High risk with sub-standard products

High risk of sub standard products

In recent weeks the news media in Australia has reported many examples of inferior products being used in the building industry. The reports document the use of non-compliant products, such as cladding, cabling, wiring and lighting being installed in domestic and commercial buildings. Some suspect installations have resulted in serious damage with ongoing fire investigations but all products reviewed by authorities have been exposed as potential risks to either cause fire or act as an accelerant.

Trends in consumerism is to make a product cheaply for a shorter shelf life knowing it can be replaced cheaply in a ‘buy and replace’ purchase cycle. For building products however, we also want the assurance that our houses are long term secure in their construction and internal fit-out.

The cause of these building material risks can be traced back in some cases to inferior products being imported that are not meeting Australian Quality Control measures. An added problem is that designs are specified with materials which are then replaced with a replication of the intended original material or product. In a lean economy the temptation exists to look for cheaper alternatives to combat narrow profit margins.

This may also muddy the water with the rating of insurance premiums. Property risks are calculated on the materials of construction so it does have a bearing if the materials are combustible, mixed or of inferior construction. This must be assessed, declared accurately and obviously, if a fire risk is increased, it must be addressed.

Australia’s reliance on offshore manufacturing has caused the transfer of responsibility to manufacturers with various importers and distributors proving difficult to supervise and monitor to appropriate standards.
The manufacturer / importer has a responsibility not only as a measure
to sustain a reputable business, but also as a community responsibility to put stringent measures in place which would prevent property loss and worst case scenarios.

Industry and Australian Standards exist and have individual rating codes for applicable products. The importer must have a testing protocol and recall procedure that can be demonstrated. Associations such as Master Builders, Master Electricians, Housing Industry Association etc., also provide a forum for the members and the public to highlight issues and all are proactive in raising concerns and bringing problem cases to light.

The risk exposure would also be assisted by having adequate Product Recall insurance to cover incurred costs which are not limited to the product, but may also include advertising, recall notifications, repairs, loss of profits and rehabilitation.

New Rating System for Homes at Risk

New rating system launched

Following the ‘Black Saturday’ and ‘Blue Mountains’ bushfires in recent years, the Australian Government in conjunction with local councils and fire services, has amended the requirements set out in Australian Standard 3959 – Construction of Buildings in Bushfire Prone Areas.

A Bushfire Attack Level (commonly known as BAL) Rating has now been applied to all domestic buildings located within 100 metres of bushland vegetation.

The BAL Ratings that have been assigned (from lowest to highest) are:

1. BAL – LOW

2. BAL – 12.5

3. BAL – 19

4. BAL – 29

5. BAL – 40

6. BAL – FZ (Flame Zone)

These ratings are based on factors such as the region where you live, the vegetation type around your property, the distance from your home to individual vegetation types, and the slope of the property.

This means that if your property now has a BAL Rating applied to it, then the costs to repair or rebuild your property have increased, sometimes dramatically, to now comply with the new amended Australia Standard laws. The additional costs are not strictly limited to fire damage only, but also apply to all claims affecting the external components of the building such as roof, walls, gutters, eaves, windows, doors, decks etc. So if your property suffers damage through events such storm, hail, impact, accidental damage etc. then the repair costs will be impacted by the BAL Rating.

So what does this mean for insurance? Depending on the BAL Rating applicable to your property, the additional costs associated with the rectification of damage caused to your property, be it by fire, storm, impact, etc. need to be included within your Building Sum Insured and not be exhausted under your insurance policy.

The Building Sum Insured nominated on your insurance policy now needs to be increased to include these additional costs otherwise it will result in under-insurance leaving you with either an unfinished home or personal financial contribution (outside insurance) to complete the repair or rebuild of your property.

The recommended additional costs have been set at:

1. BAL – LOW
No additional cost

2. BAL – 12.5
Additional $5,000 – $15,000

3. BAL – 19
Additional $20,000 – $30,000

4. BAL – 29
Additional $30,000 – $50,000

5. BAL – 40
Additional $50,000 – $80,000

6. BAL – FZ (Flame Zone)
Additional $100,000 – $120,000

In order to determine the BAL Rating applicable to your property, please contact your local council who will be able to provide you with this information. Once obtained, a calculation can be provided for the average additional costs that should be included in your building sum insured and added to your insurance policy to ensure you are adequately protected in the event of a loss.

If you would like more information regarding BAL Ratings, please contact your CQIB broker.

Trademark Infringed

An Expensive Oversight

A small chocolatier based outside of Adelaide, Chocolate @ No. 5, has been forced to redesign its logo after multinational fashion giant Chanel claimed a trademark infringement of its perfume, Chanel No. 5.

Chanel disputed the use of ‘No. 5’ in the chocolatier’s logo when the chocolatier recently applied for a trademark registration. The chocolatier maintains that the number five in the logo refers to the number of its street address and is not used because of any potential connection to Chanel.

Chanel’s lawyers sent the chocolatier a ‘cease and desist’ letter demanding that the chocolatier withdraw its registration, ditch its logo and to rename the business if it was to move from its current address.  The chocolatier has since spent thousands of dollars changing the branding of the business in order to avoid a legal battle with the luxury retailer.

Amidst the many challenges entrepreneurs face when starting a business, it is not hard to see how many overlook the need to register their business name and branding as trademarks.  However, they can pay a high price for the oversight.

To ensure a new business has the best chance of success, entrepreneurs must be aware of what is involved.  As a starting point, they need to consider which business structure best suits their needs, apply for their Australian Business Number, check that their chosen business name is available and register their business name and branding as trademarks, preferably before the business commences trading to ensure interests of the enterprise are covered.

Large companies are often vigorous in protecting their trademarks and intellectual property and Chocolate @ No. 5 is not the only one to pay the price. There have been many instances of small companies being forced to relinquish their logos, business names and web domain names on the basis that they potentially infringe a large company’s trademark rights.

While it takes forethought and planning to address these risks from the beginning, the eventual payout is sweet.

Closing your business?

Don’t Cancel Your Cover

The business has closed, it’s no longer trading, no more parts or products being manufactured or imported. No more installations or maintenance. No goods for sale.

So, time for retirement or a change in direction. We just need to cancel the insurance.

Well, not exactly. There is an element of insurance risk for a business once they have ceased trading. For a tradesman it would be the work they have installed and maintained which may cause an incident at a later date. An example would be a switchboard that causes a fire due to faulty wiring. The loss may cause subsequent damage to a building or worst case, death or injury. The time of loss is determined to be the occurrence date, therefore cover may have existed when the switchboard was installed but it should have still been in force when the incident occurred.

For the manufacturer of goods, their products may be discontinued but the element of risk remains if they cause damage or injury at a later date. So how long do you maintain run off cover?

Ideally, up to seven years is the industry standard. But not all businesses need cover for that long. For example, a restaurant would know within days or weeks of potential claims rather than years. Various States have their own legislation requirements and these would need to be addressed to clarify your situation.

Examples of run off cover for classes of insurance would include Public and Products Liability / Professional Indemnity / Directors & Officers Liability (Management Liability). Advice from your broker should be sought in these cases as to which basis of wording applies and any interruption to cover should be avoided so a claim won’t be jeopardised.

When a business is sold, the risk of potential future claims may be transferred to the new owner but this can’t be assumed, it would be negotiated and details of the sale would need to be reviewed with legal opinion.

The good news regarding run off cover is that it does get cheaper year after year due to decreasing exposure, subject to no claims activity. You can also negotiate a number of years up front with an insurer. This is suggested if a sale of the business occurs or retirement beckons. Be sure to get both legal and insurance advice for peace of mind. You can then close the door with confidence.

Aliens, Meerkats or Brokers?

When buying insurance, which way to go?

Whilst it’s true to say that the TV ads of the Direct Insurance Marketers are very ‘catchy’ and ‘humorous’, prospective buyers of these classes of insurance from these vendors should be aware that the product being promoted is actually ‘protection’: protection of the livelihoods, incomes and assets of individuals and businesses. Not something to be treated lightly.

Generally, the Direct Market will promote their offerings on a ‘price’ model and whilst this is always part of any consideration, claims service and Policy Wordings and Conditions are of equal importance.

If only the quality of the coverage provided by the Direct Insurance Marketers was as comprehensive as their advertising campaigns.

This is where an Insurance Broker adds value to the purchasing proposition. The insurance broker’s role is to ‘canvas’ the ‘market’ with a view to obtaining a recommended ‘product’ that is appropriate to the individuals needs, taking into account any specific requirements. Additionally, many brokers are members of insurance Cluster Groups and these have policy wordings that are far superior, and ultimately of more benefit to the buyer, than that of the Direct Insurers.

Why wait in the long queue of a call centre or attempt to navigate the hurdles of a direct seller’s website when a broker can make the transaction a much easier and safer option?

The main point of difference though is at claim time when the consumer is totally ‘on their own’ in respect of Policy interpretation as well as having to arrange and manage the claim from start to finish. Brokers understand and manage claims. It’s what they do. They add to the process rather than detract from it. The broker will advise clients what information is required and then prepare and forward the claim to the insurer. A broker goes in to bat for you and manages the process from start through to settlement while their client can relax knowing he or she is in good hands.

Another major point that a broker offers over the Direct Marketer is the fact that at Renewal / Anniversary of the Policy time, the premiums are market checked to ensure that a client’s existing insurer is still providing the most competitive and comprehensive terms available. When dealing with a Direct Insurer, each year is just like starting over again.

As a client of a broking firm you are also able to access varied other services of your chosen broker.  They have a range of valuable services and offers, available to you, all under the one roof and accessible by one phone call. Over time, clients of brokerages become trusted business partners and friends, thanks to the professional way their insurance business is transacted. To your broker, you are never merely a number.

On balance, when you weigh up the pros and cons of insurance from the Direct Marketer’s call centre or the professional broker alternative, the choice is clear.