Avoiding renovation nightmares: What builders & property owners need to know about uninsured losses

Construction

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.

 

Hugo Dessens

Head of Client Services (NSW) – Corporate Insurance & Risk Solutions

hugo.dessens@honan.com.au

 

 

 

Find out about Catastrophe Cover for strata complexes.

Honing In on Our Partners: The Australian Private Hospitals Association

Medical & Health
The Australian Private Hospitals Association (APHA) is the peak national body for private hospitals in Australia. As APHA’s Insurance and Risk partner, we spoke to CEO, Michael Roff about the network’s evolution, and the challenges they anticipate for the term ahead.

 

THE CRUX OF APHA?

Ensuring the ongoing sustainability and continued development of the private hospital sector in Australia.

 

REFLECTING ON THE LAST 5 YEARS, HIT US WITH APHA’S TOP 5 MILESTONES.

  • Securing a $1.3 billion private hospital COVID viability guarantee from the Commonwealth Government.
  • Addendum to the 2025-2025 National Health reform Agreement to limit public hospitals harvesting privately insured patients at the expense of public patients.
  • Participation in Private Health Ministerial Advisory Committee to deliver key private health insurance reforms including instant upgrade for mental health, improved transparency in private health insurance products, youth discounts and Second Tier default benefit.
  • Development of the Private Psychiatric Hospitals Data Reporting and Analysis Service with funding from the Commonwealth Government.
  • Development of the APHA Benchmarking Service of key private hospitals outcome measures.

 

AT HONAN, MAINTAINING QUALITY CONNECTIONS WITH OUR PEOPLE, PARTNERS & THE COMMUNITY SITS AT THE HEART OF WHAT WE DO. WHAT RELATIONSHIPS & CONNECTIONS HAVE BEEN CRITICAL TO THE SUCCESS OF APHA IN RECENT YEARS?

APHA benefits from its good relationships with both sides of politics (i.e., major parties). We are also in regular contact with the key players in Government departments, other industry stakeholders including doctors, health fund suppliers among others, and of course our own members to ensure we are representing their interests.

 

THERE HAVE BEEN SIGNIFICANT INCREASES TO THE COST OF PRIVATE HEALTH INSURANCE OF LATE, WHAT IMPACT DO YOU SEE THAT HAVING ON THE PRIVATE HOSPITAL NETWORK?

Actually, the last two years have seen the lowest premium increases for around 20 years.  However, with the costs of providing healthcare increasing, this means health funds have a reduced capacity to compensate hospitals for their cost increases. This is further exacerbated by COVID-19 requirements which have further increased costs and reduced levels of activity.

 

WHAT ARE THE TOP 3 CHALLENGES THE PRIVATE HOSPITAL NETWORK IS FACING, POST-PANDEMIC?

  • “Second Wave” health insurance reforms, including prostheses and out-of-hospital care.
  • Health insurance membership and implications for costs and revenue.
  • Vertical integration (health insurance entering the health care provider market).

 

INNOVATIVE CULTURES AND A COMMITMENT TO ONGOING EVOLUTION ARE COMMON HALLMARKS OF SOME OF THE MOST SUCCESSFUL ORGANISATIONS TODAY. WHERE DO YOU SEE PRIVATE HOSPITALS IN THE NEXT 10 YEARS? 

The private hospital sector is a strong and vibrant part of Australia’s health system, providing high-quality services to the majority of the population. Australia’s private hospitals take pressure off an already over-burdened public health system, as evidenced by the work done to support the public sector during COVID-19, particularly during Victoria’s second wave. This role will continue to grow and develop, in part due to the improved relationships and understanding built during the Pandemic.

 

 

 

Discover more in our Partner Q&A Series: Bowens

When Broker is Best: why medical indemnity insurance warrants informed advice

Insurance Updates

For registered medical professionals within Australia, medical indemnity insurance is mandatory. And so it should be – a doctor’s professional reputation is integral to their ability to practice. Unfortunately, however, not all medical indemnity policies are created equal. A sound policy takes careful consideration and close consultation to develop and must be ready to respond to the unique risk profile of its holder.

Right now, many policies held by Australian practitioners have been placed without adequate consideration or advice, which means in a time of need, the policyholder is often left uncovered and exposed to significant risk; financial and reputational. 

Many doctors deal directly with an MDO (Medical Defence Organisation) when securing their indemnity insurance, and it is common for them to retain the same provider throughout their career. Such loyalty is not simply attributed to policy satisfaction, but a perceived difficulty associated with changing providers. As we outline below, however, medical professionals should tread carefully when it comes to indemnity insurance, and quality advice plays a major role in this. 

 

WHY IS MEDICAL INDEMNITY INSURANCE ADVICE IMPORTANT? 

Each MDO has a unique approach to both appraising the risk of its customers (doctors) and servicing them during a claim. From our experience at Honan, it is not easy for doctors to access clear and transparent information relating to all policy options available to them. Partnering with a broker helps to ensure all key information has been disclosed, and the policy offers robust, truly purpose-fit coverage for their role. Sadly, when challenged with this request, direct providers will typically refer their clients to the terms and conditions of the policy.

At Honan, we partner with medical indemnity insurers to provide outstanding protection and service for specialists. They are all backed by Government schemes including the Department of Health’s Run-Off Cover Scheme, High-Cost Claims Scheme, and offer ‘first time in’ private practice discounts, which remain with the doctor in the instance of transferring policies or moving providers.

 

PREMIUMS FOR MEDICAL PROFESSIONALS – CHANGES AFOOT 

There are several upcoming industry changes set to impact premiums for doctors. As the Federal Government looks to reduce its support of certain schemes, our Honan team is here to provide clients with clear information, options, and advice.

Our clients in the Australian medical space have benefited greatly from our services which include:

  • Complimentary market analysis – often identifying areas for improvement
  • Advice on individual circumstances as a specialist
  • No additional charges on insurance premiums
  • Access to Honan Private Client team for personal insurance
  • Clarity around retroactive cover and ROCS
  • Yearly policy reviews on renewal
  • Obtaining group discounts on insurance
  • Free access to the EIDO Healthcare system which provides capabilities like information to be sent directly to patients pre-procedure, as well as digital consent functions. You can read more about the capabilities and benefits of this technology here.

 

WITH YOU ALL THE WAY

To find out more about Honan can support you with your individual or practice-wide medical insurance needs, please reach out at any time.

 

Trent Woodward

Head of Health & Medical

trent.woodward@honan.com.au

 

 

Discover the latest health and medical digital innovations delivering big wins 

Run-Off Insurance 101: What Companies & Directors Need to Know

Finance
WHAT IS RUN-OFF INSURANCE?

Run-Off insurance, also known as the ‘Discovery Period’ or ‘Extended Reporting Period’ is an insurance policy provision that provides tail coverage for various financial lines products written on a ‘claims made and/or notified basis’. Run-Off insurance provides protection from claims of negligence or loss resulting from a breach of professional services or wrongful acts by Management prior to the date of transaction (being an acquisition, merger, or cessation of operations).

Policies typically written on a ‘claims-made and/or notified basis’ include:

  • Directors and Officers Liability
  • Management Liability
  • Professional Indemnity
  • IT Liability
  • Cyber Liability
  • Statutory Fines and Penalties
  • Employment Practices Liability

For a claim to be triggered under these products, an active policy must be in force at the time a claim and/or notification is made. If a policy has lapsed and is not active at the time a claim is brought against a director and/or the company, cover will not respond, regardless of when the wrongful act occurred.

An acquiring company will commonly require the company being acquired to purchase Run-Off insurance to protect itself from past liabilities. Run-Off insurance can be purchased on an annual basis or multiple periods for an upfront payment.

 

WHY IS RUN-OFF INSURANCE IMPORTANT?

If a company has been acquired, merged, or ceased operations, it is vital that Run-Off insurance is purchased for policies issued on a ‘claims made and/or notified basis’ to ensure protection is in place in the event a claim arises. We recommend our clients purchase Run-Off insurance for a period of 7 years to coincide with the statute of limitations. Under the statute of limitations, companies and directors can be held liable for decisions made for up to 7 years.

 

WHAT ARE THE CURRENT ECONOMIC CHALLENGES?

Insolvency is among the top concerns for Directors & Officers Liability and Management Liability insurers, as insolvency administrators typically look to regain losses from directors. Over the past 12 months, insurers have taken longer to review submissions and are being more rigorous and prudent in requesting detailed information about the effects of COVID-19, along with audited financials.    

Run-Off insurance is made available at an insurer’s discretion. It is therefore imperative that you review the ‘Discovery Period’ clause in your policy wording to ensure you are aware of the insurer’s terms and conditions. If insurers are uncomfortable with a company’s financials, insolvency exclusions will likely apply, often going hand in hand with a Discovery Period Deletion clause, deleting the Discovery Period entirely. At Honan, we recommend contacting your insurance advisor to confirm your ‘Discovery Period’ clause.

 

HOW MUCH DOES RUN-OFF INSURANCE COST? 

Premiums provided are at each insurer’s discretion, however, typical coverage costs are as follows:

1 Year = 100% of expiring premium

3 Years = 150% – 200%

5 years = 200% – 350%

7 years = 350%+

 

 

WITH YOU ALL THE WAY

If you have any questions or concerns about Run-Off insurance, please reach out to your Honan adviser.  

 

Monique Reibelt

Senior Client Executive – Professional & Executive Risks

Email: Monique.reibelt@honan.com.au

 

 

Learn how the global insurance market impacts local pricing.

 

 

Australian CEOs’ cybersecurity concerns prompt major changes to risk management strategies

Finance

PWC’s 24th CEO Survey released earlier this year, revealed the escalating prevalence and severity of cyber-attacks, along with changes in governance expectations, director liabilities, and regulatory reform is seeing business leaders place significantly more emphasis on their organisations’ cybersecurity and risk management strategies, with around 80% of CEOs surveyed strengthening their cyber security and privacy infrastructure in response.  

 

Why are business leaders concerned?

Critical infrastructure, the subject of Government reform at the end of 2020 – is particularly important for ASX listed companies and their directors. It is not just cyber policies being affected, with some (Directors & Officers) D&O insurance policies containing new ‘Cyber Endorsements’, which can include affirmative language responding to wrongful acts or in some cases, exclusions or remain silent altogether. In turn, this is placing more pressure on boards to build and implement robust governance strategies to protect their shareholders and ultimately, their bottom line / share price in the event of an attack.

Directors can be held responsible for not acting to progress a company’s cybersecurity framework and may be punished if they are found to have failed to ensure a company has an adequate cybersecurity risk management plan in force, not responded in a reasonable time frame to a known data breach, or failed to respond altogether.

 

Risk mitigation through Cyber and Directors & Officers Insurance (D&O)

A typical D&O policy will provide coverage for individual directors (often including the board), for wrongful acts, errors and omissions arising from their professional conduct acting in their capacity as a director – which could include those matters relating to a cyber incident. ‘Dishonesty/Misconduct’ exclusions may prevent cover for claims arising from misconduct, such as wilful breach of statute, dishonest conduct, or fraud. In rare circumstances, a wilful blindness to cyber-related legislation could trigger exclusion(s).

Whilst the area of potential D&O exposures to cyber-related claims continues to evolve, it is critical to ensure your organisation has sufficient D&O limits of liability. In addition, our preference is to ensure insureds incorporate affirmative language where possible, to avoid ambiguity should a D&O claim arise from a cyber incident occurring. Areas for directors to consider within their insurance program include:

  • Investigation of cyber circumstances – costs incurred investigating any circumstance resulting from a cyber event where litigation is anticipated.
  • Investigation costs – regulatory investigations arising out of a cyber incident, and at full policy limits.
  • Insured individuals (policy language) – all persons (including, but not limited to Managers and Chief Technology Officers) who are involved in significant cyber-related decisions and implementation on behalf of the company.
  • Shareholder litigation – shareholder actions brought against the organisation arising from a cyber-related incident and subsequent disclosure (e.g., following a stock drop).
  • Policy holders must also ensure there is no broad cyber exclusion sitting across the policy, which could nullify cover.

 

Fiduciary Duties and Business Continuity

The Australian Information Commissioner (OAIC) recommends that organisations implement a data breach response plan (BRP / Business Continuity Plan). In the event of a security breach, such as a cyber-attacks or theft of data, if the board can demonstrate that not only were they aware of a cybersecurity risk, but they also activated a framework to mitigate that risk, it is less likely to risk breaching their fiduciary duties under both the Privacy and Corporations Act. A good approach is to address the following five areas of cybersecurity management with experienced IT professionals:

  • Identifying and developing an understanding of the overall cyber risk landscape which can include data management, operational environment, and an effective risk management strategy.
  • Protecting and deploying safeguards for threat actor entry control.
  • Detecting and allowing timely discovery of breaches and anomalies.
  • Responding and implementing plans to effectively manage cyber incidents and subsequent damage control.
  • Recovery -enabling the organisation to resume operations as soon as possible.

 

Embedding cyber risk management practices in the workplace

While cybersecurity is recognised as an essential part of a business’ risk management strategy, PWC’s report highlights that organisations have work to do in training their staff to identify and manage cyber risks. Find out more about protecting your systems from cybercrime from Honan’s Head of Information Technology and member of the Zoom Customer Advisory Board, Stuart Madden.

 

With you all the way

To learn how D&O and cyber security policies can be tailored to meet your business’ specific needs, please feel free to reach out at any time.

 

Ben Robinson

Placement Manager – Professional & Executive Risks

benjamin.robinson@honan.com.au

 

 

Read about the latest Financial Institutions Insurance Update.

Insurance Update: Financial Institutions

Financial

The Financial Institutions insurance market continues to harden, with reduced capacity to underwrite risk as we progress further into the 2021 calendar year. Insurers are pressing for increased premium and/or retention levels on a portfolio basis (rather than a risk-by-risk basis) to grow the premium pool. 

Global volatility presents a major concern for insurers, given the anticipated resurgence in the markets and has been the key driver for increased premium rate momentum. With the Australian market floating on an unprecedented level of monetary and fiscal support, investors sitting on large cash reserves, and rapid accelerations in equity gains; underwriters are concerned about sudden devaluations to the market and consequent investor legal suits.  In addition, the lingering effects of the Hayne Royal Commission remain an integral rating factor, as well as any potential long tail claims arising from COVID.

Despite the above however, we are starting to see bright spots in terms of risk appetite navigation.  Following multiple years of the hardening phase, and notwithstanding the unpredictable market cycles, insurers have carved out much better clarity, visibility, and consistency with respect to their appetite across the different FI sectors.

 

KEY TAKEAWAYS FROM FY21: Q3

In Q3, Financial Institution clients who were hardest hit typically exhibited some of the characteristics below:

INCREASE IN FUNDS UNDER MANAGEMENT (FUM) AND REDEMPTION RUNS

Insureds with substantial FUM increases experienced higher prices, as FUM typically indicates the overall magnitude of potential losses.  Conversely, large redemption runs were heavily penalised, given the harbinger for potential investor claims.

NATURE OF FUND 

The type of fund was also an influential factor.  Hedge funds with high gearing ratios and an aggressive alpha focus were impacted, compared to those with more benign strategies. Underlying alternative asset classes were also a key premium driver, with funds exposed to private credit, quant strategies and commodities most impacted, especially those to oil futures which briefly entered unprecedented negative territory.  Hedge funds with a history of shareholder activism were also impacted (this can be a major source of claims), in addition to those Hedge funds that were targets themselves – similar to the GameStop short squeeze scenario.

Feeder fund and other similar “fund of fund” struc­­tures were also affected, due to their higher exposure to international markets, particularly when exposed to the more litigious US investor base.  

Passive index funds which delivered solid beta returns with low management expense ratios were least affected, as well as mutual funds with low-risk strategies.  Funds with considerable retail investor bases were impacted, due to the more litigious nature of this class, compared to the sophisticated wholesale/institutional sector.

VENTURE CAPITAL/PRIVATE EQUITY

There were pricing and coverage implications in the venture capital/private equity funds space, depending on the underlying investee company portfolio.  Investee companies with enduring profitability models, recurring and stable revenue streams and strong Series Round interest were looked upon favourably by underwriters.

PRIVATE DEBT & DISTRESSED ASSETS

As banks’ lending criteria have been subject to tighter controls, we have seen an influx of managers allocating alternative capital to private debt and distressed assets.  While not impossible to place these risks with insurers, insureds exposed to one undiversified single underlying asset (especially property development), found it difficult to source a solution.

LISTED INVESTMENT COMPANIES (LICS)

LICS with high discounts to Net Tangible Assets had underwriters concerned, especially where the risk of further drops was high. Valuation risk and Directors’ and Officers’ SIDE C continuous disclosure are key concerns in this space.

DISCLOSURE DOCUMENTATION

Insureds making aggressive return forecasts or assurances of minimal investment risk in PDS documents have been highly scrutinised. This had been fuelled by the Federal Court finding that promoter Mayfair 101 engaged in false advertising by targeting investors who used Google search engine terms such as “best term deposit”.

INITIAL PUBLIC OFFERING INSURANCE

Driven by their ability to quickly scale and hence attract higher valuation multiples, we have seen a wave of IT and Cloud focused SaaS companies listing.  Higher multiples can leave companies vulnerable to large devaluations, which can be concerning to insurers.   As such, underwriters have been extremely diligent when deploying capital in the IPO insurance area.

 

KEY CONSIDERATIONS FOR FY 21: Q4

Underwriter appetite in the FI insurance space is highly dependent on the general economic climate.

As long-term bond yields have increased, institutions have moved capital from equities to lower risk fixed interest instruments, with negative consequences for share valuations.  While this is a sign of market recovery, the remaining instability is concerning to insurers. Going forward, insurers will be highly focused on the underlying asset class and risk strategy of each insured, individual fund manager performance, and exposure to retail (compared to wholesale) investors.

Ultimately, the financial markets will need to stabilise before premium increases level off. 

 

WHAT INDUSTRY TRENDS SHOULD CLIENTS MONITOR OVER THE COMING QUARTER? 

FINTECHS

The financial institutions market has been awash with new asset management-focused FinTechs, introducing considerable capital into this space. Many of these FinTechs are challenging the standard rules of investing, trading, clearing, settlement and custody, funds as a service; and insurers have been slow to onboard these risks.

DIGITAL BANKS

The insurance market is also seeing a higher volume of digital banks and more insurer scrutiny following the recent collapse of one of the first mover neo banks.  This has raised questions among insurers, with many adopting a “wait and see” attitude before deploying capacity.  There are positive signs for the sector however, with APRA now insisting neo banks have an income-generating product e.g., lending product before taking on deposits.

CRYPTOCURRENCIES

We are seeing more institutions recognise decentralised finance (DEFI) and cryptocurrency as a legitimate asset class.  Many allocators are now acknowledging Bitcoin as a solid store of value, and a “digital gold”. Alternate currencies such as Ethereum are gathering momentum, given their potential for smart contracts in DEFI infrastructure. Major asset managers such as Ark Invest and Van Eck have been pioneers in this space, with others now following suit.   Furthermore, as a discrete asset class, crypto is not regulated, however on the basis cryptocurrency is classified as a “financial product” under the Corporations Law, it is subject to ASIC regulation. This means insurers may become more open to the class.  A number of carriers are now receptive to providing coverage, depending on the weighting of crypto assets to total FUM.

ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG)

Funds are increasingly embracing the ESG (Environmental, Social, Governance) theme, promoting investments in the electric and renewables space.  Younger investors have been known to focus on this area and arguably, underwriters perceived this as lower risk as it is driven more by ethical investing concepts rather than pure investor return.

 

With You All The Way

Feel free to reach out to discuss your risk exposures.

 

Henry Clark

Head of Professional & Executive Risks

henry.clark@honan.com.au

 

Dennis Moens

Client Manager – Professional & Executive Risks

dennis.moens@honan.com.au

 

 

Learn about changes ahead for the Buy Now Pay Later sector and implications for Australian FinTechs.

 

Digital Innovations Bring Big Wins for Health & Medical

Medical & Health

If there is one good thing to have come out of the pandemic, it is how quickly the medical industry has adopted new technologies to improve the patient experience. From Telehealth to digital prescriptions, these tech solutions are all designed to enhance care and convenience. Recent digital innovations are also improving access to quality health care. In remote and regional Australia, where wait times are excessive in comparison to major cities, tech now allows the Royal Flying Doctor Service to track each flight in real time. The ability to map weather conditions and flight schedules now means hospitals are far better placed to commence patient care as soon as the individual arrives.  

For providers, leveraging the potential of digital technology to elevate the patient experience not only helps attract and retain more patients, but it has the potential to reduce the likelihood of wrangling medical malpractice complaints.

 

INFORM DIGITAL: OPTIMISING PROCEDURE PREP FOR PATIENTS & PHYSICIANS 

I have recently discovered an amazing tech solution which will further enhance the patient experience by providing detailed, easy to understand information for pre-operative care. The Inform Digital solution gives patients a simple step-by-step explanation of the procedure they are about to receive – all on their mobile phone. The system also has digital consent functionality, allowing the patient to provide informed and considered consent.

This system represents a significant opportunity for medical specialists and medical facilities within Australia. Once the consent process is finished, a report is sent to the physician or facility which highlights the amount of time spent completing each section, allowing the physician to follow up with the patient prior to the procedure. This tech solution is a major step forward in the delivery of information to patients and has the potential to reduce medical malpractice claims, language barriers, and ensures patients have access to relevant information. I can see this tool becoming a real point of difference for specialists and hospitals and impacting the way individuals and facilities are rated from an insurance risk position, with positive implications for their premiums. 

 

WHAT’S HAPPENING IN AI?

Developments in the medical tech space are seeing the introduction of Artificial Intelligence (AI) in IVF and radiology, enabling greater efficiencies and precision in diagnosis. We are seeing more general practices provide holistic, market-leading patient experiences. For example, mobile applications are increasingly being used to help patients manage their treatment plans in real time.

 

THE FUTURE IS NOW

These advancements in medical treatment do not just exist in the future, they are happening now. The opportunities and efficiencies offered by these tech solutions present a major point of difference to the facilities and practitioners who embrace them. Improved patient engagement will lead to better treatment outcomes which, in time, can benefit the whole community.

 

 

WITH YOU ALL THE WAY

 

Trent Woodward

Head of Health & Medical 

trent.woodward@honan.com.au

 

Learn more about postponed treatment plans and delays in diagnostics. 

Changes ahead for the Buy Now Pay Later sector: Key implications for Australian FinTechs

Finance

Cries for regulation in the currently self-regulated Buy Now Pay Later (BNPL) sector are nothing new. Financial services providers and consumer rights groups have long expressed concern that these services enable financial overcommitment from vulnerable Australians. But are we reaching a point where the size and scale of these businesses, the emergence of several new market entrants, and the disruption to traditional credit markets is forcing the Government’s and regulators’ hands?  This article looks at the current situation for BNPL FinTechs in Australia, how insurers currently view their risk exposures, and how this may change if regulations are introduced.

 

THE CURRENT STATE OF PLAY

In 2018, digital laybuy platform Afterpay and the BNPL sector avoided regulation when ASIC reported it was not looking to bring them under the National Credit Act. In late 2020, a Senate Committee on Financial Technology and Regulatory Technology backed the BNPL sector’s code of practice, saying self-regulation helped to protect innovation. This code is currently being finalised by The Australian Finance Industry Association (AFIA) in collaboration with its BNPL members. It aims to have the BNPL industry Code of Practice operating by 1 March 2021.

Recently, however, a report provided to the UK’s financial regulator, the FCA, following a review of the unsecured credit market, has made the strongest case yet for implementing regulation within the BNPL sector, at least in the UK.

 

HOW WILL THIS IMPACT THE AUSTRALIAN MARKET?

The BNPL sector is never far from the sights of ASIC, which released an industry update in November 2020. ASIC currently holds Product Intervention Powers (PIP) over BNPL products which provides a regulatory tool to address any significant harm to consumers. Come October 2021, the Design and Distribution Obligations (DDO) legislation will also apply to most ASIC regulated products, which will include BNPL products.

Whether these regulatory controls, complemented by industry self-regulation, will provide consumers sufficient protection without stifling innovation remains to be seen. What is certain, however, is this topic remaining hot for a while yet. According to IBISWorld, the market is predicted to maintain strong growth, with Australian BNPL revenue forecast to grow from AUD 680M (USD 488M) in FY20 to AUD 1.1BN by FY25, with users set to double to 4M within three years.

 

INSURING BNPL FINTECHS IN AUSTRALIA

FinTechs are a blend of technology and financial businesses, exposing them to risks common in both sectors, where insurers’ appetites are commonly limited.

Examples of such risks include:

  • Technology risk – tech failures leading to 1st and 3rd party financial loss
  • Financial and credit risk
  • Financial crime, fraud, and identity risk
  • Cybersecurity and Data Privacy – 1st and 3rd party losses
  • Directors & Officers Liability
  • Public & Products Liability
  • Regulatory Investigations and Statutory Liability
  • Money Laundering risk

Although some do, BNPL FinTechs are not required to hold an Australian Credit Licence (ACL). Thus, in the eyes of insurers, they do not have the same responsibilities and obligations as ACL holders under the National Consumer and Credit Protection Act. This lack of regulation makes insurers nervous, and securing adequate insurance is therefore challenging. It will be interesting to see whether insurers’ risk appetites change if regulation is introduced into the BNPL sector – as recommended in the UK.

 

We’re with you all the way

With significant experience in the financial, technology and FinTech sectors, Honan welcomes the opportunity to assist all businesses operating in this space. Feel free to reach out at any time to discuss your insurance needs. 

 

Dominic Brettell

Head of Client Service – Corporate Insurance & Risk Solutions

dominic.brettell@honan.com.au

 

 

Discover the 4 Risk Protection Essentials for Tech Start-Ups.

Critical Cover for Cyber Crime: A Healthcare Imperative for 2021

Medical & Health

From an insurance standpoint, I’ve not witnessed a more challenging year than 2020. The bushfires of 2019-20 shook us to our core, and then COVID-19 hit. The resulting uncertainty has made it extremely challenging for businesses to regain solid footing. Concerns about revenue streams, staff wellbeing, and future forecasts swiftly became, and continue to be, boardroom imperatives. As health providers begin 2021, now is the time to pause and check critical insurance blind spots*, particularly cyber.

 

Cyber Crime: Healthcare’s Blind Spot

While most businesses traditionally focus on the core structures of their insurance programs such as property, professional risks, and equipment, 2020 saw more complex risks arise as a result of blind spots. Often seemingly minor, ‘blind spot risks’ are not always obvious, but certainly becoming more frequent and damaging, particularly to balance sheets. One of the most common blind spots I witness in healthcare businesses, is cyber crime, estimated to cost Australians $300 million each year.

2020 also saw the first death recorded as a result of cyber crime; a shocking precedent, which may signal a trend of worsening attacks on the medical industry, especially hospitals. Last November, the ACSC (Australian Cyber Security Centre) issued a warning to Australian healthcare providers about the rise in similar incidents, and a recent report on ransomware in Australia identified health as the most targeted sector, ahead of Government, education, transport and retail (shown below).

 

Figure 1: Top sectors impacted by ransomware as reported to the ACSC FY 2019-20

Source: Australian Cyber Security Centre, 2020.

 

Cyber Crime: What’s Your Response Plan? 

While I see a vast array of medical facilities in my role, my priority question for each of them remains the same “Do you have a Cyber Response Plan?” – a query typically met with “No” or “I think we have a policy”. Alarmingly, operating without an official Cyber Response Plan is equivalent to leaving the doors wide open when you’re not home. Cyber criminals do not discriminate based on victim circumstances, and to be blunt, they do not care. Knowing full well it may endanger lives, hackers will go as far as locking a hospital’s operating system, and demand a financial ransom to unlock it.

 

Cyber Protection: Where to Start?

Having a Cyber Insurance Policy is a great starting point for healthcare providers, but knowing how that Policy will respond, and what it will respond to is critical.

While many insurance brokers and underwriters are quick to mention Cyber Insurance, I believe there’s never been a more critical time to elevate Cyber Policy conversations. For healthcare providers, cyber cover should be considered a business-critical inclusion in their broader insurance portfolio, as early in discussions with brokers as possible.

The onset of 2021 marks an opportune time to revisit all blind spots in your business insurance portfolio. A robust policy portfolio will not only help protect your business, your people, balance-sheet and reputation, but your patients too.

Please contact me for further support at any time, or contact your preferred medical cyber insurance specialist to establish a clearer understanding of your risks.

 

*Keep an eye out for insights on other insurance blind spots in our future publications.

 

 

We’re with you all the way

 

Trent Woodward

Head of Health & Medical

trent.woodward@honan.com.au

 

Discover more about how cyber insurance works in this case study on Australia’s education sector.

You can read more about the importance of cyber insurance here.

4 Risk Protection Essentials for Tech Start-Ups

Technology

In October 2020, Apple announced its line-up of products that will support 5G, heralding a new era of technological advancement. While your tech start-up might not have the muscle of Apple just yet, your product or service could be solving equally important problems not yet identified in the market. And why not? Wi-Fi was famously invented here in Australia!

There are inherent risks when starting any new business, but from a liability standpoint, various insurances can greatly assist in mitigating risk. For Australian tech start-ups in particular, the following 4 insurance essentials are critical ones to keep in mind:

 

1. Secure a Comprehensive Information Technology (IT) Liability Policy

Almost every business is required to have Public Liability insurance, but tech start-ups also need to consider cover from an IT standpoint. From crime and defamation, to unintentional infringement of intellectual property, ensuring your IT Liability policy is comprehensive will help in mitigating risk. An IT Liability policy helps protect businesses against claims relating to failure of their products, advice or services. In many cases, a Professional Indemnity policy will not respond to losses related to the supply of goods, while Combined Liability policy can exclude pure financial loss, where personal injury or property damage has not taken place. To reduce uncertainty and maintain comprehensive coverage, an IT Liability policy is tailored to cover Professional Indemnity and Combined Liability under one umbrella. When placing an IT Liability policy, be sure to take note of any extensions and exclusions – these may be relevant in the event of lodging a claim.

 

2. Prioritise Cyber Insurance

It is estimated that cybercrime costs Australian businesses $29 Billion each year. Together with the rise of remote working practices and the IT vulnerabilities this has revealed, we expect cyber security to remain business critical for years to come. There are many Tips for Remote Working, Cyber Security and Avoiding Email Scams, but even the most tech savvy individuals can fall victim to cybercrime. A data breach can prove costly not only for your clients, but for the reputation, operations and ongoing viability of your tech start-up. In the event of a data breach, a robust Cyber Insurance policy can bear the cost incurred to reduce your future risks, resume business and, when needed, pay retribution for your clients’ losses. Learn more about cyber insurance and how it works in this case study on Australia’s education sector.

 

3. Review Limits & Sub-Limits of Liability

With limits of liability varying from $500,000 for cyber coverage to $10M for IT, having the correct coverage limits in place is crucial to avoiding being under or over insured during the policy period. Recommended levels of coverage are often advised based on any contractual liabilities between you and your clients. The size and annual turnover of your business can also help in determining the most comprehensive, and competitive policy for your start-up.

*Be mindful of sub-limits that form part of these policies, as the extensions that form part of the policy may not cover the full indemnity. For example, while an IT Liability policy may cover up to $1M for any one claim and $2M in the aggregate during the policy period, there may be a $250,000 sub-limit for product recall. Any financial costs above the sub-limit could see your start-up as financially responsible.

 

4. Enlist the Advice & Support of a Dedicated Broker

There are many variables that inform a robust insurance policy, and it will take time to tailor these to your start-up’s particular needs. A quality insurance broker does more than place your insurance policies, they identify risks and manage your entire portfolio of risk solutions.

The tips outlined above cover the basics of risk-protection for tech start-ups, but a dedicated, quality broker will support you in building a highly customised, blue-chip protection portfolio for your business. In turn, this frees you up to focus on what you do best – building your business!

 

We’re with you all the way

To find out how Honan can help support and protect your start-up, please reach out at any time. We’d love to hear from you!

 

Jason Holmes

Client Executive – Global

jason.holmes@honan.com.au

 

 

Discover more about how cyber insurance works in this case study on Australia’s education sector.

Suggested Searches

  • Melbourne Office
  • Financial Service
  • Quote
  • Insurance Services
  • Trade Credit Insurance
  • Strata
  • Claims
  • Real Estate

Contact Us

Contact Information

  • Suite 8.01, Level 8, The Gardens North Tower, Mid Valley City (Lingkaran Syed Putra) 59200 Kuala Lumpur
Honan