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Insurance for Businesses
Insurance
By: Law 4U
Buying insurance
You can buy insurance:
- direct from an insurance company; or
- through a third party that arranges insurance, e.g. insurance brokers, insurance agents, banks, finance companies.
Most insurance companies or brokers offer package policies that combine different types of insurance, e.g. for professional offices and retail outlets.
You can also ask that a standard policy be styled to meet your business's specific requirements. It is also usually possible to extend a basic cover, e.g. a fire policy can be extended to include risks like earthquake.
Before you take out insurance, have a look at our checklist - it lists a number of issues you should consider.
Types of insurance
The types of insurance you may need include:
- property insurance - compensation from loss or damage to property;
- liability insurance - cover for legal claims against the business, e.g. for a personal injuries claim by a customer;
- workers compensation insurance - cover for workers who are injured on the job;
- loss of gross profit insurance - cover for loss of profit due to business interruption; and
- disability insurance - cover for loss of income due to injury, illness or death;
- other business related insurances – there are many under many different product names.
Property insurance
This usually covers losses from theft, fire and other specified damage. This type of insurance can cover anything agreed to between you and the insurer, e.g. cover for breakage to plate glass windows, hot water systems etc.
The losses can also include consequential losses from damage (e.g. profits while you have to close the business during repairs).
Liability insurance
This includes:
- the well-known insurance called "public liability", which covers you for claims from people injured as a result of your business operations. This would include claims for "negligence", where a person suffers damage because of a breach of the business's duty to take reasonable care in its operations;
- product liability insurance covers you for losses or damage caused by faulty products supplied by your business;
- professional indemnity insurance covers professionals for losses caused by giving the wrong advice or acting to the detriment of your clients (e.g. lawyers have this);
- indemnity insurance for company officers (e.g. directors) to cover for claims made against directors personally as a result of business operations.
Disability insurance
This covers you if you are forced to stop working because of an injury or illness. There are many different types of disabilities that can be covered by the policy. Generally the insurance pays a percentage of your gross salary during the period of disability.
Workers compensation insurance
This covers claims by workers for work-related injuries. Generally claims are made for loss of earnings, medical expenses and/or permanent impairment.
Loss of profits
This will cover the loss of profits if the business is interrupted because of damage to property resulting from an insured incident (e.g. fire). It can also cover wages to employees and the maintenance of anticipated net profits.
Conditions
There are a number of general conditions that apply to most insurance policies. These include:
- the insured's duty of utmost good faith. You must disclose to the insurance company anything that is "material" to the insurance contract, i.e. anything that would be relevant to the decision of the insurance company in its decision to issue the policy. This is often called the duty of disclosure. A good question to ask is: "Would this information affect the decision of a reasonably prudent insurer to accept the risk, or affect the level of the premium demanded by the insurance company?" For example, have you been refused insurance cover by another company? You are also required to be honest in any claims made on the policy, and cooperate with the insurance company; An insurance company can refuse to pay the claim if you were aware of the circumstance but you did not disclose it. This is called "fraudulent non-disclosure";
- the insurance company's duty of utmost good faith. This requires the insurance company to promptly assess and pay your claims, and disclose any "material" facts that would be relevant in your choice of an appropriate policy;
- having an "insurable interest" - to insure something you must have a legal interest in it (e.g. you are the owner). For example. you can insure your workers, the business property, yourself, your business partner etc;
- you can only recover your loss. In other words, you cannot make a profit from the claim against the insurance company;
- the insurer's duty to give appropriate notice that the policy is due for renewal.
Exclusion clauses
These are clauses in the contract that limit the liability of the insurance company. For example, there may be limited liability if a theft occurs when windows are not secured according to the policy's requirement. You should get legal advice if the insurer relies on an exclusion clause, because it may not apply in certain circumstances e.g. the insurer may not have brought the exclusion clause to the attention of the insured.
Regulation of brokers
Under the law an insurance broker must be licensed and registered by the Australian Securities Insurance Commission (ASIC). Their conduct is regulated by ASIC and they must also act in accordance with their Australian Financial Services Licence. This establishes standards that ensure:
- their professional identity is truthful;
- they do not try to pressure you into a policy you don't want;
- they follow certain accounting practices that protect your premiums;
- disputes will be handled in an appropriate manner.
To maintain registration, brokers must:
- have accounts audited and provided to ASIC and demonstrate their businesses are financially sound;
- carry professional indemnity cover to protect clients who suffers financial loss due to the broker's negligence;
- disclose all fees and if requested, any commissions received;
- subscribe to a government approved, external complaints handling facility.
Disputes
Just because you have had a claim rejected it does not necessarily mean that you have no further recourse. It is always possible to go to court, although this is often and expensive and risky venture. However, there are other dispute resolution mechanisms that you can try.
Alternative dispute resolution
This is where you attempt to find a solution to a dispute without (or before) resorting to court action. In general it is quicker and far less costly. If your solicitor recommends court action, ask them to explain the advantages of disputing your claim through the courts rather than first seeking help from one of the resolution schemes.
The schemes described below are part of the financial industries structure.
Advantages of dispute resolution
The big advantage of these schemes is that they are free, and you do not have to pay the costs of the insurer if you lose your case. If you go to court you will generally have to pay if you lose. You do not need a lawyer to use the schemes, but it is a good idea to get legal advice if the claim involves a large sum of money. Remember, you are still entitled to take legal action if you lose the case under the scheme.
Insurance Ombudsman Service
This was previously known as the Insurance Enquiries and Complaints (IEC). In November 2004 a new name for the scheme was adopted: the Insurance Ombudsman Service. It hears disputes about some types of small business insurance.
Phone the Ombudsman on 1300 78 08 08 (toll free) to check if your business policy is covered.
If so, first tell the insurer and ask them to resolve your complaint. If you are not satisfied with the result you can ask that the dispute be referred to the insurer’s Internal Dispute Resolution (IDR) process (contact the Ombudsman if you are not sure which person to speak to at the insurer’s office). You must get a decision from the IDR within fifteen business days of making your request.
If you are not satisfied with the IDR decision you can call or write to the Ombudsman and ask for assistance. This must be done within 3 months of the IDR decision. The ombudsman will then send you a "Referral Notice" to complete and ask for details of the dispute.
A Case Manager will then look at the dispute and try to resolve it. Information will be sent to an independent decision-maker who will make a decision and provide reasons in writing for the decision.
The Ombudsman will provide determinations in writing. If you want to accept it you must inform the Ombudsman within one month of the determination. The insurer must then comply with the determination within one month of your acceptance. The determination is not binding on you – get legal advice if you want to take it further.
Life insurance - Financial Industry Complaint Service (FICS)
The Financial Industry Complaint Service can hear disputes about life insurance, including certain income protection policies. The Service is an external complaints resolution scheme approved by the financial services regulator, the Australian Securities and Investments Commission.
Before you can seek the intervention of the FICS because your claim has been rejected you must have first sought a review from the insurer. Under the Rules the member has 45 days to reply to your complaint. The member may notify you that it requires up to 90 days. However, you must agree to this extension of time. You must supply FICS with an authority to proceed and a summary of the complaint.
There are “jurisdictional limits” for a claim i.e. the maximum dollar value that FICS can deal with.
Ring 1300 78 08 08 (cost of local call) for details.
FICS decision making
There will be an investigation into the complaint. This is the opportunity for the dispute to be settled or conciliated. If not the dispute may proceed to a hearing, which will decide if the claim should be paid or not.
If the complaint is not resolved to your satisfaction you can refer it to the Chief Executive Officer. Your file will be reviewed and the Chief Executive Officer can:
- order a conciliation conference between you and the member with a view to resolving the matter; or
- refer your case to an Adjudicator in certain circumstances; or
- refer your case to an independent Panel who will make a determination.
If the decision is not to order the payment of the claim, you can still go to court.
Brokers - Insurance Brokers Dispute Limited (IBDL)
The IBDL hears disputes between consumers and insurance brokers or financial service provider (other than an insurance company). Brokers must be members of the scheme in order to bring a dispute to the IBDF. There are strict restrictions that apply to this scheme unless the broker agrees to have the dispute heard. IBD covers policies including insurance for small business pak policies.
General Insurance Brokers’ Code of Practice
Participating general insurance brokers subscribe to the General Insurance Brokers’ Code of Practice. The Code outlines standards of good practice to be expected from your broker. They include: communicating with you promptly and clearly, representing you properly in arranging your insurances, and providing support should you need to make a claim.
A new revised Code came into effect on January 1, 2007.
Contact the IBDL on 1300 780 808 (toll free).
Read this: This fact sheet is intended to be general information about the law in
© Lawscape Communications P/L
Last Updated – February 2008
