By Chuck Robinson, Underwriting Team Leader
Justice Peter Applegarth made it clear brokers have a professional duty to be aware of the types of risks that impact underwriting decisions. And he was critical of the broker’s failure to inspect the building and “make proper enquiries with a view to ascertaining the internal construction” before the policy’s inception or subsequent renewals.
The client testified that he was unaware what EPS panels were or their relevance to the policy and that he relied on the broker’s expertise to accurately complete the insurance application.
What this case demonstrates is the importance of eyeballing a client’s premises to ascertain the building’s construction, visible hazards and the business activities conducted on site. The value to be gained from a site visit, both in terms of information gathering and relationship building, should never be underestimated.
It also reinforces the need to ask detailed questions before filling out the initial proposal form and prior to each subsequent renewal (to determine any material changes for underwriting purposes).
Here are some important questions to ask your clients prior to every policy renewal:
- What are all the activities that your business does to generate income?
A company’s website can be a good starting place for finding out the range of services on offer. Even a slight diversion from the occupation stated on the policy could mean very different risk exposures and acceptance criteria. For example, a company that makes metal signs might be a preferred occupation, but if they also sell highly flammable plastic products as a sideline that significantly alters the company’s overall risk profile.
- Do you wholesale any products or supply goods in bulk?
A recent example that comes to mind was a fish and chip shop that turned out to also be wholesaling seafood to other retailers. The shop had always had the sideline business, but the broker only found out about it by chance after working on the account for several years.
- Does your business import or export products?
Companies that import goods are deemed to be the manufacturers for Australian Product Safety purposes. So if your client is buying goods from developing countries for resale locally this will impact their general liability exposures.
Some policies, such as Lumley’s Business Pack, have Product liability exclusions for goods exported to North America. So if your client is selling goods via eBay, they will not be covered for any claims made by a purchaser in the US.
- Do you manufacture/modify/repair/service products?
To illustrate the risk here, a diesel mechanic who services a piece of mining equipment once a year that subsequently breaks down underground can be sued for tens of millions for lost production time. Likewise, a company that modifies a part can be deemed to be the product’s manufacturer in the event of a bodily injury or property damages claim.
- Does your business use contractors or subcontractors?
Using contractors/subcontractors alters a company’s liability risks. Ensure your clients obtain Certificates of Currency for Public Liability and Workers Compensation for all their contractors/subcontractors and that they review them on an annual basis.
- How is your business going (i.e. gross profit, staff numbers)?
It’s important to keep a close eye on any business that’s in a growth or transitional phase as their risk exposures could be changing substantially and they may need to increase their sums insured. This may also create opportunities to write additional insurance covers, like Management Liability insurance, which the business didn’t need before it employed people. The opposite is also true. If a business is experiencing financial difficulties and looks like going into liquidation, it’s worth mentioning to the owner that the policy will be cancelled on the day the company goes into receivership/ceases to operate.
- Have you made any alterations/additions to your premises?
Any changes to a building’s construction need to be closely reviewed. For example, the installation of a new sprinkler system or other fire-fighting equipment is likely to enhance underwriting terms, while a new fit-out with EPS walls and ceilings could make the premises difficult to insure. If in doubt about your ISR client’s proposed alterations/additions, consult Lumley’s Risk Surveyors for advice.
- Are any hazardous or flammable materials stored in your building?
Your client might be a low-risk occupation but if a fireworks company is based on the floor below that needs to be disclosed to the underwriter.
- When was the last time you had your assets/building valued?
The issue here is underinsurance. If your client’s sums insured are more than 15 per cent below their actual value, in the event of a claim they will only receive partial payment for the loss. Pay particular attention to stock, equipment and business interruption values.
- Are your premises well maintained?
The last thing your client wants to hear after sustaining serious water damage during a storm is that their claim has been rejected due to a defective roof. If a loss adjuster examines the roof and finds gaping holes and significant rust, that’s the likely outcome.
Are there any other questions you always ask your clients at renewal time? Please tell us below.