The Insurance Market - More price increases and the impact of regulation MV Claims - What happens in a write-off situation? Statutory Obligations - do you have a Health & Safety Manual? Fire Service Levy - How you can save Terms of Trade - Who actually owns the goods Insuring in the name of your Trust Renewal Date Advantages - Avoid Christmas and 31 March Risk Management of your PABX System Internet Liability

The Insurance Market

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  Premiums for domestic house and contents have risen 20% each year for the past two years as a result of a high level of claims (both natural disaster and general claims) combined with under-charging of premium in the past. 2010 is seeing another round of increases at the same level. We are hoping, however, that this now completes the ‘market correction’ that
  we discussed in previous newsletters and that any future increases will be in line with inflation only. We have been very concerned about the continuing level of increases across all insurers and the hardship it is causing many people so have been actively lobbying against these increases - although so far without noticeable result.
  
  
• Premiums on the commercial side have generally increased by just 5% which is far more reasonable.
  
  
• Regulation of the insurance industry is looming closer all the time. The reason for the ongoing delay is that the regulators handling the financial advisor/insurance advisor process have realised that it is simply not possible to have the same legislation affecting life insurance brokers, fire & general brokers, real estate agents, mortgage brokers, investment advisors and car dealers. This is because we all deal in quite different areas of expertise and operation. However, effective this year I am going back to study. Although I probably have more insurance and business qualifications than the average insurance broker already, under the new legislation any qualification more than 12 months old does not qualify under the new standards and in order to qualify under the new Finance Act I must sit more papers. My wife is going to be highly unimpressed because I studied for 9 of the first 10 years of our marriage and she typed up all my assignments during this time. The new strict standards of education, however, are all about bringing insurance brokers up to a set standard in the same way as other professionals such as accountants and lawyers. Brokers have always been subject to minimum annual levels of professional development, but we now have to re-establish the baseline.
  
  
• How does this affect you? On the surface it means that you can be confident that the broker you deal with this a qualifiedprofessional. For the insurers it means a massive cost will be incurred over the next 12 -24 months in educating their staff to the new standards - the costs are not only in registration fees, study fees but also in study time. Although this is an ongoing cost, there will be an initial major expense to bring staff up to regulation minimum standards as a matter of urgency. We are expecting that this cost will be passed on to the buying public - both domestic and commercial. At this point in time the impact is unknown. Unfortunately the benefit of regulation to protect the man on the street from the unscrupulous, has a more far reaching impact and cost to us all.
  

Motor Vehicle Claims - What happens if your vehicle is written off?

Did you know …..that if you are in a motor vehicle accident and your vehicle is written off (can’t be driven and the insurer makes a cash settlement rather than repairing the vehicle) that you don’t receive a refund for the remainder of your policy period? For example if you have paid insurance for a $20,000 vehicle for the period 1 December 2009 to 1 December 2010, then your vehicle is written off on 1 June, that you don’t receive a refund on premium. This is because the premium is ‘fully earned’.

Did you know… that if you are paying insurances on monthly instalments directly to the insurer you are deemed to be on a monthly contract (despite the fact that the policy and the premium is reviewed annually)? This means that if you write off your vehicle, you only lose the residue remaining on the policy until the next month. Then the policy and the monthly instalments continue as normal for your replacement vehicle. The only ‘cost’ of this option is that the insurer will charge an extra 10% on the base premium to cover administration costs and also noting that only a few insurers offer this option. Did you know ….that if you are paying your annual premium through an outside supplier (such as Bexhill, Hunter Premium Funding, Lumley Finance etc) that you are effectively on an annual contract and that in the event of a write-off of your vehicle the balance of the premium due on instalments must be settled - it will therefore be deducted from the settlement on your vehicle. Statutory Obligations As discussed in our Newsletter 9.1 last year all employers have statutory obligations under the Health & Safety in Employment Act (and the 2003 amendment). In the course of our discussions with clients who purchase Statutory Liability insurance we review the gaps in their business operations that needed to be filled in order to ensure that they meet their obligations. We are very aware that the majority of business are not meeting these obligations and ask that you review your systems to ensure that you are compliant. Whilst things are going well it isn’t a major issue, but in the event of an incident which causes harm to a staff member (or the public) then the officials will have their magnifying glasses out and if anything is lacking in your systems there will be little or no defence. Specific points to be aware of: All businesses must adhere to the Health & Safety in Employment Act. All businesses must have a Health & Safety Manual. This must be a living document which is reviewed annually and all staff must be conversant with it. The commercial motor vehicle is also place of work and therefore it is necessary to apply the same level of risk management to the vehicle as to your work place. Barley Insurances Ltd also had to go through the process of developing a Health & Safety Manual and being a small, busy office didn’t have the dedicated staff to do this without assistance. After some research we selected the Thinking Safer online training programme which not only trained our staff but provided templates for the Manual. We found that this programme was very affordable and had the convenience of being accessible online by staff at any time so that training could be undertaken after hours or when there was a free moment. Barley Sugars The demise of the traditional barley sugar looms. Since Barley Insurances Ltd was established in 1998 we have included a barley sugar with each statement posted. However, NZ Post has been gradually upgrading their sorting equipment and for those customers on Auckland’s North Shore, NZ Post is charging an additional $1 for the privilege to receive the slightly bulgy envelope containing the barley sugar. As the new sorting equipment (with more exact measuring facilities) is phased in across the country, the barley sugars won’t be able to travel at the normal envelope rate. We are therefore on the hunt for a slender barley sugar alternative (must be no more than 4.5mm in thickness), so if you spot anything please let us know. In the meantime, apologies to those located in North Harbour, who will not be receiving barley sugars until we can find an alternative. Fire Service Levies - How businesses can save On every policy for an asset such as a building, contents, motor vehicle you will notice that the breakdown of the premium includes the Fire Service Levy. This does not go to the insurer but is effectively a tax which is used to pay for our fire service. For house, contents and motor insurance there is a standard rate which cannot be changed. However, for business owners insuring their assets and commercial buildings there is the opportunity for a saving on the Fire Service Levy. There is often a big difference in value between the Replacement Value of the asset, and the Indemnity Value which is the lower second hand market value. As long as you sign off the required form stating that you wish the Fire Service Levy (FSL) to be calculated on the Indemnity Value, the insurer can calculate at a lower rate. This is why for our commercial customers we will automatically select the cheaper option for you and request that you sign off the simple form. For instance: FSL on a $4 million building based on Replacement Value ($4 million x .076%) = $3,040 FSL on the Indemnity Value of $3 million ($3 million x .075%) = $2,280 This represents a saving of $760 and is well worth the time to sign off the simple declaration which we will already have completed for you.

Terms of Trade

In our last newsletter for 2009, we discussed the benefits and importance of Terms of Trade. Since the delivery of that newsletter, we have continued to provide quotes for existing and new clients on Marine Cargo Insurance for imports, exports and inland transits and again Terms of Trade are an important issue in regard to insurance liability relating to the products that are moving between supplier and buyer in New Zealand.

It is most important for the buyer of the product of raw materials etc to recognise that the risk of damage to the stock and/or products is with the buyer. As soon as that product which has been purchased and leaves the supplier’s premises it needs to be insured. The value of the item is the cost of purchasing the item from the supplier. It does not include profit to be obtained from the on-selling of that item to the next buyer. This in itself raises an interesting question of loss of profits. For example: if the item being moved on the promise of payment by the buyer to the vendor at a later date is an integral part of a project, then the buyer needs to consider and address the following:

• In the event of loss or damage to the item being obtained whilst in transit, what effect does this have to the completion of the project?
• If the project cannot be completed and sold to the end buyer, then is there a loss of profits that could have been earned?

There is a policy called Advanced Loss of Profits, which can be purchased. The documentation required for this additional policy is comprehensive and financials are required.

Under Item 1, we mention items relating to delay and completion of projects. The issuance of a contract between buyer and seller is now becoming commonplace. However, within those contracts, there are clauses relating to failure to supply within required time periods. Therefore, if there was failure to deliver the completed project on time due to damage to an integral part whilst in transit, the final buyer could easily pursue the supplier for liquidated damages. There are usually penalties incurred.

We therefore request that if you are involved in movement of product from supplier to their own premises, please contact us so that we can discuss with you the risks associated with the contracts that you may get involved with.

Insuring in the Name of your Trust

NZI have recently received legal advice that when we insure your Family Trust we must now provide the names of all the trustees. Therefore if we are insuring your house in the name of a Family Trust, we will be calling to ask for the full details of the trustees.

Renewal Date Advantages - avoid Christmas and 31/3

It is becoming more and more common for accountants to direct their commercial customers to having a 31 March renewal date for their insurances. The task of calculating insurance costs when renewal falls at any other time is very minimal but accountants admittedly do find it very convenient if it falls in line with the financial year.

We encourage you to leave your renewal date where it is (usually the date on which you first commenced business) in order to assist in obtaining the best available insurance renewal terms. Insurance companies become incredibly busy over the pre-Christmas and March end of financial year periods and at this time are less able to spend time sharpening their pencil to give a good deal or to even consider any risks which are a little unusual. In the 2nd week of March I sent out a quote request for an unusual risk and nearly all the decline responses started with the words “...due to current workload and time constraints”.

It is very much to your advantage to have your insurance renewals outside of these time frames and we would only recommend a change if it falls at a difficult cashflow time.

Risk Management - Your PABX System

We recently had a rather frightening call from our telecommunications supplier advising that toll fraud has escalated in the last month and there are some important points you need to be aware of so that you can protect your organisation:

• Last year toll fraud from hackers getting into phone systems was less than 20 for the entire year. In 2010 over a 10 day period there have been 36 attacks.
• Over the weekend Communitel who provide our toll calls, had two customers who were attacked. The amount stolen in toll calls over the 2 day period was $36,000 for just one of the clients.
• In regard to toll calls, once they are made, the supplier has provided the service and you will not receive a refund even if the calls were fraudulently made through your system.
• This risk is not insurable – although we are approaching the insurance market to see what we can do in this regard. This is therefore a significant non-insurable risk to the financial wellbeing of the organisation.
  
  Our supplier advised that there are ways in which you can protect your system, including:
  
  
• There are various trigger points in the phone system which allow access to hackers. By closing them off it reduces the risk of toll fraud incrementally.
• When setting up the phone system maintenance people often retain the factory password default settings as it makes it easier for them to remember passwords for a large number of clients. It is imperative that these passwords be changed immediately.
• Systems with the option to ‘press 1, press 2 etc’ have another hacking trigger point which needs to be closed off.
• Systems which allow staff to make business toll calls from home via the office system (ie calling New York from home but account goes to the office) have further trigger points to close off.
  
  

Internet Liability

This is a cover which has been in existence for the past two years and is a policy overlooked when doing the renewals. However, it is becoming a very prominent risk in our day to day activities.

We all enjoy the concept and sometimes the reality of having a website. The website introduces our business to the potential market that we wish to attract through the doors.

We also have the perception that when we complete the liability proposal form, that we only have business and transact business within New Zealand. However, as soon as you have a website with the letters ‘www’ in front of the company name you are immediately entering into the world wide market. Therefore, anything that you say in your promotional material, anything relating to your business with regards to products, images, telephone numbers and emails is open to billions of people. You have suddenly increased your market from 4.5 million people to several billion. Of course they are not all going to look at your website, however there will be maybe 1 in 100,000 that will look at your website and if they see some information, comment or images on your website that conflicts with their own business or entity, you could find yourself having to deal with individuals wanting to source some financial recovery for your innocent error of judgment.

The other issue that we have in today’s computer world, is that emails can also be opened and read,and again if these messages fall into the wrong hands and there is some defamatory comment being made, your business can be held liable.

Please contact John Barley on 827 7266 if you wish to discuss these exposures.