Jim Minto

It may be the season to be jolly, but it’s also a time for Australians to review safeguarding their dreams of gifts, holidays and a financially secure New Year.

As the nation starts to spend up in anticipation of 2015 and people make grand New Year’s resolutions and dream of exciting plans for the future, even the best laid plans can come unstuck.

“Many families understandably take on debt over the end-of-year holiday season, making it an appropriate time to check on the adequacy of a family’s financial protection levels,” said TAL Group CEO Jim Minto.

Christmas and New Year can account for an increase of 35% in retail sales with Australians expected to clock up a giant $30 billion on gifts and food during the festive season this year[1]. In 2013 the average Australian spent $1,215.30 on Christmas[2].

“TAL research has found that only 37%[3] of people say they have some form of financial protection, even though we expect that figure to be higher because many people may not realise they have some form of life insurance via their superannuation fund. However many people are willing to go into debt over the festive season,” Mr Minto said.

“The point is, people should live life to the full but make sure they also have financial protection in place which not only provides peace of mind but can help meet financial obligations if needed.”

A wake-up call:

• According to the Bureau of Health Information, the risk of injury increases over the Christmas period, with more than half a million patients attending NSW emergency departments from October to December 2013[4]
• Over 60% of Australians will be disabled for more than one month during their working life.[5]
• Around 63% of Australians have no life insurance[6].
• For a 35 year old male, life insurance can cost as little as $8.40 per week[7], less than a sandwich in Sydney’s CBD.

“And with many health related risks and injuries seen over the festive period it is smart to have financial protection in place to ensure your festive dreams can stay on track,” said Mr Minto.

“And remember to travel safely over the holiday period and to think of those who depend on you and their needs for protection.”

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[1] http://www.smh.com.au/business/retail/tech-tops-santas-list-as-aussies-tipped-to-spend-30b-this-christmas-20141124-11sq9u.html

[2] http://www.ibisworld.com.au/media/2013/11/25/winners-christmas-season-online-sales-video-games-eating-2/

[3] http://www.tal.com.au/tal-news-centre/media-releases/2013/march/27/kids-more-likely-to-have-life-insurance-than-baby-boomer-parents

[4] http://www.bhi.nsw.gov.au/__data/assets/pdf_file/0018/211833/HQ15_EmergencyDepartment_Oct-Dec2013.pdf

[5] http://www.tal.com.au/About-TAL/facts-of-life

[6] http://www.tal.com.au/tal-news-centre/media-releases/2013/march/27/kids-more-likely-to-have-life-insurance-than-baby-boomer-parents

[7] http://www.fsc.org.au/downloads/file/MediaReleaseFile/2005_0308_fastfacts.pdf

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Jim Minto

Survey findings from Australia’s largest life insurer TAL show the majority of Australians either admit they do not have adequate financial protection or simply don’t know if they have enough.

Conversely, 45% of people say they do have enough life insurance cover if they or their partner could not work again.

TAL believes Australians may be falling victim to false confidence about the adequacy of their life insurance given the nation’s well-documented huge underinsurance gap.

TAL Group CEO Jim Minto said: “I am surprised nearly half of the respondents felt they had enough cover because a lot of actuarial research shows they actually don’t. In our experience, a number of common misapprehensions can give rise to a false sense of security.

First, there is the mistaken belief that life insurance is a single, one-size-fits-all solution. It isn’t because every person’s and family’s circumstances are different, and different types of life insurance serve different purposes.

Second, there is a belief that life insurance in superannuation automatically provides sufficient protection alone. Insurance through super has been fantastic for millions of Australians but unfortunately most people just retain the low, default level cover without assessing their personal needs.”

The research also shows more than two-thirds of people with just a single type of insurance – that is, one out of the four forms of life insurance – subsequently believe that they have enough insurance overall.

“Often people seriously underestimate how much money they will need if they are unable to work again,” Mr Minto said.

The survey found that more than half (56%) said they either didn’t have enough life-related insurance (33%) or didn’t know (23%).

Depending on personal circumstances, different forms of life insurance are appropriate to protect people at different stages of their lives.

Mr Minto said: “The reality is most people need some combination of life, income protection, critical illness and total and permanent disability insurance. It can be a complex area, and we encourage people to ask for help so they can have the peace of mind that they have adequate cover rather than just hoping for the best.”

Other research findings include:

• Younger people (aged 25-34) are more likely than their older counterparts to recognise that they don’t have enough insurance (46%)
• Only 28% of those who rent say they have enough life insurance
• Those who believe they have enough insurance are more likely to:

o    have a high household income (53%)

o    be mortgage-free (67%)

o    be married (49%).

“The real message here is that all Australians should check their life insurances at least once a year to make sure they have the right types and amount of protection. A rule of thumb that many believe that the minimum life and lump sum disability cover that should be taken out is 10 to 15 times the life insured’s annual salary. This in turn creates an income to meet ongoing needs of their family should the worst happen.

“Otherwise, despite their best intentions, people may be at risk even while they believe they are safeguarding their future dreams and the security of their family if they couldn’t work again for some unforeseen reason.”

The post False reality about financial protection appeared first on AdviserVoice.

Mark Rantall

The Financial Planning Association of Australia (FPA) yesterday responded to the report from the Australian Securities & Investment Commission (ASIC) into the life insurance advice industry.

The report refers to over 200 pieces of insurance advice that have been reviewed by ASIC with the report covering lapse rates and advice quality. The report noted product innovation by insurers and age-based premium increases as some of the drivers behind high lapse rates. The report also raised concerns with training and competency for insurance advisers. This further reinforces the need to raise financial adviser education standards as proposed in the FPA’s submission to the Parliamentary Joint Committee (PJC) Inquiry.

Whilst the FPA is not sure that any of its members have been involved in the advice given, the report reinforces the benefits and need for professional standards such as the FPA Code of professional practice. FPA members are bound by a Code of Professional Practice and as a professional association, the FPA is a firm advocate for higher professional and education standards. Irrespective of remuneration models, FPA members are bound by its Code of Conduct and are held accountable to this. Specifically the FPA can point to Rule 4.10 in the Code that states:

The Member must only make a financial planning recommendation to a client requiring the client to dispose of, cancel, or replace one product or service with another where it is consistent with the requirements in Rule 4.7 and appropriate for the client having regard to any cost, benefit, risks or adverse consequence of:

Any FPA member found to breach rule 4.10 will be subject to the FPA disciplinary process. The FPA has a Life Risk Specialistion (LRS^®), however its disciplinary records show negligible complaints, less than one per year since 2009, made against FPA members relating to life insurance advice.

Mr Rantall stated that “The issues of product design, distribution and embedded product commissions should be looked at by the product manufacturing sector as noted in the recommendations of the report.

“The FPA is focused on advice and we will review the ASIC report and suggested recommendation to review training and the proposed checklist. We are happy to work with other professional associations in the advice space to see how the advice process, guidance or education can be improved.”

“Most financial planners do the right thing and act in their clients’ best interest, providing high quality advice to their clients.”

The FPA submits that many of the issues within the life insurance industry relate to product design, regulatory barriers, pricing, data feeds and public confidence in insurance companies.

Mr Rantall concluded by saying: “We all know that as a nation we are grossly under-insured. Australians need to have appropriate advice on their insurance needs and a professionally qualified financial planner can provide that advice. This recent report should not discourage consumers from turning to a professional for advice – but it does again highlight the need for consumers to turn to a trusted, certified financial planner.”

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John Brogden

Industry associations representing advice and life insurance will form a working group to address the issues raised by the ASIC report into life insurance released yesterday.

The Association of Financial Advisers (AFA) and the Financial Services Council (FSC) will jointly convene a working group to specifically address retail life insurance product structures and distribution practices. An independent chair will be appointed to convene the working group and facilitate industry and policy solutions.

John Brogden, CEO of the FSC said: “It is critical that remuneration models in the life insurance industry are sustainable and practical for consumers and the industry.”

“The ASIC report requires a serious response from the industry. We have formed a working group to achieve this,” Mr Brogden said.

“The working group will consult with the regulators and Parliament on its solutions.”

“The financial advice and life insurance sectors will work together to carefully examine the findings and recommendations in the ASIC report and to assess all options to improve market practices and sustainability.”

Mr Brogden said the working group will produce an initial report on its findings within two months and a final report early next year.

“As an industry we will review the ASIC report and provide a considered response.  We note ASIC will take enforcement action,” he said.

“Consumer trust and confidence in financial advice and products is essential to ensure Australians have sufficient life insurance cover.”

“Australians are chronically underinsured. Life insurance helps protect Australians against the social and economic impact of premature death, illness, injury or disability that impacts their ability to earn an income – arguably the most important financial asset a person has.”

“The contribution of private life insurance will be critical for the Australian economy as our population ages and workforce declines.”

Mr Brogden also said: “In recent years, policymakers have treated life insurance in a bipartisan manner.“

“The ASIC report notes: The FOFA reforms did not extend the ban on conflicted remuneration to individual life insurance sales under personal advice. That is, commission payments for life risk insurance products (with the exceptions in paragraphs 42(a)–42(b)) are exempted from the ban on conflicted remuneration.”

The post Industry joins forces to address insurance issues appeared first on AdviserVoice.

Brad Fox

The Association of Financial Advisers (AFA) has responded to the release of ASIC’s review of retail life insurance advice report (the Report) by supporting the establishment of a cross-industry working group to address the issues identified.

“The release of the Report has been signalled for some time,” said AFA CEO, Brad Fox.  “Given that ASIC’s review of the life insurance industry was focused upon particular risk factors, the Report was expected to highlight examples of poor practices. The AFA has been proactive in seeking the support of other associations and the Financial Services Council to address the findings.”

However, Mr Fox said it is important that the financial advice profession and the broader financial services industry consider the Report in detail and respond in a comprehensive manner.  “This is a key industry report and any report of this nature and magnitude needs to be comprehensively reviewed and analysed,” he said. “We intend to work closely with the Financial Services Council and other associations to establish the working group in order to ensure an industry-wide response.”

The working group will publicly share a broad terms of reference and then report in a reasonable time frame with regard to those terms. “The majority of our members provide life insurance recommendations as a part of their service to clients,” Mr Fox said.

“Therefore, it is vitally important for our members, and for their clients, that we consider all available options at the product, licensee, adviser and consumer levels to address the issues raised in the Report and to ensure that consumers retain their trust in life insurance. It is important to remember that the majority of Australians do not have sufficient life and income protection insurance.”

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Lambros Lambrou

According to Aon, the leading global provider of risk management and human resource solutions (NYSE:AON), many of the risks that businesses list as their most pressing are uninsurable within current policy structures, which is both disappointing and cause for real concern. To remain sustainable and support clients, the risk industry must find ways of staying relevant as traditional risks get bigger and non-traditional risks pose new threats.

Lambros Lambrou, CEO for Aon Risk Solutions in Australia, made these comments in the wake of this year’s Aon Advanced Risk Finance Conference, while warning that the future of risk financing will look very different from that of the past.

“Our industry is very sophisticated in handling smaller risks, such as health, vehicle and even safety. There is a wealth of data and experience around these risks which informs decisions at all levels of the value chain,” Mr. Lambrou explained.

“However, when something goes wrong outside established “comfort zones”, while it may be less frequent, it is more likely to be catastrophic. And the truth is that the risk industry has struggled to develop strategies relevant to clients’ needs in the catastrophic risk space.”

Mr. Lambrou explained that part of the problem is that the risk industry tends to look at the past as a guide to future decisions, a practice that can lead to a failure to innovate as required to address new or changing risks which fall outside of what is routinely offered.

“Changes such as the increased connectivity between individuals, the accelerating accumulation of data and the speed at which information is sent digitally around the globe mean that all companies are now borderless and all risks are global,” he said.

“And that means the risk industry must stay ahead of clients and develop risk mitigation and financing strategies if they are to continue offering value and relevance,” Mr. Lambrou explained.

Stephen Cross, Chairman of Aon Global Risk Consulting and Aon Centre for Innovation & Analytics in Dublin, said that cyber risk is a prime example of a new and changing risk requiring innovation on the part of the industry in order to help companies understand and address cyber risk – before it’s too late.

“Cyber risk is to our industry what asbestos was to the building industry, a ticking time bomb just waiting to explode,” Mr. Cross said.

He also cited the hyper connectivity that now underpins the functioning of our world as a factor that, if not effectively addressed, may affect the very structure of the risk industry.

“Insurers and brokers alike should take a long hard look at the traditional distribution model we’ve lived with for years. Peer-to-peer lending, peer-to-peer sharing of risk and even crowd-sourcing of insurance policies and capital could change the way we do business forever.”

Mr. Cross concluded by saying that while some of the changes to the industry are profound, responding to them on behalf of clients requires the industry to stay alert and take advantage of the research and analytics available.

“The Aon Centre for Innovation & Analytics is dedicated to data analytics and innovation with the sole purpose of anticipating and responding effectively to the needs of our clients.

“Our real aim is to help our clients, insurers and our brokers look to the future of risk armed with fact-based data and insights,” Mr. Cross said.

The post Aon to Insurers: innovate or perish appeared first on AdviserVoice.

Philip Kewin

As demand grows for the availability of risk products on platforms, HUB24 advocates that a choice of insurers is important for advisers and their clients given the significant price and feature differences of many products.

In response to this demand, HUB24 is pleased to bring a third retail insurance provider to its market leading super and IDPS platforms. Zurich’s Wealth Protection product complements the existing personal insurers TAL and AIA providing another choice for advisers and their clients.

“Modern platforms like HUB24 are maturing into broader structures that are committed to providing more choice for advisers. Advisers have always had a choice of insurer for their clients outside of platforms and now seek the same choice for their clients within platforms to take advantage of an end-to-end solution. Typically, platform insurance offers have been limited to the ‘house brand’ denying clients an efficient solution with real choice.  Advisers bring their own risk expertise to assist clients, to give them the best options that suit their personal needs.” said Andrew Alcock, Chief Executive Officer, HUB24.

“Zurich’s insurance offering has won major industry awards and we’re pleased to add another quality risk provider for access through HUB24 inside or outside superannuation.”

“Like our other insurers, Zurich is making a solid commitment to working in partnership with us and dealer groups to provide exceptional service to our advisers and their clients.” said Andrew.

Zurich’s General Manager, Retail Life & Investments, Philip Kewin, also acknowledged the importance of the partnership, which comes at a time when household budget pressure is increasing the appeal of platforms to consumers.

“From a client’s perspective, the cash flow advantages of holding cover on platform are becoming increasingly appealing,” said Mr Kewin.

“With an estimated 40% of individual risk premiums now written through platforms, we believe the timing of our new partnership with HUB24 is perfect.

“Zurich was recently announced as the joint winner of Canstar’s Outstanding Value award for life insurance, and we are pleased to be able to bring such a quality offering to users of the HUB24 platform.

Thanks to this partnership, advisers now have more ways to deliver quality risk advice to clients, affordably and efficiently,” he said.

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Chris Browne, Catherine Robson, Paul Forbes, Michael Nowak, Eleanor Dartnall, Brad Fox, PJ Byrne, Tapel Cafer, Andy Marshall

On the eve of the Finalist showcase, AdviserVoice gathered together all of the finalists for the AFA Adviser of the Year and Practice of the Year Awards along with awards partner Zurich for a round table discussion to share ideas and canvass industry issues.

Here in the first of a three part series, we look at their view of the state of financial literacy and what financial advisers are doing to help raise standards of financial literacy within the community. (Read the second roundtable here, read the third roundtable here).

Who’s who

• Catherine Robson, Affinity Private – Finalist, AFA Adviser of the Year
• PJ Byrne, Mr Insurance – Finalist, AFA Adviser of the Year
• Eleanor Dartnall, Dartnall Advisers – Finalist, AFA Adviser of the Year
• Paul Forbes, Robina Financial Solutions – Finalist, AFA Practice of the Year
• Chris Browne, Rising Tide – Finalist, AFA Practice of the Year
• Tapel Cafer, Complete Financial Balance – Finalist, AFA Practice of the Year
• Michael Nowak, Joe Nowak Financial Services Group and National President of the Association of Financial Advisers (AFA)
• Brad Fox, CEO, Association of Financial Advisers (AFA)
• Andy Marshall, Head of Sales Strategies and Research for Zurich’s retail risk business

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AdviserVoice: First of all, I’d like to hear from you all how you’d rate your own clients’ financial literacy, specifically in relation to insurance issues.

Catherine Robson

Catherine Robson: We deal with professional people who are often very highly educated and take notice of financial issues. While they know their facts and figures, they find it difficult to apply that to themselves and their own behaviour, and so that’s why they need an adviser. And I think one of the blind spots for them is insurance because while, theoretically, they know that it’s a good idea, somehow, they think they are exempt from the laws of the universe and it’s not going to happen to them.

PJ Byrne: We have a client base that spreads across the Australian demographic so we do mums and dads through to business owners. In terms of clients’ literacy, it’s just about encouraging them to invest the time to

PJ Byrne

understand what they need to understand and get it right the first time, and that’s where advisers can make a difference – to tell them that you do get what you pay for.

Paul Forbes: I think people actually understand the broader context but I don’t think they understand how it applies to them. So, if I look at the people who come to us, some of them will understand it. They will have done quite well in their lives. But one of the questions they really don’t get is “How much is enough?” They actually don’t know when they can retire.

Chris Browne: We spend a lot of time in the early days just bringing them up to speed. We don’t talk about

Paul Forbes

insurance; we talk about “What’s your Plan B?” and I think that’s talking in their language as opposed to our language, and I think that’s really, really important. And, also, it’s important to know that there is no silver bullet and we need to consider things like internet clips on YouTube. We need to think about going out and educating people in their work places, and we need to think about the wider media.

Eleanor Dartnall: We had a huge financial literacy issue with self-funded

Chris Browne

retirees. Most of those clients were professional. You had to insist that they brought their spouse with them because the assets were also in their name, and I had quite a journey to get them to realize that I needed to teach their wives. You know, I had to use very mundane language. I would say “if you’re a 70-year-old engineer, it’s a monty that you’re going to go first and your wife’s going to be vulnerable to the first bit of rubbish advice she gets”. And then, they’ll say, “Well, will you teach her?”

AdviserVoice: What are the barriers to better financial literacy?

Tapel Cafer: When we’re talking about the younger generation, this is a serious topic that they actually haven’t listened to because it’s not really going to apply to them. So, you’ve got to find different ways to relate to them. You could be using comic sketch via social media to get to get to that audience.

Eleanor Dartnall

Chris Browne: The important piece is just meeting clients where they want to be met. I think, too often, we dictate how they interact with our business. You know, it’s the big board room or it’s the stiff meeting room and all that sort of stuff. Some people don’t care about stuff like that.

Brad Fox: I think technology is an enabler. We have to change how we reach out and social media can be part of that, but also reaching different audiences, choosing different language for different audiences, different communication means. We need to change the whole perception about insurance – from a discretionary purchase item in an Australian household to an essential purchase item.

Tapel Cafer

Tapel Cafer: One of the best forms of marketing we have found is actually peer to peer. We’re very big in the medical space and we do a lot of sponsorships at conferences and it’s an educational process. We have a large number of orthopaedic surgeons as clients and registrars as clients, they come in and speak on our behalf. Not only endorsing our company but endorsing the insurance industry because they now truly value the insurance industry because they have lived it. They have lived the trauma of someone being diagnosed or having the accident. They’ve also learned the insurance industry does actually pay – not watching a video, this is actually hearing it from their mouths.

AdviserVoice: How do you get to the people before they come in your door? How do get them to come in your door?

Brad Fox

Brad Fox: Whenever you’re trying to create mass influence, you’ve got to find where the gatekeepers are and how do we influence the influencers which are those gatekeepers. You know school teachers are the classic ones to meet kids.

Chris Browne: Over the course of the last twelve months, we’ve done 18 wealth workshops in small businesses and, sometimes, the person of influence – the CEO of that business – does an introduction and says,  “Bring in the team, they look after my financial affairs. I’m really, really pleased so I’ve invited them in to do a lunchtime session with you”. We’ve found that the amount of traction that we get with that audience is far superior to the opportunities where we’re invited in, we’re doing the presentation but we don’t get the endorsement from the CEO. We might get 50 percent that come along and meet with us, but it’s not the 90 percent that we would with the endorsement from the CEO.

Andy Marshall

Andy Marshall: I did a presentation this week and asked the audience if they knew the Risk Store stats on how many claims were paid out last year? The audience were financial advisers, it was a room of 125 people and no one knew. No-one, that’s appalling because you should know that but it’s also what you then do with that stat because with that stat you can actually make it real and say, “What that actually means, Mr. and Mrs. Client, is that 170-plus families got X million dollars paid out a day.” That would join the dots. They know bad stuff happens but it’s about the reassurance piece and I think what we need to factor is how do you reassure people that there’s something really positive from interacting with an adviser?

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The Association of Financial Advisers Awards will give separate recognition to the best individual adviser and to best advice practice for the first time this year. The winners will be announced at the AFA National Adviser Conference, to be held in Cairns, October 12-14. Zurich has proudly partnered with the Adviser of the Year Award since its inception in 2003 and now also for the inaugural Practice of the Year Award.

The post Roundtable part 1: Financial literacy featuring the AFA Practice of the Year and Adviser of the Year finalists appeared first on AdviserVoice.

Damien Mu

The life insurance industry must educate and engage with fund members and employers to ensure successful outcomes for IP and TPD claimants, according to a new survey from AIA Australia.

Superannuation and insurance professionals at the recent AIA Australia Group Insurance Summit were asked for their views on current and future issues in life insurance, and what role an insurer should play in addressing these. Rising premiums overwhelmingly remain the most pressing issue for industry professionals, with 81% saying balancing rising claims with sustainable premiums for members would be the greatest challenge for life insurers.

In addition, 47% of respondents said the most important thing the industry could be doing to address current sustainability challenges was either educating members on life insurance products or the role work can play in rehabilitation. 40% said the greatest challenge to implementing a successful rehabilitation program through their insurer was engaging stakeholders including employers, members and their doctors to participate.

“As insurers we have a role to play by not simply addressing the issue of claims sustainability through continual premium increases,” said Damien Mu, AIA Australia’s chief executive officer. “We need to think more broadly about the ways we manage these claims, so implementing rehabilitation programs backed by comprehensive support, training and education for members and employers needs to be a key capability for group insurers.”

Respondents also believed life insurers should be making more of the advancements in technology and data collection available to them in today’s market. Some of the ways this could be achieved included leveraging data to provide funds with greater insights on employers and members (23%), and allowing members to manage cover online more easily (28%).

“It’s important that the industry make it as easy as possible to encourage members to engage with and learn about their insurance”, said Mr Mu. “We’ve seen recent improvements in online application and claims lodgement, but we need to ensure this level of innovation keeps up with the rapid pace of technological advancements and changing consumer dynamics.”

Insurance education emerged as the primary theme of the survey, with 26% of industry professionals indicating insurers could best demonstrate their value to super funds by educating their members around the claims process. A further 25% said that more creativity and innovation was needed in product design.

“It’s vital that the industry continues to address these issues as we move forward to a more sustainable future”, said Mr Mu. “Life insurers and super funds must continue working together to educate and engage employers and members to ensure group insurance policies remain valuable to Australian’s and they understand what they are getting and how to engage with their insurance”

The post  Life insurers must educate and engage to manage claims appeared first on AdviserVoice.

Charmian Holmes

Businesses (and their insurance brokers) waiting with bated breath for new model proportionate liability laws may be sorely disappointed.

The basic principle of proportionate liability is that it enables responsibility for a damages claim to be allocated according to the degree to which each wrongdoer’s actions contributed to the loss.

Proportionate liability legislation was seen as the solution to spiralling premiums for liability insurance. While this might be working for insurers, small businesses remain exposed and the model laws will not provide a universal panacea.

No ‘Contracting Out’ for Lower Value Contracts

A single model law which bans contracting out of proportionate liability could reduce the likelihood of bigger businesses transferring risk to smaller business.

Contracting out of proportionate liability has been a problem area because it usually improves a principal’s legal position but means the other (smaller) party carries more contract risk (including liability for the principal’s negligence).

Parties are deemed to have contracted out, if the indemnity clauses in the contract do not allow liability of each party to be apportioned according to fault.

Currently if the governing law of the contract is:

• NSW, WA and Tasmania, you can agree to contract out.
• SA, ACT, NT, Victoria and the Commonwealth, the position is uncertain.
• QLD, it is unlawful to contract out.

The proposed model laws will at least provide consistency across Australia by prohibitingcontracting out for contracts with a value of either $10m or $5m (the exact amount hasn’t been decided yet). A significant benefit for small business!

Indemnities will still be allowed

Larger businesses have been concerned that proportionate liability laws interfere with the operation of contractual indemnities. For example, where one wrongdoer agrees to indemnify another wrongdoer for their proportionate share of a third party damages claim.

Currently:

It is unlawful to seek contribution or indemnity from a concurrent wrongdoer in NSW, ACT, QLD, VIC, and the Commonwealth.
It is permitted in NT, Tasmania, WA and SA.
The model laws will allow contribution and indemnities between wrongdoers and this is particularly disappointing for smaller businesses.

Allowing this, makes the ban on contracting out of proportionate liability meaningless because in most cases, it will be the smaller party that will have to bear all the liability.

If they agree to this, it will invalidate their insurance because their contractual liability will differ from their proportionate liability.
If they don’t agree, they risk losing the business.
It’s common knowledge that assuming liability under a contract which differs from the insured’s common law liability will trigger the contractual liability exclusion in PI and public liability policies, leaving the policyholder unprotected.

This exposure can be minimised by obtaining good quality cover for principal’s liability within a public liability policy. Unfortunately there is no way of doing this for PI insurance because principal’s liability cover is not available for that type of insurance.

Arbitration and Binding Determinations Exempt

Another surprising development is that proportionate liability will not apply to alternative dispute resolution unless the parties expressly agree in the contract.

Who knows why this is considered a good idea! But from now on, if you want alternative dispute resolution processes like mediation or arbitration to apportion liability, ensure you stipulate this in the contract.

For those whose actions could be judged by an external dispute resolution body like the Financial Ombudsman Service, it seems extremely unfair that a dispute could be dealt with differently to court proceedings – especially when one party is legally required to submit client disputes to that body and has no influence over its terms of reference.

When will the changes commence?

It is not clear when the model laws will start. We predict that it will be a long process, as each state and territory will have to amend their laws to align with the proposed model.

What is clear though, is that contracting parties will still need legal advice on how the contracts they sign interact with their insurance program – including indemnities, insurance obligations, warranties, guarantees, performance obligations and dispute resolution clauses.

There isn’t always a quick fix to the issues of contract risk allocation, but understanding where the exposures lie and what is covered by insurance, will help you and your clients to make an informed assessment.

The Fold’s Contract Review Services helps insurance brokers and their clients to identify areas of contractual liability and exposures that may not be covered by their insurance program. Get in touch for personalised advice.

By Charmian Holmes www.thefold.com.au

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