Update on Earthquake losses…
Welcome to our May newsletter. In this article I wanted to share a scenario when Insurance is just not good enough to help an unfortunate Insured. Since the Christchurch earthquakes, as we are witnessing now also with Kaikoura events, there has been a tightening up of covers not only dealing with the Deductibles but also the Extensions available in terms of the Policy.
Typically, Natural Disaster deductibles are either 5% or 10% of the Site value. In most instances, this is on the Property Damage sum insured only, however I have seen instances where it includes the Business Interruption sum insured. For the Contingency Extensions, Business Interruption cover is generally limited to a Time Excess which can be either 7, 14 or 21 days, sometimes more.
I understand a lot of Insureds after the more recent Kaikoura November 2016 earthquakes have been severely hamstrung by the limitations of these Extensions & are questioning whether the premium justified the cover.
A recent case study involved an Insured who had several self - contained cottages insured, all connected by a sealed driveway through the property. Because of the earthquakes, they suffered damage to the driveway & to a couple of the cottages. The damages where not significant enough to close the business & they could continue to operate, but as tourists could not get to the town they were losing trade.
A classic Closure of Transport Routes claim under the Policy. Regretfully however, the term now known as ‘Depopulation’ is not covered by a Business Interruption policy.
When one looks at their cover, it was felt there was adequate sums insured for the Assets but the Gross Profit was under insured. The Cover was summarised as follows:
Property Damage Total Sum Insured $1,546 000
Business Interruption Sum insured $96, 000
Natural Disaster Excess $82,100, being 5% of both the Property damage & Business Interruption Sums Insured,
Prevention of Access $4,800, being 5% of Business Interruption Sum Insured with a 21 day time Excess.
In preparing the claim estimates it was immediately found the Natural Disaster Excess would not require the Insurers to make a payment. In fact, even had the Insured been adequately insured for their Gross Profit, they would need to have a suffered a significant & catastrophic loss for the Insurers to make a payment.
As for the Prevention of Access Extension, they were only likely to receive $4,800 for the subsequent interference with the business once the time excess had passed. The Insured appeared to be unaware of all these implications & the application of the different deductibles & Limits.
Generally in our renewal meetings with clients with Business Interruption covers, I endeavour to discuss different aspects covered under the Policy. In addition, we set out the dollar values of both the Natural Disaster Excess (in covering letter also) & extensions & limitations in the renewal schedule documents. In my experience, this goes a long way in deflecting the argument or comment: “I did not know that… or, I did not know it was only that much…
However, I am only too well aware of how complex an insurance policy document can be & a major reason why I ensure we call all clients at least annually even if only to clarify the Duty of Disclosure requirements under your policy, including potential claim notifications. It is not unreasonable for insurers to either request this information or be advised under the terms of your policy.
Please feel free to contact either Carla or myself should you ever have such enquiries. We are only too happy to assist, as this is fundamentally what we are here for, to assist you through your risk management profile, so there are no surprises. We look forward to speaking with you again soon.
With my best wishes for the oncoming winter.