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How to save thousands on your business insurance coverage

Did you know you have the potential to lose hundreds of thousands of dollars (or more) in your insurance claims?

Business insurance expert campaigning to highlight what you need to know about business insurance.

Patrick Langan. Dip.Fin. Serv.(Broking), QPIB, Oracle Group AFS 363610, Authorised Rep. No.1240016

Hang-on I hear you are saying ‘I wanted to know how to save on my business insurance premiums’ and yes we will tackle that shortly so just stick with me for a little longer.

To obtain true premium savings you need to know how not to be fooled by the glossy brochure, plus there is a free service on offer to help you.

Horrifying reality

The horrifying reality with business insurance is that when you need it most, insurers may fight you for every dollar to reduce their claims liability, by using their considerable internal and financial resources to go to war against you and your claim.

Why is this happening?   

In the past insurers were members of co-operatives or structured in such a way that profitability was used to help manage policy holder risk, lower premiums and their attitude to claims more customer friendly.

Today, the majority of insurers are stock exchange listed. Their main objective is to make money for their investors and CEO’s who run them.

Profit maximisation means cutting costs and an easy cost cutting option is reducing claims payouts.

Principle weapon of destruction

The data you provided in your proposal to the insurer is the chief weapon to be used against you. Insurance policies are complex legal instruments designed to ‘price the premium’ and minimise claim payouts where, in the eyes of the insurer, you have not been truthful or provided the detailed information required to understand the full extent of the risk (Duty of Disclosure).

The insurer’s interpretation is what matters, whether right or wrong. It provides the justification for declining or reducing claims. For using strategies such as dragging disputes through years of legal challenges, wear down the other party until a lack of will or funds forces them to give up the fight.

Even if not a protracted legal dispute, slowing payouts or creating numerous and often onerous requests for information is financially beneficial to them, yet can be devastating to you. You could go bankrupt waiting, then any payout may benefit your creditors and not benefit you in the same way as initially perceived.

Technology and Insurance Brokers

With the advent of technology, most coverage data for pricing and risk assessment is punched into insurance company systems by broker support staff.

They are usually not trained brokers and not highly paid. Their focus is administrative data entry, including non-intentional mistakes whether theirs or carried over from broker notes.

Being human means mistakes happen, however brokers have also been forced to trim people and time costs to survive. Therefore, it is common for issued policies not to be thoroughly checked in arrears. Yes, the headline rate and main points may get a quick once over, however it is uncommon to go back and test the underlying data because time is at a premium.

Most policies also state that the policy holder (you) need to notify any errors. Of course, you happily spend hours verifying there are ‘no omissions and errors’, before filing away never to be seen again until next renewal of a claim arises, in which case it will be too late.

Getting Cheaper Premiums

Like most industries, competition means there is little price difference between insurers for the exact same cover.

Sometimes insurers are trying to buy, grow or leave a market sector, or specialise in sectors which can provide savings opportunities.

At times, you may still be paying old rates because your insurance may not have been reviewed for some time and a review is all that is needed for a quick win.

However generally speaking, large savings on insurance premiums between insurers usually means a reduction in the risk coverage or increase in your exposure, accounting for a premium reduction.

It is extremely difficult for the average business owner to determine whether a competing insurance quotation is a real premium saving and would require an insurance specialist to guide them.

Also it would be unlikely that you are purchasing your total business insurance directly from an insurer. If this were the case then I would believe you have even a greater payout risk.

If coverage for certain risks can be reduced or no longer required, a lower premium should be expected, however what happens if the competing broker never included a comparable risk coverage in their quotation?

Alternatively, a competing broker may have more insight into your industry and provided coverage pricing for industry common risks, that your existing broker has not considered.

Brave new world

We all dislike paying for business insurance however when there is an incident we expect to be covered and have our claims paid.

The trend seems to indicate an increasing willingness from insurers to fight to reduce your claims.

In turn the lure of cheaper premiums could inadvertently be reducing your own cover.

Business owners need to place more emphases on comparing Broker’s willingness to act in your best interests,  rather than win the business on false price savings.

The days of ‘my broker is good because we have always dealt with them’ are over.

In the event of a claim you would need your broker to be pressuring the insurer to get the claim approved quickly. Furthermore, if the claim needs to go legal you would want the broker to be able to demonstrate to the courts, that all the correct processes and premium pricing information was provided.

Minimising business risk with insurance has changed and you need to change.

You also need to get covered for the new wave of business risks already making themselves known, such as cyber risk , privacy infringements and theft of customer data bases and credit card details, a risk to every business regardless how big or small.

I can well understand how obtaining competing quotes every year produces a headache in never ending phone calls in trying to win your business, plus the hours in trying to make sense of what is being presented.

Another Way

An alternative is to use a service to assess your cover premiums and work with you to get a better deal (a true saving with correct cover) from your existing broker or insurer.

For a relatively small fee and depending on the type of cover, this can easily gain a much bigger savings in premiums without having to change brokers. It may also uncover some big holes and you will be very pleased you took the initiative to better secure your future.

Patrick Langan offers a review service that even provides small business with an initial free assessment.

In short to save on premiums requires a willingness for business owners to accept the business insurance playing field has changed. That the odds are lesser in your favour unless you are willing to change tactics.

So now that you know what to do to save on business insurance premiums, then get to it, or if you don’t have time, pass this article onto somebody else and delegate getting a no charge review for your small business (small fee for Larger organisations)

Links to short case study summaries where claims have been lost through broker indifference, business owner’s lack of understanding, and willingness of insurers to test every claim to reduce payout liability, are at the bottom of this page.

Claims Against Insurance Brokers

Claims Against Insurance Brokers

Summaries of Claims against Insurance Brokers

The following case study summaries are actual Professional Indemnity (PI) claims against Insurance Brokers.

What the summaries provide is an insight as to the type of problems that can occur and why it is important to be diligent with your insurance programme.

In some instances, the broker has been found against for Professional negligence and in some cases the broker only had a certain degree of responsibility and wasn’t entirely at fault.

We often receive responses from business owners saying that if the Insurance Broker were responsible for the rejection of their claim, they will sue the broker.

The following are such events, however what most people fail to consider when making such statements is that they first need to go through the initial  fight with the insurance company to arrive at the final rejection of their claim, and then separately go through a second legal fight with another insurance company who is holding the Insurance Broker’s Professional Indemnity cover.

Real cost of claiming against a broker’s PI cover.

How long would you guess at this whole process taking, 2 years to 5 years, or more?

How many thousands in legal expenses will you need to fund until such time as your win (assuming you do win) provides any funds?

What about the original insurance loss and the impact on your business.  If a severe impact then can your business survive the total time taken to collect damages, for example two to five years?

Whilst we cannot publicly disclose the source and names of those involved in the following summary case studies for privacy reasons, they did occur and if validating the source is imperative to you, then please contact us and we will work towards providing the validity requested.

Property Insurance – Construction of Building and Exclusions

A client insured his property through a trusted broker for many years and both the client and the broker believed that the property did not contain asbestos. On renewal, the broker changed insurers from one that did not have an asbestos exclusion to one that did, without highlighting the exclusion to the client.

The property was destroyed by fire and is was found that there was asbestos in the roof, therefore the insurer declined the claim, due to the asbestos exclusion.

The client maintained, although they were of the mistaken belief that the property did not contain asbestos the broker had not warned them of the risks of changing the cover to an insurer with an asbestos exclusion.

The client’s lawyer argued that an asbestos exclusion is a significant enough exclusion to introduce into a property cover and the broker should have been aware of the implications and therefore should have highlighted its existence to the insured.

Construction Liability – Exclusions and Sub Limits

The clients Public Liability policy included a “Construction Exclusion” for any liability for personal injury arising out of the “Insured erecting, demolishing, altering or adding to a building or structure, if the value of the erection, demolition, alteration or addition when finished will be more than $1 million”.

The broker did not bring the exclusion to the attention of the insured nor bring to the underwriter’s attention that the client was involved in a $2 million renovation project.

A third party contractor was injured during the course of the renovation project and a claim lodged against the client. The client’s insurer denied Liability on the basis that the value of works exceeded the $1 million limit.

Liability – Sub Contractors

The broker placed the Public Liability insurance for a client with an insurer. The insurer’s underwriting risk appetite changed over time and 2 renewals prior to the claim, introduced an exclusion to the policy wording that excluded “bodily injury to hired labour and/or sub-contractors”.

The broker had not advised the client of the existence of the exclusion nor that cover was readily availability. The broker had also not picked up on the fact that it was clear from the client’s annual declaration that they were making substantial payments to sub-contractors.

A claim for significant bodily injury was denied as the injured party was a sub-contractor.

Public Liability – Business Description and Exclusions

The insured operated a restaurant and the broker placed a Public Liability policy using the information provided by the client. The policy also contained a “Nightclub Exclusion”. The insured also operated as a Nightclub when the restaurant was closed and provided entertainment after hours.

When a claim was lodged against the insured for an injury which occurred whilst the insured was operating as a Nightclub, the insurer declined the claim. The insured maintained that the broker failed to make reasonable enquiries of his business and failed to warn them of the risk of being uninsured for this activity.

The broker was unable to produce evidence of making enquiries of the insured’s business to establish that it was operating only as a restaurant and did not bring the Nightclub Exclusion to the insured’s attention. The broker had a duty to the insured to make such enquiries and not just rely on answers from the business owner, who was not aware of implications of operating a Nightclub and the risk of this activity being uninsured.

Directors & Officers – Offerings Exclusion

The client’s annual revenue had grown to over $200 million and the broker was advised by the insurer that the Management Liability cover had to be moved to a stand-alone D & O (Directors & Officers), EPL (Employment Practices Liability), Crime & Statutory Liability insurance policies. The broker and the insurer were also aware the client intended to list on the ASX in the near future.

The insurer issued D & O terms that contained several exclusions by endorsement including an “Offerings Exclusion” which the broker did not understand and had not seen before. The broker believed this was a standard exclusion and bound cover on that basis. An offerings exclusion excludes claims in relation to “any public offerings and capital raisings”.

During the policy period the client issued a prospectus document as part of their listing, raising substantial funds from public investors.

A short time later the business had a substantial loss and issued a dire profit warning through the ASX. The Directors received several claims from shareholders alleging misrepresentations within the prospectus document and breach of disclosure conditions.

The insurer declined indemnity due to the Offerings Exclusion. The broker was unaware the exclusion could be removed or amended following negotiation with the underwriter or a separate prospectus liability policy arranged.

ISR – Disclosure and Construction

An ISR (Industrial Special Risks) renewal was completed online by a junior broker using information contained on record in the client’s file. The broker had not visited the premises and was not aware from the information contained in the file, that the building contained EPS (Expanded Polystyrene).

The online system defaulted to nil however requires the broker to provide a range of percentages in relation to EPS contained in the building (eg up to 10%, 30%, 50%).

The client’s property subsequently suffered extensive fire damage and the claim was denied by the Insurer due to non-disclosure of over 50% EPS in the building. Had the insurer been aware of the EPS they would have declined the risk.

The broker failed to make adequate enquiries of the client’s business and matters that were relevant to the Insurer’s decision whether to insure the risk. In this case the insurer would have declined the risk and the client would have placed cover with an alternative insurer willing to underwriter risks containing EPS.

ISR and Sub-Limits

A large industrial property was insured by an ISR (Industrial Special Risks) for a $50million limit any one loss and an Accidental Damage (AD) sub-limit of $300,000.  The broker did not explain the limitations of the policy in relation to the AD sub-limit or that a higher sub-limit up to $2million was available for additional premium.

When the property suffered extensive damage due to an unexplained roof collapse the insurer determined the policy could only make a payment under the AD sub-limit, restricting the claim payout to the AD sub-limit $300,000.

Policy Wordings Amendments – Instructions to the Insurer

A broker identified, during the renewal process, that the insurers public liability policy has a standard E & O (Errors & Omissions) endorsement containing an absolute design exclusion.

An endorsement was negotiated with the insurer by the broker to include cover for the client’s design exposure “whilst pursuant to the supply of the Insured’s products or services” irrespective of whether a fee was being charged or not.

A claim involving a design error was made on the policy and the insurer declined the claim highlighting the absolute design exclusion and denied that an agreement had been reached to amend the standard E & O endorsement.

The broker could not produce sufficient written evidence to the contrary and the insurer maintained they had not received clear instructions from the broker in relation to the alleged amended endorsement, therefore the standard endorsement was applied to the claim.

Policy Wordings – Instructions from the client

The broker negotiated 2 options for the client’s commercial and industrial properties for which the client praised the broker. Option A offered a broader cover than Option B but was more expensive and the client acknowledged that both options offered broader cover than the cover arranged by their previous broker. Option B was accepted and cover bound.

When a claim for fire damage to a building was denied due to an exclusion contained in Option B, that did not appear in Option A, the client denied that they had instructed the broker to place cover on the basis of Option B. The broker was unable to produce any written instructions or file notes to substantiate the instructions from the client.

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If you require any assistance with reviewing your business cover then we provide a

  1. Free Small Business Review (no requirement to purchase any insurance coverage).
  2. For larger organisations we offer a review of existing coverage and policy pricing as verification to management or board, that coverage is as expected and premium pricing is within an acceptable market competitive range.

What you need to know about Business Insurance

Business Insurance Industry Expert

Patrick Langan , Dip. Fin. Serv.(Broking), QPIB, Oracle Group – AFS 363610, Authorised Representative No.1240016

The biggest issue and what you need to know about business insurance is …

… that when you need it most, some insurers are likely to fight you for every dollar of payout and you will only find this out when it is too late to change.

They will be looking for any inaccuracies or non-disclosures within the policy info you provided, that have the possibility to reduce their payout liability.

Coupled with the fact that the majority of written policy details are computer entered by assistants or junior staff, who are selected for their lowest cost per hour, and have limited or no insurance knowledge, experience, or data entry accuracy.

These workers are not paid to go back and correct their input errors, or highlight incomplete requirements and in many cases do not understand the ramifications of incorrect data.  They may even tick a box or enter incorrect data in order to complete the policy entry as quickly as possible to retain their job.

Many business owners are now facing an increasing trend in the rate of claim reductions, disputes and rejections, without being aware of the consequences of not checking, or having an alternate professional checking the policy details after it has been issued.

What is worse than losing everything you have worked many years to build ?

Having your claim for the capital to start again, rejected.

I will help reduce the possibility of this occurring and still fight to provide you with the lowest insurance premium for proper cover.

Your next steps are to contact me to review your current coverage, which I will provide on a no charge basis. Obviously terms and conditions will apply however basically I will provide exactly as stated.

No charge for the review and no obligation to obtain any insurance coverage from me.

So contact me now to have you coverage reviewed.