of London. We’ll dig into the archives to bring you more snippets in future editions of Brokerwise.

Employees misusing social media!

Employees misusing social media!

How social media can ruin a business

Business owners beware!  Even if you or your businesses are not active in the social media space, your employees’ online actions can have a lasting real life impact.

In a well-known case from 2011, an employee of Linfox Australia Pty Ltd was dismissed for posting offensive and discriminatory comments about two of his managers on his Facebook profile page.

The Fair Work Commissioner recognised that the posted comments were ‘outrageous and distasteful’, but found that Linfox did not have grounds to dismiss the employee.  At the time of the dismissal and the hearing, Linfox did not have a social media policy.

In the recent case of Malcolm Pearson v Linfox Australia Pty Ltd [2014], the Fair Work Commission held that it is not “harsh, unjust, or unreasonable” to expect an employee to comply with a social media policy that operates outside, as well as inside, the workplace. In this case, Linfox (presumably having learned from its previous experience) had implemented a social media policy and Mr Pearson’s refusal to sign this policy, amongst other shortcomings, constituted a valid reason for dismissal. The Commission dismissed the unfair dismissal case on the basis that the social media policy was a legitimate exercise by Linfox in protecting its reputation and security. The Commission recognised that the natural overlap between public and private life makes such an “invasive” policy necessary.

“It is difficult to see how a social media policy designed to protect an employer’s reputation and the security of the business could operate in an ‘at work’ context only…Gone is the time where an employee might claim posts on social media are intended to be for private consumption only.”

These decisions form part of an evolving body of case law that reflects the increasing prevalence of social media and a more sophisticated understanding of its implications in the workplace.

So what should employers do to protect their interests?  Most experts agree that employers should:

Implement a comprehensive social media policy

Adequately train their employees in the policy and ensure they are aware of the employer’s expectations around social media in and out of the workplace, and

Regularly review the policy to maintain currency.

Employers should be mindful that courts and tribunals are increasingly willing to hold employees accountable for social media misuse. Hence, employers should not shy away from robust disciplinary actions when the circumstances are appropriate.

Broker v Supermarket

Insurance: Why a broker is the best option

There is a significant push on selling insurance products through mainstream retailers. Their foray into insurance is a calculated move that relies heavily on the established reputation of these retailers to provide convenience and savings in commoditised household goods.

It’s a tactic popular with banks as they design products that will try to cater for all financial needs of their customers, and thereby, keep them ‘in house’.

So what’s the difference between insurance brokers and the direct sellers?

Both earn a commission from the placement of cover with the insurer. The product the client receives is only as good as the results when it’s needed at the time of a claim.  The role of the insurance broker is to provide professional, advice-based service that represents the client’s best interests. The broker has a suite of product options available depending on a clients’ circumstances, cover requirements and affordability.

The direct market relies on promoting a cheaper product as the bottom line. This is heavily supported by mass media advertising that keeps the subject matter in their campaigns light on detail and high on entertainment value – think of domesticated aliens, man folding underwear at counter, French girl struggling with Aussie accent, happy customers portrayed by actors etc. The product is deliberately made cheaper by using strict acceptance criteria and restricting policy coverage and benefits.

A recent study by Vero Insurance surveyed business owners as to why they prefer to deal with a broker.  A common theme in the feedback was that a broker would see many claim scenarios and may be able to suggest the most appropriate cover based on previous experiences. This gave business owners more confidence rather than trying to understand the complexities themselves.

An important factor in any insurance buying decision should be how claims are settled.  Brokers often recommend insurers based on their ability to provide excellent claims service.  Insurance contracts and claim settlements can be complex and having professional guidance through the process is invaluable. Policy wordings often have limits, sub limits, conditions and exclusions that can potentially create situations where confusion reigns and the insurance industry is perceived as untrustworthy and deceitful.

The broker has the ability and responsibility to eliminate this confusion and provide the most suitable product for the clients’ needs.

If price is ever the single most important criterion in the insurance buying decision, then there can be benefits in using direct market insurers.  However, always bear in mind that when price is optimised, the quality of cover usually suffers. Cheaper policies have strict acceptance criteria and the retailers’ call centre consultants have scripts to follow.  The highly regimented and efficient transaction process is designed to deal with the large volume of phone calls. Closing the deal is likely to be the number one priority.

Employee or Contractor? ATO target employers

The Australian Taxation Office (ATO) has stated their intention to increase their audit focus on businesses that use contractors.

An incorrect employment classification of an employee / contractor could be a breach of both ATO and Workers Compensation legislation.

If ATO determine that your contractors are employees, you would have a shortfall in your Superannuation and PAYG payments and subsequently incur interest and penalties. In theory ATO can go back an unlimited period to collect the superannuation and PAYG for employees.

In past years there was confusion for business owners about the definition of a worker as the ATO definition was different to WorkCover Queensland’s definition.

Today the definitions have been aligned. WorkCover Queensland has adopted the same definition as the ATO who supply a simple online decision tool to identify ‘Employee or Contractor’.

You can check your circumstances by logging on to:

http://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/

You are asked to answer a series of questions

  • Is there an Agreement in place with the individual
  • Occupation of the individual
  • Does the individual have an ABN
  • Details of Subcontracting arrangements
  • Basis of payment for services
  • Responsibility for provision of equipment / tools
  • Who is responsible for Rectification of work?

At the end of the questionnaire a decision is provided based on answers given. You are able to enter personal details and a report can be produced for you to print /save. Retain a copy for your records and if audited, you have a documented basis on which you made your decision.

An important factor is the existence and content of a written agreement between you and the individual. You should consider obtaining legal advice in regard to any contractor’s agreement.

It is important to discuss all your labour arrangements with your CQIB insurance broker as contractor or labour-hire alters your exposures hence the need to tailor your insurance program to your specific needs.