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Frequently Asked Questions

Endorsements


Can you explain the Reduction in Margin endorsement?

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Reduced margin refers to a reduction in the profitability of the business due to some inefficiencies of the production system or business operations during a disruption system. The business might suffer a loss of gross profit due to increased inefficiency in the business rather than reduced sales/turnover. It can occur for example through a salvage sale.

Loss of margin is the residual loss after a successful claim for the loss of gross profit, payroll and ICW/AICW.

With an endorsement, ISR policies provide a cover for loss of margin.

Do we get automatic cover for Claim Preparation as a Steadfast broker up to a certain limit?

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Some Policy Wordings include default Claim Preparation cover. We see $25,000 as a default for example in a Steadfast Business Package wording across the main pool of insurers.

It is always a matter of confirming with the Policy Wording.

How long does it take for the insurer to release the Claim Preparation sublimit to the advisor after we or the client has requested their services?

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Approval should be given in 24 hours.

Payment of fees will depend on the timing of claim submission and invoicing by the service provider.

If a loss occurs to a neighbouring property due to an insured event that is NOT covered under OUR client’s policy. I.e. flood which restricts access, can our client claim under BI on their own policy?

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If the event is covered under our policy and prevents or hinders access then a claim would be payable.

Can a broker charge a fee to assist his client and claim under the Claim Preparation/ Accounting Fees section of the policy, given the additional time spent is dealing with the client loss?

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Generally no, as brokers are not professional Claim Preparation Specialists or Accountants.

Can we Insure for goodwill separately? How do we calculate the sum insured for goodwill? What is cost of goodwill cover?

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This is Policy specific but many Policy Wordings would allow for goodwill to be insured separately. You need to ensure that you have a business valuation prepared for your client which can be used as the basis for the amount you would insure.

That premium applicable to goodwill cover depends on the Sum Insured and the rate an underwriter applies to this Sum Insured.

Can you comment on the percentage of claims that would use a specialist like MSM?

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There aren’t many statistics which show how many claims have a Claims Preparer appointed however our view is that it is much lower than it should be.

As a matter of principle, you should always appoint claims prepares on a BI claim regardless of the size of the loss. MSM or any other professional firms can assess the situation and decide to let the claim run without them if it is not worth their involvement.

In the case of the insurer causing delays, is there any remedy for this under law? Otherwise what’s to stop them routinely reducing their liability by delaying claims?

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Insurance is based on the principle of good faith and is dealt with in Sections 12, 13 and 14 of the Insurance Contracts Act.

It is expected that both parties honour their respective duties and obligations under the Insurance Contracts Act. Interest is payable under the Insurance Contracts Act from the time the money is “unreasonably withheld”. However, if there is any doubt as to the behaviour of either party and there is a reasonable ground to believe so, then there is no reason why al remedy is not sought – this can be through the Ombudsman or a legal remedy or a complaint to ASIC under the “Code of Practice”.

In the Sydney Siege case, would terrorism be an exclusion and therefore Prevention of Access Endorsement claim would not exist?

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An Act of Terrorism is an exclusion in all policies. If the Government declares an Incident a Terrorist Act, then Insurers can access the Terrorism Pool which works in a similar way to reinsurance.

In other words the event has to be covered under the Policy first (apart from the Terrorism Exclusion) then the Terrorism Exclusion is overruled allowing the Insurer to recover from the Pool and pay the Insured’s claim.

If the Incident is not covered under the Policy Wording (apart from the Terrorism Exclusion) then the Insured cannot recover.

In what circumstances would a tenant still need to pay rent if a partial loss occurred? Other than machinery breakdown.

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A small fire or water damage claim where the premises can be occupied but the damage causes a reduction in turnover. A fire in the control panel of a printing machine would be one example i.e. loss of turnover but no rent abatement.

Is there a certain value a claim must be before we can appoint a claims preparer?

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No, Claim Preparers can generally have varying levels of involvement and can tailor their approach from small claims to much larger claims.

What about the downturn in trade due to bushfire activity in the vicinity where there is no property damage but people are discouraged from attending the area?

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Wide area damage is not covered. Refer to the Policy wording. Prevention of access or public utilities extension may provide cover.

What is a fair and reasonable amount of Claims Preparation Costs to insure for an average Small to Medium Enterprise

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The minimum amount should be around $50,000 for a small entity moving upwards to $150,000.

Bearing in mind, claim preparation is relevant for both the Material Damage and Business Interruption claims. For larger businesses we recommend you start at $150,000 and consider 5% of the gross profit cover as an appropriate guide for there.

Understanding the complexity of the business is key. We recommend tailoring as necessary for the business, potential loss, the location and if dual payroll is covered.

What type of figure would you use as a Sublimit for the Suppliers Premises Endorsement?

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Normally you start with the percentage that each supplier bears to the overall business as a guide but also understand the exposures in place. We apply the suppliers contribution percentage to the Insured Gross Profit amount declared. You need to speak to your client and work through some examples with them to do this appropriately. Experts such as MSM Loss Management can assist this process and provide a view using their technical expertise and experience.

Where does “rent of alternative premises” become an AICW and not ICW?

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Any increased cost should be claimed under ICW but it must pass the sole purpose test or economic limit test. If not then part or all goes to AICW.

Why is do Prevention of Access and Public Utilities endorsements have a 48 hour excess? How did this number come to be?

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The time deductible is to reduce small or “working” losses. There are a number of problems with these deductibles and they are often not equitable for either the client or insurer. Insurers like them because they are simple and don’t rely on calculating exposures.

With a lot of office type risks trading online more these days, we have a lot of client’s that would put up resistance to Loss of Trading Profit cover. We recommend high limits for AICW cover in these circumstances but is it enough for businesses trading at say more than $20,000,000 of revenue? The client is convinced they can set up elsewhere and continue to trade without loss of trading profit.

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This is obviously a client specific determination and all the facts and circumstances would need to be considered.

Any premises dependent business can suffer a loss of gross profit and it is not advisable to offer AICW only for any online retail business with one major warehouse.

However, if the business has multiple warehouses in different locations, an AICW cover only might be adequate.

With a standard SME client what do you think is a reasonable amount to insure for AICW?

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On a business pack start with $250,000 and work up for size and complexity.

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