Transfering Risk

Risk is the nature of Insurance. Businesses take risks everyday. When they want to transfer part of that risk they purchase Insurance. Often though when you think you've transferred the right amount of risk you end up surprised by a condition or exclusion in a policy that you didn't know existed. This means you didn't transfer the risk at all and have been paying a premium for nothing.

It's a common theme that we see on a regular basis. It's also the reason we spend so much time IN our clients business and not in our office. You cant expect to learn a clients business sitting in your own office. We thought today we'd give you a couple of real examples of clients who have been caught out by either bad or no advice, or presuming cover was correct.

We provided an alternative option to a Manning Valley client over Christmas. Public Liability for all their projects and contracts was a key for them. They were with a recognised Insurer through another agent. The Liability policy has a "trades endorsement" on it. This means any individual contracts are covered but only up to a certain limit. In this instance $100,000 for commercial construction. During our discussions they advised they were doing work on a large retail building in the area with a contract of about $120,000. Unbeknown to this client their Public Liability would not cover them whilst working on this major construciton site. Our alternative was $2,500 more yet covered them no matter what they did. Eventually the client decided to take the risk and not change Insurers. This is their choice don't get us wrong, but instead of transferring the risk elsewhere they are working on major projects and walking on egg shells.

Another example is a business on The Mid North Coast which we may have touched on before. They were covered for Public Liability on the same basis as the previous business. Yet they regularly did contracts of over $1,000,000. Their former adviser they presumed knew all this and had them covered correctly. Unfortunately an incident occurred for personal injury to a contractor and they went to make a claim. As the alleged accident occurred on a contract of $2,000,000 it exceeded the policy limitation of 'commercial construction to $200,000.' No cover. So this client had to use their own solicitor and pay their own fees when their insurer could have been defending their case all for the cost of say a $500 excess. We have now taken this client over and they pay more in premium but now know cover is in place.

That's 2 liability cases but it can also happen on other covers. Another example is with Landlords or Strata Insurance. Sometimes you need to make sure your insurance policy can respond to a lease you have in place. An example is a duplex claim for water damage which saw tiles and carpet need replacing. The strata insurer covered the tiles and bathroom but not the carpet. Reason being the policy states that if the duplex is occupied by a 'tenant' then it is the tenants responsibility to cover the carpet. This client did not live in the duplex and had not put a condition onto the lease agreement so effectively no one had the carpet covered.

Last Example.

A business we were working on providing an alternative to recently has a food manufacturing business. The building they are in is 100% foam sandwich panels. (EPS) This is for insulation and health purposes. Very good for this industry but a major fire concern for insurance companies. When we reviewed their current schedule it said the building was Concrete. When we approached different insurers for the business we advised EPS. Naturally our pricing did not get remotely close to the current insurer BUT we provided correct information. In this instance if the insurer is not aware and does not accept the risk they can decline cover. So if a fire claim arose this business potentially will have the risk shifted back to them and they could lose hundreds of thousands of dollars. In the end this business sought a guarantee from the current insurer that it was covered and they carried on. It was our advice to them to ensure the current insurer acknowledged EPS and accepted as we could not let the client get into a critical situation even though we did not 'win' their business.

A conscious decision made by us when we started the company was we would not get into price wars with direct insurers or other agents if the clients cover was compromised. It's a decision which ultimately might cost us some business but we are not prepared to offer bad or no advice all for the sake of income. The protection of our community is far more important.

It's so important that your adviser or broker fully understands your business. If you change your business during the period of insurance let them know so they can ensure your policy will respond. There is a duty of disclosure that you need to adhere to. It doesn't just protect Insurance companies but it is there to protect you and make you aware that a change in risk impacts your insurance.

Hope these examples are an eye opener to the risk involved with Risk transfer. Let your adviser know what risk you want an insurer to take on and then you wont have any surprises if a claim arises.

*** Examples used are General Advice only. Please consider your own personal and business requirements when discussing your insurance. Names and companies not included for privacy reasons.