Significant delays in the movement of goods due to the closure of ports, redirection of shipping routes, coupled with a surge in consumer spending are impacting whole industries across the globe – from construction to retail. These forces are causing major business interruptions with potentially devastating consequences for profitability and sustainability.
This article examines the global shipping crisis from an insurance and risk management perspective, setting out how insureds can take action to reduce their risk exposures and the impact on their bottom line.
HOW DID WE GET HERE?
While many of the above factors can be linked to interruptions caused by COVID-19, supply chain vulnerabilities existed before the pandemic. Over time, global economic factors have caused shipping companies to restrict their operating costs, leading to reduced investment in new vessels, reliance on older containers, and the rerouting of inefficient shipping routes. Meanwhile, demand for larger capacity container vessels grew, leaving older, smaller capacity fleets idle. Fast forward to 2020 when an almost overnight surge of online consumer demand triggered the reopening of abandoned shipping routes.
Further delays are occurring in some of the world’s largest container ports in China and the United States caused by closures following COVID-19 infections amongst dock workers as well as additional biosecurity measures being applied. These disruptions cause spillover into other ports and congesting spikes. Freight companies implemented workarounds such as leasing passenger and cargo aircraft to transport goods. This provided some relief while international travel was restricted, but as borders reopen, this is no longer such a viable solution.
WHAT DO IMPACTED INDUSTRIES NEED TO CONSIDER?
Industries that import or export products or raw materials have felt the impact of these supply chain disruptions, particularly the Food & Beverage, Retail, and Construction industries. From an insurance perspective, there are key policy considerations that can help reduce your business’ changing risk profile and ensure the appropriate cover is in place to minimise losses. These are outlined below.
Deterioration of stock (fresh food and perishables) caused by delays
Delays are normally excluded in most Institute Cargo Clauses, however, deterioration of stock is usually covered (depending on the cover written into the policy). This adds an element of complexity when settling a claim and often leads to partial or commercial settlements. Insurers are willing to offer forms of extended cover to write back some protection for loss or damage caused by the delay with terms and conditions (pricing, limits, and deductibles) linked to the exposure and likelihood of loss.
Insurers are also starting to see claims arising from failure of older, refurbished shipping containers (e.g., refrigerated motor failure) so a policy review to ensure stock deterioration is covered is encouraged.
With the shortage of containers, limited access to ship tonnage, and increased freight rates, some insureds may look to consolidate loads, which can cause increases in conveyance limits. What was deemed appropriate in the past may need to be reviewed and the insurance policy should reflect this.
Additional risk management and inspection conditions
Inspection of containers prior to transit and upon delivery is sound risk management practice and where possible, it should be built into your overall risk protection/mitigation strategy. Larger conveyances can include inspection warranties/conditions at the port. If this is not completed and a claim is made, it can impact an insurer’s view on indemnity. Therefore, clear instructions and effective communication with logistics providers can help prevent claims from being denied.
Indemnity period(s) and limits of liability
Delays in the delivery of raw materials or critical plant and machinery items can, in turn, delay the rebuild, reinstatement, or replacement of insured property in the event a loss occurs. Increased turnaround times may exceed the policy indemnity periods. This can lead to a portion of the loss not being paid out, underinsurance, or inadequate insurance in the form of the policy limit.
When assessing an adequate policy limit, freight is often considered an uninsured working expense and is factored in the Rate of Gross Profit. A formal Business Interruption review should be regularly undertaken to ensure cover and limits are appropriate.
Costs that are reasonably incurred to expedite the transportation of insured raw materials, plant, and equipment following a loss are covered under most Property policies. An example here is the additional costs of leasing an aircraft instead of a ship. Some insurers may have different stances on clients paying additional fees to ‘buy their way up the line’, and whether this is covered under expediting extensions. Therefore, open, and early communication with your broker is vital.
Contract Works insurers have also seen significant increases in the cost of construction projects, fuelled by the growing costs and limited availability of raw materials (timber, bricks, glass, etc.) and labour. Clients are encouraged to undertake regular reviews of their limits, values, and contracts with their customers to ensure they have adequate insurance in place.
Fines and penalties
Supply chain disruptions are also impacting completion periods within the construction industry as well as industries downstream where project completion has been postponed. Most Contract Works insurance policies do not provide cover for fines and penalties incurred as a result of shipping/transport delays pushing out completion periods. Some insurers can write this cover back in, however strict underwriting protocols will be applied when assessing the risk to determine pricing, terms, and conditions.
WHERE TO FROM HERE?
While many factors continue to disrupt the global supply chain and the impacts can be devastating to businesses, our message to clients is that having the right insurance policies in place and reviewing these closely with your broker is an effective risk management strategy. Feel free to reach out at any time to discuss your business needs.
The last quarter has seen further stabilisation within the property and liability insurance markets, as rate increases continue to moderate with insurers clawing back profit following a difficult natural catastrophe season (CAT) season in 2020-2021. Whilst the cost of transferring risk still favours the seller, the pricing pendulum has started to swing towards buyers. Longtail liability lines however are still seeing rate increases of 15-20%. Certain segments are seeing much higher increases. For example, purchasing molestation cover remains highly challenging, with markets withdrawing capacity and decreasing appetite for these types of exposures. Honan is continuing to guide clients through more sophisticated risk transfer and retention program structure options as a strategy to manage these risks, either by electing aggregate deductible structures to offset premium increases, or through non-traditional forms of insurance such as discretionary mutuals or captives.
KEY MILESTONES / CONSIDERATIONS FOR CLIENTS FOR THE NEW QUARTER (FY22-Q2):
As NSW and VIC commence their paths out of lockdown, clients in the hospitality, tourism and retail industries are expecting improved business results for the quarter ahead. Honan is working closely with clients as they navigate the complexity of returning to the office and liability exposures around the relevant State/Territory orders concerning vaccinated vs unvaccinated customers.
Australia’s east coast experienced severe weather over the first weekend in October, a possible harbinger of events to come in the natural catastrophe (CAT) season. Meteorologists are again predicting equal chances of La Niña events, bringing with it a risk of associated storms and flooding. Marking the official onset of Australia’s CAT season, October is the time for clients to work with their broker to ensure they’re adequately prepared. A CAT plan and undertaking preventative maintenance on your assets in advance are advisable at the beginning of Q2.
ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN OVER THE REMAINDER OF FY22?
Insurers will continue to take a conservative approach to underwriting through pricing and capital deployment. For clients, this will mean insurance supply will continue to remain ample, leading to increased competition and further stabilisation of pricing. Following the Haynes Royal Commission, a raft of new financial services industry regulations come into effect in FY22 including the Claims Handling AFSL license requirements, revised Dispute and Complaints Processes, and the implementation of Target Market Determinations. The industry is preparing to implement new policies and processes designed to give greater protection to consumers, particularly retail clients.
Following consecutive years of rate increases, there is clear evidence pricing is beginning to plateau for the public company D&O insurance market. Whilst insurers still applied rate increases during the Q1 renewal period, these were much lower than the prior quarter. This suggests the corrective portfolio measures required in the D&O space have largely been achieved and pricing is reaching a sustainable level for insurers. Challenges remain for companies with poor financials and industries heavily impacted by COVID-19. The ability of brokers to differentiate these clients by communicating in-depth knowledge of their risk exposures and being able to provide quality information about their risk management and risk mitigation activities is crucial to securing positive renewal outcomes for clients.
The professional indemnity (PI) market remains challenging for certain professions, particularly design and construct professionals, digital banks, mortgage brokers, financial planners, and non-bank lenders. These professions still face supply and demand issues due to several insurers withdrawing from the market. Premium rates increased on average 15-20% in the last quarter, with insurers being highly selective in risks they choose to insure.
KEY MILESTONES / CONSIDERATIONS FOR CLIENTS FOR THE NEW QUARTER (FY22-Q2):
For management liability (ML) and insurable exposures for private enterprises, the full effects of COVID-19 remain unknown. As a result, underwriters are cautiously monitoring their portfolios and the solvency of Insureds. Crime and employment practices liability coverages continue to be the main triggers for ML claims, accounting for over 70% of combined losses for ML insurers.
In this hardening insurance market where demand outstrips supply, Honan is working to ensure all clients understand the outlook for their renewal programs to ensure the right level of cover for their organisation. Our insurer partners expect strong underwriting submissions, based on the best available information, in order to optimise the price, terms, and conditions for your risks.
ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN OVER THE REMAINDER OF FY22?
At the forefront of renewal negotiations are cyber placements. These remain challenging for certain risks and risk management around ransomware attacks in particular. Insurance carriers and cyber underwriting practices continue to evolve from a traditionally narrow focus on factors such as revenue, number of employees, record count and industry class, to a wider underwriting lens encompassing loss modelling tools and continual system scanning, both in-house and via outsourced IT security. Insurers are delicately balancing the growth of their portfolios, whilst remaining disciplined in the face of surging claims and declining profitability.
As always, engagement with your broker well in advance of renewal dates is essential.
The Real Estate sector has been hit hard by an increase in frequency and severity of cybercrime incidents. Having moved much of their interactions and processing online over the last 18 months, real estate agents and property managers are especially vulnerable to social engineering attacks. Social engineering is a general term referring to an attack where the fraudster successfully impersonates a trusted employee, vendor, supplier, customer, or even a CEO or CFO; manipulating the victim into disclosing security details and sensitive information. These attacks often come in the form of phishing emails. Sadly, Honan clients are by no means immune to such threats. In the last quarter alone, we have seen multiple successful cyber attacks on our clients. Fortunately, in each instance, an appropriate level of cover was in place via a bespoke cyber policy.
While many organisations believe they can rely on extensions to Professional Indemnity and Management Liability policies to provide adequate cover in the event of a cyber incident claim, this is not the case. To ensure their level of insurance is truly fit for purpose, real estate agents and property managers are strongly encouraged to review their internal cyber security strategies with their broker.
On September 22,2021, a 5.9 magnitude earthquake struckVictoria, with tremors felt across the state and as far away as Newcastle in NSW.While there were no immediate reports of serious injury or death, damageincluded collapsed walls, shattered windows, and cracked roads. Early estimates place the total cost of damage at$150 million, with almost 10,000 claims. At the time of publication (October 14, 2021), the earthquake has not been declared a catastrophe by the Insurance Council of Australia (ICA). Head here to find out more about how a catastrophe is defined and what this means.If you believe you have a claim, please contact your broker directly.
KEY MILESTONES / CONSIDERATIONS FOR CLIENTS FOR THE NEW QUARTER (FY22-Q2):
With heavy rainfall, hail, and tornadoes marking a busy start to the Australian storm season, the Bureau of Meteorology has predicted a 50% chance that La Niña conditions will return this spring (double the normal likelihood). As a result,there is a higher probability ofdamaging events taking place such as flooding.Clients are encouraged to prepare early (now) by ensuringtheir level of cover is sufficient for the season ahead. If in doubt, please reach out to your broker to discuss.
ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN OVER THE REMAINDER OF FY22?
Global supply chain interruptions due (in part) to COVID-19, along with Australia’s Black Summer bushfires in early 2020 have contributed to building material shortages; a trend which is expected to continue over the next 12 months. Materials most affected include steel, timber, roofing products, PVC, and electrical products. In addition, the prices of both containers and dry bulk shipping are increasing, with serious shortages in haulage between Australia and other countries.
These shortages, together with pricing increases, have driven the cost of insurance repairs and replacements upwards. Unknowingly, many property owners may no longer have adequate insurance in place to reflect such increases in costs to repairs/rebuilds. Two simple insurance solutions can assist clients with this: 1) updated property valuations, and 2) those in strata buildings can review theCatastrophe Insurance percentage of the building sum insured.
Building surveyors have continued to experience increases in Professional Indemnity (PI) premiums, excesses, and reductions in limits over the last quarter. However, we are now seeing the emergence of more stable PI premiums. Volatility in engineers’ PI has increased, with multiple insurers leaving the market during Q1, and new entrants simultaneously entering.
Builders operating in the SME construction market have faced several challenges, including shortages in the availability of contractors and sub-contractors, ongoing supply chain problems, and (for some states) restrictions to the number of workers on sites – all leading to increased project costs and delays. This requires constant monitoring to ensure insurance coverage reflects the sums insured, maximum construction periods, and vacant sites.
KEY MILESTONES / CONSIDERATIONS FOR CLIENTS FOR THE NEW QUARTER (FY22-Q2):
For clients in the construction professions with upcoming renewals, insurers are paying particular attention to measures taken to limit risk exposures. We encourage clients to carefully consider the following in their applications to help improve the attractiveness of their risks to insurers:
What type of buildings are you are providing services on – high rise, complex builds?
The steps you take to minimise risk – written contracts, client selection, record keeping, etc.
How COVID-19 has impacted your business and your ability to provide your services.
If you or any of your employees have been involved in any disciplinary hearing or investigation, please provide detail around the circumstances, the outcome, and what you have done to remediate your processes to prevent a re-occurrence.
For any claims or circumstances, you have reported, please provide a status update, details of what happened, any aspects that can be attributed to your client, the outcome, and how you intend to prevent a re-occurrence.
Have you or your employees improved their qualifications or become members of a professional institute or association?
As always, clients are encouraged to return their paperwork early.
For builders facing the renewal of their policies, further increases to construction insurance premiums are expected, particularly for material damage and liability (the latter attracting increases of up to 50 percent). Significant losses on long-tail liability claims are also contributing to higher excesses, especially for worker-to-worker claims.
ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN OVER THE REMAINDER OF FY22?
The Limitation of Liability through the Building Surveyors’ Professional Standard Scheme (PSS) will have a positive impact on the risk profile of Building Surveyors. However, this will take several years to be fully realised, and we do not expect any immediate reduction in premiums. More information about the PSS is available here. Together with the Australian Institute of Building Surveyors (AIBS), BRIC has successfully negotiated a premium discount with one insurer as an incentive to enhance your professional qualifications. Please reach out to discuss this with us.
Builders’ construction insurance premiums are not expected to stabilise in the short term, as insurers remain concerned about the profitability of these risks.
Engineers in NSW are now subject to the Design & Building Practitioners Act 2020 (NSW), and insurers are beginning to express concern on claims movement on the Statutory Duty of Care. As new insurance markets are becoming available for consideration, an active and early engagement with your broker ahead of renewal is critical.
A copy of the draft Bill, along with an explanation of key materials and details about making a submission, is available via WorkCover WA. Honan’s Workplace Risk team is committed to keeping you updated on the impacts to businesses and employees as this situation evolves – please reach out at any time with further queries.
ANY INDUSTRY TRENDS YOU CAN SEE ARISING IN OVER THE REMAINDER OF FY22?
While the onus of responsibility remains on employers to manage their risk exposures, organisations’ Leadership Teams and WHS Systems alongside wider cultural forces are enhancing awareness about safe work environments and reducing stigma associated with workplace injuries.
In my role advising commercial and residential builders and construction professionals, I am frequently asked “what insurance do our clients need to have in place?” While my response varies, broadly speaking, property owners who are renovating existing structures will require Contract Works insurance. Although it is common for the builder to take out this cover on the owner’s behalf, it is not necessarily required by law, and this is not always communicated clearly to property owners.
A frequent source of confusion among many of our construction clients and their customers (property owners) is whether Contract Works insurance covers the existing structures (buildings) undergoing construction and/or renovation. Whether commercial or residential, many property insurance policies contain a Contract Works/Construction Exclusion, and failure to recognise the limitations of cover can result in significant uninsured losses. This article outlines potential gaps in cover between the Contract Works and Building Insurance policies, and how you can limit risk in the event damage occurs.
DOESN’T PROPERTY/BUILDING INSURANCE PROVIDE ADEQUATE COVERAGE?
In many cases no, not for existing buildings undergoing construction, alteration, or addition. These properties and structures are at a higher risk of damage from events such as fire, explosion, malicious damage, theft, and storm damage (especially when works involve the temporary removal of roofing). Consideration must be given to possible liabilities arising through personal injury, damage to neighbouring properties and/or public utilities, as well as potential pollution or contamination from materials like asbestos. As such, traditional property/building insurance products look to exclude/limit their exposure to the higher risks associated with construction works.
The specifics of Property/Building insurance cover vary between insurers as well as the type of policy (Commercial vs Residential/Retail). While some policies allow for coverage for existing structures, and/or third-party liability, others may exclude all or parts of cover, or exclude cover once works exceed a specified contract value (e.g., $50,000). The intention of these exclusions and limitations is to ensure risks associated with the construction process are insured by the builders’ Contract Works policy, not the Property/Building insurance. As such, commencing works at an insured location without prior notification to the insurer may result in property insurance being voided or substantially limited.
HOW DOES CONTRACT WORKS/CONSTRUCTION INSURANCE WORK?
Contract Works insurance is tailored to the specific risks of a construction project. Cover is commonly broken down into two sections: Material Damage and Third-Party Liability. Amongst other things, the cover is designed to insure both the works under construction and any third-party property damage or personal injury caused as a result of the construction process. While the third-party liability policy may cover damage by the builder to existing structures, damage to the existing structures from other events (e.g., storm, bushfire, etc.) is not normally covered under a Contract Works policy. A Contract Works policy does not automatically cover existing structures, it must be specifically requested. This is generally applied on a case-by-case basis, with the underwriter likely to require more information about the property and additional premium to cover the associated risk.
PLANNING A RENOVATION? NEXT STEPS
While it is common for a construction contract to detail responsibilities relating to the procurement of Contract Works and Third-Party Liability insurance, the responsibility to maintain cover over the existing structures is not always explicit.
When considering works to your home or property, always check with your insurer and/or broker to understand the limitations to cover during the construction period. If your property/building insurance policy does not cover the existing structures during construction, an agreement must be made with your builder prior to commencing works to cover the existing structures under the Contract Works insurance.
Similarly, builders and construction professionals need to be clear on the limitations of cover for existing structures under the Contract Works policy (these are not always automatically covered). When cover for existing structures is required, approval from the insurer/underwriter should be sought prior to commencing works.
WITH YOU ALL THE WAY
We are here to answer your questions and guide you through the process – feel free to reach out at any time.
As we enter Q2 of FY21, we’ve summarised how the present conditions are impacting the insurance market for members of the construction industry.
Contract Works – Material Damage
Many local insurers have been reviewing their rating models, with knock-on effects to premiums and deductibles. In addition, many have reduced capacity to insure – i.e. where we would normally expect an insurer to insure a risk / builder / project to the value of $100,000,000, we’re now seeing many revert back to a multi-insurer approach, whereby several companies share the risk.
Insurers are also closely reviewing the Limits of Liability and sub-limits due to meaningful absences of local capacity.
We believe the above has been brought about by last summer’s unprecedented bushfire season, and the North QLD floods of 2019. Both events have resulted in depleted pools of reinsurance, often making insurance unprofitable for carriers. This is commonly referred to as insurers’ realisation of losses.
Previously available coverage enhancements such as Design Exclusion write-backs (LEG3 or DE5) are either seeing a minimum of 30-40% rating increases or scaled back to DE4 reduced coverage, or not offered at all. Following this, we are seeing a large adjustment in DE5 deductibles where insurers would previously have offered coverage and deductibles at a minimum of $100,000. This has been lifted to $150,000-$250,000 due to the breadth of coverage it provides and the complex nature of attritional losses.
Contractors with poor loss history and exposure to weather events are experiencing imposed revised deductibles for separate major perils and water damage excesses.
The Lloyd’s of London market has continued to experience change following the Lloyd’s Review (DECILE 10) and the exit of many construction insurers – where previously they were also providing support to Australian underwriting agencies. Those which remain are increasing minimum rates, securing policy limits and offering higher deductibles.
Early engagement is key to insurance success
Insurers, brokers and contractors must work together in the short to medium term, with early engagement critical to help protect each contractor’s capital position/s and future plans for growth. Working together in a tripartite partnership capacity is essential to avoiding bill shock.
Construction Liability & Completed Operations
The current situation has seen insurers continue to closely scrutinise their underwriting results across all classes of casualty programs. Insurers have set their sights on underwriting profitability (vs gross written premium) and the investment income is being treated as a ‘nice to have’ and relegated as a priority. We have observed similar responses from insurers based in Singapore as well as Lloyd’s of London. Consequently, we are seeing sharp increases in policy excesses and renewal rates on prior years.
Greater insurer scrutiny and changes to the classification of business that should be written has influenced the costs and restrictions imposed by reinsurance arrangements, meaning:
Insurers are seeking to increase rates where claims have been poor or where currently underpriced, or looking to scale back offered policy limits. The increase is between 10-25% on well performing accounts.
Insurers are requesting much more information around operations to ensure they fully understand the risks and exposures and price accordingly. If information cannot be obtained or is ignored by contractors, insurers are likely to restrict coverage or exclude certain parts altogether.
Work on bridges, piers, jetties, harbours, defence, civil contractors/earthmoving, and heavy industry are currently considered more susceptible to “long-tail” losses. Insurers are steering away from these risks, which are seen as unprofitable (due to WorkCover recoveries).
Sub-contractor injury or sub-contractor caused property damage deductibles are likely to continue increasing to minimum levels of $50,000 with some seeking up to $250,000 (depending on the industry). Insurers are being selective and treating each risk on their own merits. Options are available for excess buy-down on a standalone product.
An increase to the policy excess can alleviate premium increases. In some events however, the premium reductions are not proportionate to the increase in excess.
Worker to Worker claims continue to be the focus of Construction Liability underwriters
Now more than ever, contractor personal injury claims are being brought on by recovery actions from WorkCover and state-based workers compensation insurers (given the long-tail nature and statute of limitations, which can be up to 7 years). As a result, Worker to Worker deductibles offered by insurers and/or cover is being offered at a minimum deductible level of $50,000 and we are seeing insurers requesting claims data for up to 10 years to analyse trends before writing new business.
We’re With You All The Way
It’s important to be aware of these changes and how they are impacting new and existing insurance policies. As a general rule, it’s best to engage with your broker early to limit bill shock and seek the most appropriate cover for your needs. We encourage you to contact your Honan insurance advisor to discuss your situation and address any questions or concerns.
Head of Client Service (QLD) – Corporate Insurance & Risk Solutions
Unlike alternative P&E warranty options on the market which typically require machinery dealers to offer indemnity and then seek recovery from the insurance product, the new Extended Mechanical Warranty places policy ownership in the hands of the insured party. Bypassing the need for manufacturer and/or supplier assessments, policy holders (machinery owners) can claim directly against their policy, rather than relying on dealerships to facilitate claims on their behalf.
The cover offered under the policy includes the replacement of parts and/or repair costs to the hydraulics and powertrain following sudden and unforeseen loss. The policy is also available for makes and models of the following types of equipment:
Material Handling Equipment
We’re with you all the way
For further information on the Heavy Machinery Warranty Policy, please contact Scott Cole at any time.
On 30 January 2020, the World Health Organisation declared the Coronavirus outbreak a Public Health Emergency of International Concern. We sympathise with everyone who has been impacted by the virus and Honan Insurance Group have implemented additional resources and contingency planning to ensure that we remain able to provide advice, insurance and support to our clients as the situation develops.
As the impact of COVID-19 on local and international economies continues to evolve, we highlight to all clients the need for management to consider financial, strategic and business risks to operations. In this article, we examine the key areas we have received the most queries about: Property and Business Interruption, Business Contingency and Workplace Risk.
Industrial Special Risks* (Property and Business Interruption) Insurance & COVID-19
(Potential Policy Response under ISR Mark IV Policy)
It is expected that many businesses will suffer disruption as a result of the spread of the Coronavirus (COVID-19). With the situation changing rapidly and restrictions on the movement and gathering of people (both at local level and internationally), there is no doubt many companies will suffer from loss of revenue and/or additional expense.
Generally, property policies (including office risks) cover physical loss, destruction or damage to insured property resulting from a covered peril (all risks). In the case of the Coronavirus, the ISR (Mark IV) policy exclusion 4(a) excludes physical loss destruction or damage occasioned by or happening through disease. Office-related risks also have very similar exclusions. The ISR policy can include a myriad of endorsements with some coverage writebacks for costs to clean-up a site (where required by order of a public authority), however, this would need to be reviewed on a case by case basis.
An ISR insurance policy extends to include under Section 2 coverage for business interruption. This cover traditionally applies only to interruption caused by an insured material damage event such as fire, storm, impact or accidental damage.
In addition, cover is extended to include closure of the business by public authority for several risks including human infectious or contagious diseases. This coverage was designed to cover events such as an outbreak of Legionnaires disease or measles which could affect one or two buildings and a small number of businesses. Some ISR policies can extend to provide coverage for outbreaks in a 20-50km radius from the insured location.
Specifically, in relation to the COVID-19 outbreak, the ISR policy contains a specific exclusion for loss resulting from interruption of or interference directly or indirectly arising from or in connection with Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.
Following the H5N1 virus (avian influenza) outbreak in 2006 and the H1N1 virus (swine influenza) outbreak in 2009, insurers adopted this exclusion as a market standard position in Australia.
The Australian Quarantine Act 1908 was replaced by the Biosecurity (Consequential Amendments and Transitional Provisions) Act in 2015. COVID-19 was added to the Act as a listed (quarantinable) human disease on 21 January 2020, under Biosecurity (Listed Human Diseases) Amendment Determination 2020 (Cth) F2020L00037.
Listed Human Diseases under the Act are thus now:
Human influenza with pandemic potential
Severe acute respiratory syndrome (SARS)
Middle East respiratory syndrome
Viral haemorrhagic fevers
Human Coronavirus with pandemic potential
As a result of the above, the business interruption section of your insurance will not provide cover for COVID-19 disruptions. As with any other threat it is important to consider what risk management measures you can introduce to mitigate the risk to your staff, customers and business.
Risk Management Tips: How to avoid infection
Here is a short list of ways to minimise the spread of Coronavirus
Practice good personal hygiene.
Avoid contact with anyone with or suspected of having Coronavirus.
Boost your immune system by eating well, exercising, having enough sleep, and keeping your stress levels under control.
Cancel or delay any travel until the crisis is over.
Recommended Actions for your organisation:
Implement a home quarantine regime for anyone that has travelled to an infected country or is likely to have been in contact with someone infected with Coronavirus.
Review and update if necessary human resource (‘HR’) policies on fitness for work including possible quarantining of employees and formalising the requirement for employees to remain off work if affected.
Consider or extending flexible working arrangements to reduce the likelihood of the spread of the virus in the workplace or the community.
Update travel rules and arrangements limiting non-essential business travel.
If not already in place, provide sanitized hand washing stations for use by staff and visitors.
Review arrangements for workplace hygiene and cleaning protocols including “cough and sneeze” etiquette.
Protect the mental wellbeing of employees concerned about the Coronavirus.
Ensure clear and honest communication to employees on their welfare.
Everyone should remain alert for updates and advice from the relevant authorities on additional steps to manage the spread of the disease. The health department in each state is providing excellent resources and advice and regular updates. Before travelling, check for and take the advice of any travel warnings on smartraveller.gov.au.
Business Continuity Management Planning
A pandemic is just one risk facing modern organisations. Having a fully documented and exercised business continuity management plan is important for every business. Honan has resources to assist you in developing a business continuity plan and please speak to your Client Manager for further information.
The Coronavirus may impact revenue for businesses through:
Production slowdown & disruption to workforce (sick or quarantined employees)
Disruption to Supply chains and supplier services
Decrease (or increase) in demand for stock
Large scale closures of consumer markets and public spaces due to quarantine
Delays in customers paying outstanding invoices within normal trading terms
Economic slowdown on global and local scale
Whilst there is coverage available under Corporate and Business Travel insurance policies in certain circumstances, there is limited cover available under most standard General Insurance policies for loss of trade and interruption to business operations.
As a general rule, it is not viable for most insurance markets and products to cover “global pandemics” as an insurable event. This is because the financial impacts of a pandemic are not quantifiable, meaning risk cannot be priced accurately or sustainably by insurers. If you do suffer a loss, please contact our team to discuss the specific circumstances and how your policy may respond.
Whilst insurance cover availability may be limited, businesses can prepare. We would strongly recommend formation of a working committee to evaluate the impact to business as conditions continue to evolve, with accountability to the board or executive team.
Considerations for a COVID-19 working group should include:
Review of policies, procedures and protocols in place to protect the safety and wellbeing of employees and prevent further risk of spread of COVID-19 within the workforce and community.
Assess venerability of IT Infrastructure (including stress-testing) for an organisation’s ‘Work from Home’ capabilities in the event of premises closure/staff quarantine
Consider the impact on supplier and customer contracts to meet delivery/service obligations from both parties (how Contractual Penalties & Force Majeure clauses may be applied)
Evaluation of possible supply chain disruptions and how these can be mitigated or bypassed through appropriate work arounds and contingency planning
Evaluation and stress testing of stock levels and planning for inventory shortage as supply from China recommences operations
Review ability to support alternative revenue streams that are not as severely impacted by COVID-19
Review communications with key customers and other stakeholders to maintain relationships and manage challenges in a sensible, commercial & collaborative manner
Review credit and debt facilities to ensure that cash is available in the short term to manage financial impacts and support increased business restart
Communicate with creditors if a reduction in revenue has the potential to impact on cash flow and financial obligations.
Workplace Risk: Workers’ Compensation and Coronavirus (COVID-19)
There has been much discussion around the exposure and potential liability under Workers’ Compensation should an employee or contractor contract Coronavirus.
As outlined by Safe Work Australia (2020), Workers’ Compensation arrangements differ across schemes, however there are common threshold requirements that would apply in the case of COVID-19:
that the worker is covered by the scheme, either as an employee or a deemed worker
that they have an injury, illness or disease of a kind covered by the scheme, and
that their injury, illness or disease arose out of, or in the course of, their employment.
Compared to work-related injuries, it is difficult to prove that a disease was contracted in, or caused by particular employment. In the case of a virus such as COVID-19, establishing the time and place of contraction may become increasingly hard. We have sought clarity from our legal partners and obtained publications from the governing state regulators. Their view is it will be challenging to prove workplace exposure to Coronavirus as questions will arise as to the exact time and place of contraction.
For coverage to exist, a determining authority would need to be satisfied that the employment significantly contributed to the employee contracting the virus. For viruses, it can be difficult to accurately determine the exact time and place of transmission. As a result, it may be difficult to determine that employment significantly contributed to the virus.
However, where an employee’s employment puts them at greater risk of contracting the virus the significant contribution test may be easier to meet. For example, if the employment involves:
travel to an area with a known viral outbreak
activities that include engagement or interaction with people who have contracted the virus
activities that contravene Department of Health recommendations.
Each workplace illness would need to be considered on its individual merits, having regard to the individual circumstances and evidence in relation to the claim. More information is available here: Comcare Australia.
Deeming an illness or disease as work related and unique to the workplace may require court intervention to distinguish medical opinion from legal facts. There is no liability determination available to declare an illness or disease compensable or non-compensable; each case is determined on its own merits and circumstances.
Although you may not be able to eliminate the potential risk of employees contracting Coronavirus while carrying out work, you must do what is reasonably practicable to minimise the risk of employees contracting Coronavirus.
Coverage while travelling overseas for work
Any liability or workplace contribution applies to both employees working overseas and those working within Australia. Each case will be determined on its own merits and circumstances.
Note: For international employees engaged locally, state or country specific legislative conditions will apply. Queries should be directed to Honan. Depending on the state of urgency, travel restrictions and periods of self-isolation may need to be considered and communicated to all employees and contractors.
It is important that employers refer to internal policies and procedures to ensure measures for employee safety are in place. Honan has resources to actively advise on Workplace Risk exposure, as well as Legal and Work Health and Safety partners who can assist with ongoing management of this changing environment.
All companies will need to keep up to date in what is evolving environment. Please see below some resources to do so:
McKinsey & Company have released a briefing paper (9th March 2020) which provides some insight into possible global economic impact as well as some common steps that can/need to be taken in preparation for businesses being affected and the formation of a working group: link here.
For any additional queries or concerns, please contact your Honan client manager.
The advice in this paper is general in nature. While the utmost care has been taken in the preparation of this preliminary advice or opinion, you use it at your own risk.
If you have difficulty reading and/or understanding the cover provided in the policy(ies) that you have please contact your Client Manager.
A senior insurance figure has warned of impending difficulties for businesses operating in the construction sector, saying cover will likely become harder and more costly to obtain.
Adam Richardson, construction industry lead at Honan Insurance, says the industry has enjoyed a relatively soft market for the past decade, with insurance companies competing for market share.
However, a spate of losses affecting the sector, combined with a slowdown in approvals and tighter lending conditions, seems to have significantly dampened insurer appetite.
“From our observations, this change in insurer appetite and overall approach shifted around the end of the financial year in 2018 and has continued into 2019,” said Richardson.
According to Richardson, carriers are moving away from the top-line growth strategies they’ve long pursued and are now looking to exclusively support profitable business instead.
“In the case of distressed accounts, where contractors have had multiple professional indemnity losses or notifications, we are finding the local market has become unsupportive,” he said.
Unsurprisingly, this means rate hikes are on the horizon for businesses in the construction sector.
“Bill shock will be a significant issue for many organisations when they receive their professional indemnity renewals this year,” said Richardson, who anticipates increases of between 15% and 25% – and that’s just for those with clean accounts and no unusual exposures.
“That figure will rise upwards of 250% or greater for those accounts that have had claims, or which present significant new or existing exposure to insurers,” said Richardson.
“There have been instances where premiums have doubled or tripled based on the expiring sum insured levels of liability,” he added.
As a result, Richardson is being proactive with clients to discuss imminent price increases – and said other brokers should consider it too.
“We believe that brokers should work with their clients to prepare a minimum of 12 weeks prior to renewal in order to develop a robust marketing strategy,” he told Insurance Business.
“Clients must commit time and resources to ‘sell their risk’ in order to differentiate themselves from others,” he continued. “The earlier the renewal process commences, the easier it is to manage your customers’ expectations and the expectations of other stakeholders.”
Construction Industry Lead, Richardson says, will become increasingly important as insurers demand more detailed information about exposures.
“Underwriters will not positively receive risks which are presented late or close to expiry date and it is vital that proposal forms are submitted well in advance to ensure sufficient time to negotiate the most favourable renewal outcomes,” he said.
Déjà vu? Once again, another Sydney apartment block has been evacuated due to observed structural cracking in the building’s underground car park. Mascot Towers, a 131-unit complex at No. 1 Bourke St Mascot was evacuated last Friday evening (14 June) with residents given short notice to vacate their apartments. On Tuesday, there was still no advice on when residents would be able to return to their homes permanently. This follows on from the dramatic Christmas Eve (2018) evacuation of Sydney Olympic Park’s Opal Tower.
The cause of the cracking in Mascot Towers is yet to be determined, and alleged possible causes may include neighbouring construction work or the original design and construction 10-years ago. Mascot Towers was constructed over 10-years ago, meaning that any building defects will not be covered by building warranty insurance (referred to as Home Builders Compensation in NSW), leaving the unit owners to pay for the repairs. If the neighbouring construction project is to blame, then a lengthy legal battle may occur regarding various other insurance covers.
Currently, NSW law states that future owners of a property are covered for the statutory warranty period–six years for major defects in the work and two years for other losses from the date of completion of work. With many building defects appearing after the six-year statutory warranty period, there is a need for major changes to be made to NSW laws to protect property owners buying off a plan or buying buildings younger than 10-years old that were poorly built.
The strata industry and Strata Community Association (SCA) will continue to advocate for change and encourage the government to further regulated the relaxed approach to building completion sign off and hold the construction industry to account for faulty work.
In February of last year, the NSW Government told the COAG meeting that it would introduce new legislation to improve consumer protection if they won the next election, these included:
– Builders needing to sign off that building was constructed in accord with certified plans
– Allowing Owners Corporations to litigate for negligence if building code was not carried out
This new legislation is still to be introduced, and many people in strata see this legislation as not being tough enough on the construction industry who are accountable for this issue. With research finding that 72-85%  of owner’s corporations identifying major defects in their buildings, it is important that strata managers and the SCA continue to do what they can to influence the federal and state governments into reforming legislation as soon as possible.
Since 1988 Honan Insurance Group has been a member of the National Insurance Brokers Association (NIBA), an organisation which represents the interests of the insurance broking sector in Australia.
NIBA members range from large international brokerages to small suburban brokerages and through representation, communication, information and education, NIBA ensures the insurance brokers’ interests are protected and their professional standing enhanced.
The insurance and risk business is highly regulated, and intermediaries are subject to a wide range of professional and legislative pressures. To thrive in such a demanding environment they must be able to keep pace with constant changes in the risk factors Australian businesses face.
NIBA supports its members through its lobbying, education, technical and information services and our members are recognised as having a high standard of professionalism and knowledge through ongoing educational support and technical development.
Younger small and medium enterprises (SMEs) have responded to the need of using new media technologies for business with almost 41% of SME owners under the age of 44 using social media as the primary tool for communicating with their customers, according to a new Westpac index.
The Westpac Survey was conducted with 522 Australian SME owners and decision makers who were whittled down to those who had an annual turnover of less than $5 million and under 20 employees.
The survey results were promising, with 35% of SME owners using social media to network with existing or potential customers. Further, 71% of SME owners used at least one networking channel for their business and 59% networked online.
Westpac has the following tips on how to use social media as a business tool:
1. Understand how social media can work for you and your customers
Decide if social media is right for your business by considering the time spent on maintaining the platforms, responding to posts, generating content and engaging with followers.
It is important to have a clear understanding of what you are trying to achieve by using social media, which platform is right for you and how it aligns your business plan and strategy.
2. Be clear on who your customers are and what you want them to do
Content is crucial to effective social media strategies – know what you are trying to say and say it clearly.
Tailor your messages so they are the appropriate length for your customers, and be clear on the call to action – it is important not to mix messages and ensure you provide links to the page where customers can purchase your products or communicate with your business.
3. Develop a social media policy for your business
Respond carefully and thoughtfully to customer posts on social media channels.
Have a process in place to ensure the responses to customers are on message and enhance their customer experience.