Cobine Carmelson » Insurance example

Accountants insurance is changing

Jason Cobine, Insurance Expert — Tue, 31 Aug 2010 05:00:43 +0000

Accountants indemnity changes 1st September

I thought you might be interested to hear about the new rules for accountant’s professional indemnity. Here I explain why it’s important to make an early report of claim circumstances, where problems with timing could occur plus a clear definition of what should be reported.

Welcome back. Or if you’re new here and find it useful, get the latest posts, special offers and top tips by signing up to RSS feeds at the top right hand corner of this page.

Why should I report a minor concern?

Some policyholders believe that premiums go up if they report scenarios that are not really claims. If they don’t report a “circumstance” it proves to be a false economy. When the rules change it’s even easier to make a costly late notification.

Claims don’t happen often yet the early warning signs are common. Questioning fees, complaints about service and a lack of communication are typical indicators that a client or third party may become litigious. Especially if they don’t get their own way.

Have the new ICAEW rules made it clearer?

The new wording applies to cover effected on or after 1^st September 2010 and makes it clear that claims can and will be declined if “circumstances” are not reported before the expiry of a policy. The intention is to ensure that insurance companies are aware of possible claims before the policy expires.

There is no longer a wishy washy wording – previously insurers refused claims notified later than they would like. This was despite the policy being on a “claims made” basis meaning claims made after the expiry would be covered if the work was completed during the period of cover. The terms of notification were not clear.

Now, possible claim circumstances not reported within the policy period will not be covered. Period.

What is a circumstance?

Definitions in policy wordings can be subtly altered without the policyholder noticing. Insurance contracts are full of detail. A “circumstance” is anything likely to affect the underwriters view of the risk. That doesn’t mean all complaints should be reported.

It’s ridiculous to report all complaints so ask your insurance supplier to interpret what is termed reasonable by your insurance company. There is no need for the new rule to result in more red tape. The fact that I’m writing about it means it probably will at the change is embedded into the policy wordings. That is not the intention, it’s just the devil is in the policy detail. We all want claims settled promptly and correctly.

Wrap up: Attempts to make policies clearer add to confusion. Indemnity policies have strict timescales for reporting claims or circumstances. Guidance on what a circumstance is should be sought before a policy expires, ie. before the renewal date.

Top Tip: Uncertainty is not good for anyone. Ask your insurance supplier for clarification of expiry dates, notification deadlines and clarify what “circumstances” are real in your World.

You don’t want insurance companies to pay fraudsters – especially if they’re using your premium

Jason Cobine, Insurance Expert — Mon, 15 Feb 2010 09:00:41 +0000

Have you contributed to Madoff’s legal defence costs?

Not all insurance disputes should be won by the insured, especially if they are fraudulent.

Usually I’m furious when I hear that an insurance claim has been declined. This time I was pleased; Lloyd’s of London successfully defended themselves in a US court when Madoff tried to appeal that Lloyd’s were wrong to cut off the funding of his defence costs.

Lloyd’s had already parted with $4million whilst the legal eagles prepared their cases. They pulled the plug after one of his cohorts pleaded guilty to fraud of one sort or another. Evidence of illegal acts is one of the triggers for insurance problems. Once an allegation is made underwriters will refuse to continue paying defence costs or any damages awarded. Until then, the policy wording (a legally binding contract) meant that they were obliged to pay for defence costs for Madoff, other Directors, Officers and decision makers of the company that purchased the cover.

This may seem odd yet the wording of the contract states that there has to be evidence of fraud, or another type of breach, before insurers can turn off the claims tap. In this case, the reason for the admission of guilt could be anything from a guilty conscience, a shorter sentence, a smaller fine or some form of persuasion that you and I won’t know about – having not been accused of infringing the law or fleecing thousands of innocent investors.

The defence costs are covered if one of the “controlling minds” of a company (or charity) is accused of a “wrongful act” in their duty as a director (or trustee). Breach of fiduciary duties is considered a wrongful act yet it is not covered if illegal or deliberate.

There are loads of other examples of what are considered wrongful acts and surprisingly few exclusions on these policies. That’s because they’re a relatively new form of cover. Over time, as claims that shouldn’t be paid are, underwriters will start to exclude the most common instances. Most policies don’t cover fines or punitive damages. They are there to protect the innocent, not the bloody minded.

So how do you know if you contributed? If you have such a policy with a Lloyds underwriter part of your premium may now be lining the pocket of one of America’s legal eagles. If you see a picture of them when this truly momentus case comes to court (Jacko’s lawyers became celebrities) consider that you might have funded their tie or specs. Which isn’t so bad if they’ve got taste.

You can’t prevent your premium being used to defend people that appear to be crooked yet you can ask your insurance company for a summary of claims they have settled. If you think they’re settling claims that you won’t be making perhaps you can choose an alternative which is more appropriate.

Top Tip: You can defend yourself against your own innocent mistakes and even wrongful acts of your peers. Make sure you don’t turn a blind eye and assume that insurance will protect you. Insurance protects income and reputation if arranged properly. It will not prove useful if things have been ignored or buried.

See our top tips section for simple ways to help yourself today.

Professional Indemnity Insurance – Discover how to avoid losses

Jason Cobine, Insurance Expert — Mon, 25 Jan 2010 08:00:24 +0000

Professional advisers are not always protected by their insurance

Want to know why some indemnity insurance claims are declined? I have two examples of claims being declined, one more extreme than the other, yet both prove small errors can prove costly. And I’m going to tell you why they were declined and how to avoid it happening.

The first is the most recent, only a few months ago an insurance company refused to cover a claim for a company that was being sued for £47,000. The claim related to an incident that occurred in July 2005 when they had translated a document (allegedly incorrectly) yet it would have been covered if the insurance company had been made aware of it earlier.

The incident was first reported to the business in May 2005 and the complaint wasn’t disclosed to the insurance company. The complaint may have been the reason the owner of the business sought cover in the first place. This happens quite often. Not telling the insurance company what it needs to know is an easy mistake to make and can be avoided if insurance suppliers ask the right questions when cover is requested. Alternatively, the business owner should study all the documentation including the policy wording before they agree that the cover is suitable.

The worst case of an indemnity claim being declined is quite complex. It proves timing is critical when claims are reported. Some years ago a large PR company were contracted to build mobile facilities for a large entertainment company that wanted to provide entertainment road shows at large events.

HGV’s were to be adapted and turned into “play zones” where people could interact with new products. The PR Company won the contract because they proposed to turn Lorries into fully functioning interactive units within 30 minutes – using 4 men. You might have seen Jamie Oliver cooking in one of these contraptions in the TV adverts for Sainsbury’s.

In actual fact it took twice as long and twice as much labour to convert these monstrosities. Costs escalated which annoyed the client somewhat. They made a claim against the PR Company for reimbursement of the cost of hiring the extra labour, not just those that assembled the units. There were additional extra driver costs too.

The claim was for over £1,000,000 – count the zeros – and was for negligence in advice from the PR Company which lead to a financial loss for the client. The client couldn’t change their plans because this was a major part of their product launches for that year.

The claim was refused by insurers because the complaint had not been reported early enough. The client had made a fatal error. The cover was arranged on a Monday and the application form was signed on the following Friday. The complaint was first reported by the client on the intervening Wednesday and when this came to light the claim was refused on the grounds that they had breached the contract with the insurance company.

The application form stated very clearly that it is the client’s responsibility to tell the insurance company about everything that may affect their judgment of a risk at the earliest possible stage. They didn’t declare the complaint and the insurance company refused to pay.

The PR Company went bust. They were well renowned and had a great track record yet they could not fund the loss.

Solicitors that work for insurance companies are asked to ensure claimants have met the conditions of the insurance contract. This is an example of how badly things can go wrong if the terms and conditions of insurance contracts are not explained to policyholders. If only they had told the insurance company when they first heard of the problem the claim would have been settled.

It is never a good idea to keep things from an insurance company however insignificant the information may seem. After all, they hold the purse strings and you don’t want to have to argue with them when a client is asking you to reimburse their loss or your income has been affected by an unforeseen incident.

Trying to argue with an insurance company when they have the law on their side is a costly business – I understand it costs something like £3,000 for a solicitor to review an insurance claim file and £17,000 to issue proceedings. Legal Expenses insurance policies usually exclude insurance disputes – well they would wouldn’t they.

Top Tip: Tell the insurance company everything, especially the “bad” stuff. This includes incidents that could lead to claims, complaints, financial problems, etc. The worst case scenario is that you might have to pay extra premium. If you don’t disclose everything you may find that your insurance will not work when you most need it.

See our top tips section for simple ways to help yourself today.

Discover how your business network can help your clients

Jason Cobine, Insurance Expert — Wed, 06 Jan 2010 08:30:33 +0000

Your network can help you keep clients as well as find new ones

Here’s a simple way to add value to your product or service.

From time to time your clients will reach the limit of your product or service. With a good sales and marketing process you will have already set the parameters of where those lines are drawn. However, you can add value if you have worked out who can help your clients where you can’t. Read on for examples.

Many of my insurance clients require health and safety planning to ensure their insurance company pays out when they want it to and defends them when they don’t. Building relationships with the right companies ensures you can recommend the right person for each situation. Knowing who to refer helps clients save time. They don’t have to search.

Another example is temporary premises when clients need them. Building relationships here ensures there are plenty of providers I can trust to relocate my clients quickly and easily when the need arises. This solves their problem and increases your value.

Furthermore, in the networking business we are often asked for advice regarding online networking, which networking group to join or how to sell at a profit once the connections are made. Knowing people that provide these specific services means we can refer each other when our specialism is required.

How can you do this for yourself? Work out where your service begins and ends and find people who provide services that lead to and from you. You can do that by asking your clients who it was that told them about you and then ask what’s next on their do to list. You can do this before, during or after they have become your client.

When you contact possible strategic partners in your network ensure you tell them the benefit to them of working with you. Helping your clients and their clients by adding value is the simplest way to put it.

Visit http://beyondnetworking.co.uk/ for further information about business networking results.

See our top tips section for simple ways to help yourself today.

Business Insurance has a hidden weakness – does your policy protect you properly?

Jason Cobine, Insurance Expert — Wed, 04 Nov 2009 09:16:46 +0000

Insurance claim departments are taking a hard nosed approach – make sure you’re covered

I recently heard about three businesses who have been robbed of £250,000 assets and their company insurance is not paying out. Today, I heard about another case of a business getting caught out and insurers used terrible judgement to decline the insurance claim. I am trying to use the information superhighway to show you how to ensure this doesn’t happen to you or people you know that run businesses.

The scene of the crime

Criminals have been climbing into manholes and cutting telephone lines at targeted premises. This triggers the alarm and Police and a member of staff attend the premises. There’s absolutely no evidence of a break-in so the Police and staff withdraw. After everyone has left the premises are then broken into yet the alarm doesn’t sound because the lines have already been cut. Then the highly organised theft occurs. Yet insurers have refused to pay out. These are their excuses:

The alarm wasn’t fully reset at the time of the break-in (the physical break-in)
An employee should have stayed at the premises because the premises must not be left unattended if the alarm isn’t working

My opinion

The theft started when the alarm was fully operational. They are not two incidents, just one clever one.

History shows insurers declining similar claims in the past. In a nutshell, an MD who attended a premises after the alarm sounded in 1998 left because he felt uneasy. A theft ocurred and insurers said he should only have left when threatened with violence. His claim was refused. These decisions lead to insurance complaints and legal costs.

So what can you do to help yourself and others?

The easy yet not very palatable answer is to leave someone on the premises once the alarm is triggered. Organised criminals are unlikely to enter attended premises. Install a panic button yet ensure it operates independent of the compromised alarm. The Police can then respond.

Discover how you can get claims paid

Ensure you understand the claims process and the policy you’ve bought. Most policies covering assets have security warranties. Meanwhile, I’m hoping to gauge the temperature of the nation with a survey. Would you cancel your insurance policy if you found your insurance company was using bad judgement? Take part in the survey and view the results on our top tips page.

Top Tip: If you have an alarm, ask your adviser to interpret your policy terms, conditions, exclusions and warranties for you.

See our top tips section for simple ways to help yourself today.

Want to secure cashflow despite bad luck?

Jason Cobine, Insurance Expert — Mon, 05 Oct 2009 13:15:03 +0000

Fire risk assessments are not exactly high on the list of priorities for everyone. Some small businesses might think fire evacuation procedures are not important. So spare a thought for the business owner in Scotland who didn’t think a fire would ever affect his organisation.

The business was unlucky enough to suffer a fire and they didn’t have an evacuation procedure, they probably couldn’t find the time to do it – especially as there 101 other things to do every week to keep the business afloat.

The fire brigade arrived yet the absence of an evacuation procedure (which should be tried and tested) meant that no-one at the premises could tell the brigade if anyone was left in the building.

The search for survivors was on and, until that was completed, attention couldn’t be turned to saving the property. After all, priorities are always people before property. In this instance the brigade were compelled to spend time looking for people as the building burned. No problem so far, until the insurance assessor started asking questions.

Fire safety is a prerequisite to insurance. It’s enshrined in health and safety legislation and insurance cover works best if health and safety law has been followed. The insurance claims department decided that the time it took to look for people could have been spent dowsing the flames.

Hence, they didn’t pay the total amount claimed stating that the policyholder was negligent and contributed to the size of the loss. I’ve been unable to determine whether or not his broker had advised him that one of the policy conditions was up to date health and safety planning. If he wasn’t I have some sympathy for him. Yet he should still have attended to the fire regulations, worst case scenario is an injury to someone trapped in the building, and no-one would have sympathised if that had happened.

We all think that it won’t happen to us. Even I did until my washing machine caught fire (quite common according to the brigade that put it out). The fire in Dean Street caused a complete evacuation in central London which prevented a total loss. I am now being asked about business continuity. A client of a business colleague was severely affected by this incident which started from nothing when an air conditioning unit started smoking and an electrical fire spread quickly. Here’s the BBC’s silent video of the incident

Top Tip: Business Owners should address health and safety in order for their insurance cover to apply. Fire risk assessments are not hard to undertake.

See our Top Tips section for simple ways to help yourself today.