FAQ

Traditionally Professional Indemnity (PI) Insurance was purchased only by the likes of Accountants, Lawyers, Engineers, Financial Planners and Medical Practitioners – by its very nature it was designed for those pure white collar professions – usually a requirement for membership to their Professional Associations or Licensing to Practice requirements. We have in recent times seen an increasing number of industries purchasing PI cover, outside of these “traditional” Professions. What must be noted is that Public & Products Liability policies exclude in some way or another “the rendering of or failure to render professional advice or services and/or any related error or omission” usually where a fee is charged for this professional advice or service. What does this mean? It is a “grey” area, which unfortunately with Contracts of Insurance, can leave clients with uninsured losses that they thought were covered by their Public & Products Liability policy. There is no quick answer, and a thorough review by your Insurance Broker of all facets of your business is the only way of determining whether or not you require PI Insurance to fully protect your business. In more recent times, traditional blue collar trades such as Electricians & Plumbers are purchasing PI cover on a more regular basis, because they do provide their clients with “advice” for fee, with such advice being considered knowledge that particular trade holds over and above the normal lay person. PI Insurance is now readily available for dozens of white and blue collar industries.

How many times have I heard that in the last 15 years in the industry: “My brand new brick and steel building which cost $500,000 to build would never burn down. We’ll just insure it for $250,000 to save on insurance premiums”. Tragically a recent ASIC study confirmed that up to 80% of all insurance consumers in Australia were under-insured by 10% or more. This trend can also occur over time, with consumers capping their increases to sums insured to the “indexed” increases that the insurers automatically include at each renewal – usually tagged at low single digit inflation rates. Between 2000 and 2005 CPI increased by 17% BUT building costs rose by 33%. What our clients need to understand is that Insurers have “under-insurance” clauses in most commercial property and business interruption, and some domestic property insurance policies. These policies state that if the client is under-insured, then that client becomes a “co-insurer” of the property. In the example above where the client has insured a $500,000 building for $250,000 the insurers policy deems that client to have taken 50% of the risk, so all claims are only paid out by the insurer at 50% of the loss. So the client cannot falsely believe that ALL CLAIMS up to $250,000 will be paid in full. A smaller loss for example such as malicious damage via an attempted burglary, which causes $50,000 damage would see the insurer pay $25,000 and the client left to foot the other $25,000 because they were deemed to be “co-insured” for the 50%. In this case the fact that they had a brick and steel building that would never burn down is very cold comfort when finding that other $25,000 from their own pocket.

When you consider the protection (with premiums generally tax deductible for businesses) that the insurance policies provide to your business and financial well being, Insurance really isn’t expensive at all. People just don’t like paying for something they are not likely to use. However if you do need to claim, Insurance cover can become your best friend, particularly if it has been properly arranged by a Professional Insurance Broker – whom will risk profile exactly what cover it is that you need so that you do not have any nasty surprises if you come to claim something that is not covered. Commercial Insurance in Australia, particularly in NSW and Victoria is the most highly taxed in the world. Clients may find the following weblink frightening when it compares Australian taxes on insurance to the rest of the world - www.notaxoninsurance.com.au/Content.aspx?catId=95 – with country Victoria taxed at over 100% of the actual Insurance company premiums. An example below might leave some clients shocked at these hidden taxes, based on a commercial property insurance policy in country Victoria: Insurance Premium = $100 + Terrorism Levy 4% = $4 – cumulative total $104 + Fire Brigade Levy 63% of the cumulative total = $65.52 (yes that is a tax on a tax) – cumulative total $169.52 + GST 10% of the cumulative total = $16.95 (yes that is now a tax on a tax on a tax) – cumulative total $186.47 + Stamp Duty 10% of the cumulative total = $18.65 (yes that is now a tax on a tax on a tax on tax) – TOTAL CHARGE TO POLICY HOLDER = $205.12 In essence for a policy that the Insurance Company charges the client $100, the taxes to the State and Federal Governments bring this cost up to $205. It is therefore worth asking, is insurance really all that expensive, or are the taxes just pricing insurance out of peoples reach?

CIP is an acronym for Certified Insurance Professional. According to ANZIIF or the Institute (The Australian and New Zealand Institute of Insurance and Finance), CIPs are insurance professionals who:

• distinguish themselves through an Institute qualification or recognised equivalent,
• maintain up-to-date technical skills and knowledge through a program of professional development and
• abide by ANZIIF’s Code of Ethics.

The CIP program runs by the Institute sets the standard for professionalism for the insurance and financial services industry. So if your broker has CIP status you can be sure they operate according to the best standards of professional practices and integrity. It demonstrates a high level of specialisation and expertise attained through completion of the Institute’s internationally recognised education programs.

Having CIP accreditation also provides an invaluable tool for Australian financial services professionals to show that they are maintaining compliance with ASIC RG 146 and for professionals in Hong Kong and Singapore to demonstrate that they are meeting their continuing professional development requirements in their country. The Institute actively promotes CIP throughout the financial services industry and broader community as the symbol of insurance professionalism.

QPIB, often listed as a qualification after a insurance broker’s name, means they are a Qualified Practising Insurance Broker. It adds that extra dimension of assurance that your broker is highly professional and well regarded in the industry.

To have this status requires that your broker has over three years’ insurance broking experience or seven years advisory experience in the insurance industry, together with at least Certificate IV in Insurance Broking or completion of NIBA’s Senior Professional Assessment.

NIBA (National Insurance Brokers Association of Australia) is the pre-eminent association for insurance brokers in the country. The association provides professional development for brokers, including programs in general and life insurance, workers’ compensation and risk management. The qualifications range from Certificate III through to an Advanced Diploma.

A QPIB qualification is ongoing, requiring 24 hours a year of ongoing education. A QPIB is also bound by NIBA’s Code of Conduct.

Financial services legislation protects you as the consumer so you can easily compare similar products, make informed decisions as to whether to acquire these products or not and trust that your provider is regulated by an independent body.

The Corporations Act makes sure there is:

1. a uniform license and definition applying to all providers of financial services
2. there is a consistent set of requirements for advise and product disclosure for all financial products sold to you.

The Corporations Act imposes overriding obligations on Australian Financial Services (AFS licensees) to:

1. Do everything necessary to ensure financial services covered by their licence are provided efficiently, honestly and fairly;
2. Comply with the conditions on their licence and the financial services laws;
3. Take reasonable steps to ensure that their representatives (i.e. employed brokers) and authorised representatives comply with the financial services laws and are adequately trained and competent to provide the financial services;
4. Have available adequate resources (including financial, technological and human resources) to provide the financial services covered by their licence and carry out supervisory arrangements;
5. Have adequate risk management systems;
6. For retail clients:
   1. Have a complying dispute resolution system;
   2. Have adequate arrangements for the management of conflicts relating to the provision of financial services;
   3. Have approved compensation arrangements; and
   4. Comply with any other obligations prescribed by the Regulations.

   In addition, licensees need to comply with various other obligations in the Corporations Act including ASIC’s (The Australian Securities and Investments Commission) requirements, the disclosure and advice obligations, and the conduct obligations.

   There is also further legislation and Codes of Practice which govern the running of an insurance intermediary business. These include:

   • Australian Securities and Investments Corporation Act;
   • Insurance Contracts Act;
   • Insurance Brokers’ Code Of Practice;
   • NIBA Code of Conduct;
   • General Insurance Code of Practice;
   • Privacy Act;
   • SPAM Act;
   • Federal Trade Practices and State Fair Trading Acts;
   • Federal and State Employment laws;
   • Occupational Health & Safety legislation; and
   • Anti-Discrimination legislation.

   (Information sourced and edited from the Gold Seal Gold Book.)

A strong regulatory framework governs financial service operations in Australia. This framework has evolved over time, most recently improved by introduction of the Financial Services Reform Act through changes to the Corporations Act in 2001.

The APRA is the body which licences and regulates financial service businesses. This includes banks, general insurers, life insurers and fund managers who are licensed to operate in the country (particularly in relation to capital adequacy). For insurers, this occurs where the insurer carries on an insurance business in Australia.

The ASIC regulates the distribution activities of financial service businesses. This includes banks, general and life insurers and fund managers, but also intermediaries such as insurance brokers and underwriting agencies.

Although ACCC (The Australian Competition and Consumer Commission) regulates competition and consumer protection issues for most businesses in Australia, ASIC is the body responsible for regulating financial services businesses in this regard.

(Information sourced and edited from the Gold Seal, Gold Book.)

There is a Financial Ombudsman Service (FOS) which is responsible for monitoring compliance to codes of conduct.

There are various Codes of Practices:

1. The General Insurance Code of Practice which regulates the conduct of INSURERS WHO ADOPT THIS CODE. It covers all general insurance products with the exception of:
   1. Workers compensation;
   2. Marine insurance;
   3. Medical indemnity insurance;
   4. Compulsory third party insurance; and
   5. Life and health insurance products issued by life or registered health insurers.
   6. The Insurance Brokers Code of Practice which regulates the conduct of INSURANCE BROKERS

    

   It covers all general and life insurance services (not just retail classes of insurance) and includes where a broker acts under binder. It excludes reinsurance but includes related services such as risk management, inspection, valuation and arrangement of premium funding.

   The Code covers NIBA Principal Members or Corporate Associates and any other person who adopts the Code.

   The Financial Ombudsman Service monitors the Code standards and can impose binding orders or sanctions on brokers who breach the Code, such as reporting the broker to ASIC or requiring the broker to undertake corrective action or a compliance audit. It cannot impose a monetary penalty.

   7. NIBA Code of Conduct

      Principal NIBA Members and their employees are also bound by NIBA's Code of Conduct as a condition of their membership. The Code has an overriding requirement that brokers work towards maintaining and enhancing the reputation of NIBA and its members. They do this by acting in the spirit of the Code and encouraging others to do likewise.

      Breaches of the Code can result in fines of up to $10,000 or expulsion from NIBA. The Code of Conduct is required to be clearly displayed in a member's office at all times.

You can report it to the Financial Ombudsman Service (FOS) which will then:

1. Investigate the alleged breaches;
2. Provide the opportunity for the alleged breaching party to respond;
3. Determine whether a breach has occurred;
4. Reach agreement with the breaching party as to corrective action, time frames and monitoring of completion;
5. Determine if corrective measures have been implemented within the agreed time frame;
6. Report any failure to correct the breach to the Code Compliance Committee within 10 business days of the end of the agreed time frame.

The FOS will report to the Code Compliance Committee on:

1. A significant breach of the Code, including agreed corrective action;
2. The outcomes of agreed FOS Code compliance monitoring reviews; and
3. Any incidents where the FOS cannot reach agreement with a breaching party regarding corrective action.

The Code Compliance Committee may impose the following sanctions:

1. A requirement that particular corrective action be taken within a specified time frame;
2. A requirement that a compliance audit be undertaken;
3. Corrective advertising; and/or
4. Publication of the non-compliance.

Code Compliance Committee decisions are binding on Code subscribers.

ASIC (Australian Securities and Investment Commission) advises consumers to prepare for their financial turning points in 2010. ASIC recommends firstly creating a budget or spending plan. A budget identifies spending patterns and can free up money to be spent on priorities. ASIC’s consumer website FIDO contains the FIDO BUDGET PLANNER to help consumers prepare for major milestones.

3 common turning points for people:
ASIC identifies three common turning points in the lives of consumers and offers information and interactive tools to help people make informed financial decisions.

ASIC makes the following recommendations for those who are:

1. Leaving home
   Before cutting family ties make sure you’ve added up all the costs involved with leaving home. Here are some tips to help make the move smoother:

   1. Always keep extra savings for an emergency – just imagine if you get sick and you can’t work; you might not get paid but your landlord and service suppliers still need to be.
   2. Make sure you get home contents insurance that’s right for you – replacing uninsured goods such as cameras, televisions, laptops and expensive sporting equipment is an unnecessary and annoying expense.
   3. If you can't afford to buy new furniture straight away, visit garage sales in your area to pick up bargains.

2. Having a baby
   Having a baby is exciting but it can also be very expensive. Have you thought about how you are going to cover the extra costs on a reduced income?

   1. Use the FIDO Budget Planner to see where you're spending money and what you could cut back on.
   2. Ask your friends or family if they have any baby furniture or clothes that they aren't using anymore.
   3. Make sure you’re getting appropriate assistance from government and your employer.
   4. If you are planning to take a long period of time off work, talk to your spouse about them contributing to your super during this time. This can have tax benefits.

3. Reducing income in retirement
   Whether you’ve just retired or you’ve been retired for a long time, you can always benefit from cutting costs, especially if your retirement income has recently fallen. Here are a few practical ways to make your dollars last longer:

   1. Consider downsizing to a smaller home. It may free up some of your money.
   2. Call Centrelink to see if you qualify for any Commonwealth benefits. It can't hurt to ask.
   3. Spend your money wisely. For example, wait for the sales to buy clothes and other items.

Most of all, ASIC strongly recommends making and sticking to a comprehensive budget. This will ensure you don’t fall into debt by being unaware of where your money is going.

 

1. How can I get a discount?
   Some insurers offer discounts or other incentives for policyholders who:
   1. install smoke alarms, sprinkler systems and monitored intruder alarms
   2. are senior citizens
   3. are loyal and long-term policyholders

2. Insurance Excess
   An excess is the self-insured part of any loss. It’s the amount you must pay for each claim. In most cases, the insurer will deduct this amount from your claim payment.

   You can often choose to lower your premium by opting for a higher excess for claims relating to your home and its contents.

3. Can I underinsure or overinsure?
   Make sure you don’t underinsure the contents of your home. Make realistic estimates of the replacement value of your possessions and update this inventory at least once a year. Remember to include GST. If the value of your possessions is greater than the amount of contents coverage specified in your policy, have it changed accordingly.

   Don’t underinsure your home either. Your building sum insured does not include the market value of the underlying land. In most cases it should include the costs to demolish the house and any council fees or architects fees to rebuild or repair.

   To fully understand how much insurance you need you should read your PDS and understand what insurance companies consider your Home and Contents to be. Generally, Insurance Brokers can not give you advice on how much your home or possessions are worth. You should consult a licensed valuer if you have any doubts.

Do you get confused by insurance jargon? Here are some abbreviations your broker or insurer might use and what they stand for:

ACCC	Australian Consumer and Competition Commission
AFS	Australian Financial Services
APRA	Australian Prudential Regulation Authority
ASIC	Australian Securities and Investments Commission
CA	Corporations Act 2001
FSG	Financial Services Guide
General Advice	A statement of opinion or recommendation in general terms.
ICA	Insurance Contracts Act 1984
Intermediary	A person who either acts for or on behalf of the client, or for or on behalf of the insurer, and is a Licensee or authorised representative (e.g. an insurance broker or an underwriting agency / general managing agency).
LoE	Letter of Engagement
Licensees	Holders of an Australian financial services licence
PDS	Product Disclosure Statement
Personal Advice	A statement of opinion or recommendation where the adviser has considered one or more of the person’s needs, objectives and financial situation (or a reasonable person would have expected the adviser to have done so.
SoA	Statement of Advice
TPA	Trade Practices Act