An interesting point to consider if you are looking for professional liability insurance (also known as “professional indemnity”) is that your business may be carrying a pollution liability exposure without you even knowing.

Example: you’re an accountant conducting a business valuation on a dry cleaning business that your client is considering buying. Cash flow is good – probably because it has a high traffic position and there’s plenty of goodwill. You advise your client that it is a profitable opportunity and they proceed with the purchase.

Well, as it happens dry cleaners often use a chemical called tetrachloroethylene a significantly toxic chemical. Because tetrachloroethylene is heavier than water, if it is spilled accidentally or leaks during the course of the dry cleaning operation it can result in major contamination to surrounding ground water – with potential clean up costs in the tens of millions. Of course, money alone may not solve the issue, as tetrachloroethylene itself is difficult to remove from the environment.

So. Your client receives a letter from the EPA advising that the property is contaminated. They now face an enormous clean up bill and ask you why this wasn’t picked up in the valuation…

You look at your insurance policy (if you can remember where you put it) and try to decipher any section with the word pollution in it. You realise that in the ‘exclusion’ section it specifically says that you will not be covered for claims caused by pollution or contamination. You then manage to get hold of your broker and he tells you that all insurance companies in Australia also exclude it. What would you do next?

In a day and age where weather patterns are increasingly erratic it’s difficult to second guess nature. In our previous article on climate risks for example, we mentioned the large losses suffered following the earthquake in Kalgoorlie. In this instance many businesses were closed due to the release of asbestos in some of the collapsed buildings – ok so most likely a public liability rather than professional risk but you get the point – it pays to be prepared.

Are you prepared?

If you are looking for a competitive insurance quote for your business this month good luck! Our sources within key insurance broking agencies have confirmed that insurance premiums for businesses (i.e. commercial insurance) has increased during June – in some cases up to 30% and on average about 10%.

With insurers such as CGU and NRMA citing greater losses from the poor weather events earlier this year its no surprise that property insurance has been pointed out by insurers as requiring premium increases during June – typically the insurance market’s busiest period during the year.

However, some brokers are also reporting rate increases for public liability insurance in the order of 7-9%. Of course, the rate increases are mainly applicable to renewing customers with competition amongst insurers for new business clients remaining high.

The on-going high level of competition is likely to be due to a large number of insurance companies in the Australian market, which has also helped to dampen any attempts by the larger insurers to pass through larger premium increases to their customers.

Of course, we wouldn’t be surprised if you are able to find a more competitive premium as a new business customer of another insurance company rather than renewing with your existing one – presumably however, your broker has already done this work for you. Let’s hope so!

Fat chance!

The NSW government has announced that it plans to scrap an ongoing tax of about $69 million dollars a year, payable by all insurers on the total amount of all premiums received during the year.

The tax originally came about following the collapse of HIH, which at the time (2001) was the biggest insurer in Australia. The tax goes towards paying outstanding liabilities for former HIH policyholders.

Why did HIH collapse? Basically, because it did not keep enough reserves to pay claims and also perhaps because they had quite an astonishing art collection! Hmm..

Because insurers have been will no longer have to pay a tax that was not directly charged to customers, their expenses will be lower as a result – the largest insurers being better off as taxes were charged according to market share.

What does this mean for Australian businesses? Theoretically, because the operating costs will reduce for insurers you would hope that this will mean some form of premium saving – but that’s a lot of hope!

What about you, were you affected by the collapse of HIH?