Hurford Parker Features in The Profit Magazine

Jeff Parker (Managing Director) of Hurford Parker shares his thoughts in the Profit (Hawkes Bays Leading Business Magazine) on the importance of Business Continuity Planning for Single and Wide Spread Major Losses.

 

 

To read the full article click here

 

Increased Fire Service Levy Update

Increased Fire Service Tax on Insurance Policies
In New Zealand the firefighting services are funded by a tax called the Fire Service Levy (FSL). This tax is added to the insurance premiums for personal and commercial property, motor vehicles, contract works and other insurance policies.

The Government is currently undertaking a consultation process that will result in a merger of the Urban and Rural Fire Services. The Government’s reasons for the merger is they expect this will bring about operational savings and also enable the Fire Service to better handle the broader types of emergencies that have become their responsibility in recent years.

How does this Impact the Insurance buyer?
The cost of merging the urban and rural fire brigades has been reported by Minister Peter Dunne to be $303 million. Levy payers are to fund $263 million of this through FSL being charged.

The Government have confirmed that the transition of bringing the fire services together will require extra funding and to do so the tax on insurance policies will be increased by 40% from 1 July 2017. The rate of FSL will increase to 10.6c per $100 insured from the current rate of 7.6c per $100 insured.  (i.e. for every $100,000 sum insured the levy will increase from $76.00 to $106.00 per annum).

Are there any other proposed changes in the future?
Depending on the outcome of the consultation process, from December 2018 the way the FSL tax is calculated is likely to change. It is proposed that the tax will apply to more insurance policies and property types. The Government have also suggested the charge will be on sum insured, not the indemnity value which will have a much larger impact on cost to the insurance buyer.

The impact of these future changes will not be known until the consultation process is complete and the new legislation has been prepared.

Are Hurford Parker working towards a solution for their clients?
Hurford Parker/NZ Brokers are concerned that these changes will incur extra costs for our clients in the form of a higher fire service tax and therefore have been monitoring the announcements and making submissions to Government.

Company Directors and Officers Take Note

Protecting the health and safety of workers is a legal responsibility of Directors and Company Officials.  This has been clearly emphasised in the findings of the Pike River Coal Mine Disaster Royal Commission.

These findings highlight the importance that Directors must place on Company policy.  As a Director or Officer you must:

  • Ensure the Company has a comprehensive Health and Safety Management Plan.
  • Ensure that Plan is fit for the purpose and reviewed regularly.
  • Provide adequate resources and time for the Plan to be implemented.
  • Obtain independent evidence on the effectiveness of the plan.

Company Boards need to be clear about their Statutory and Governance responsibilities and how good Governance practices can be used to manage Health and Safety risks.  Regular, rigorous reviews and monitoring Health and Safety Compliance are essential.

Protecting the health and safety of workers is not a peripheral business activity.  It is part and parcel of an organisation’s functions and should be embedded in an organisation’s strategies, policies and operations.  That also means that, as a Director, you are responsible for ensuring there are adequate resources and that the Company has the appropriate people, systems and equipment to meet the requirements.  You must provide the necessary leadership for this to happen.

From Business Interruption to Business Continuity

As part of assessing your cover, a great way to ensure your business is ready to deal with a major event is to formulate, and regularly review, a tailored Business Continuity Plan.

When something goes wrong, you need to be able to minimise financial loss and get yourself back to business as quickly as possible.

Put it at the top of your “Do Today” list to call us so we can help you to:

  • Define the key processes in your unique operation, focusing those that impact the most on profitability and productivity.
  • Identify the risks most likely to threaten those key processes, the risks that threaten the viability of your business.
  • Determine the likelihood of each risk factor occurring and the consequential impact involved.
  • Manage, mitigate, insure, avoid, assume or eliminate these business risks.

There are two main options available.  The plan could either be a full Business Continuity Plan, which should take into account all processes and risks, (Loss of Owners or Key Employees, computer damage or virus, financial mismanagement or fraud, etc), or a simplified Disaster Recovery Plan, which would take into account the effects on your business from a major earthquake, fire, storm or flood.

How ready are you?  Let’s discuss the best and most cost effective way to ensure your business can deal with a major loss.

The 101 to Business Interruption Insurance

How to insure for Business Interruption, and structure coverage, for national disaster and earthquake?  The best way, as always, is the simple approach.  

Start with forward planning and a discussion with your Insurance Broker about the various event scenarios you could possibly face, the mix of Risk Management solutions and type of insurances that fit your situation.

Insurance will form an integral part of Risk Management as you think about loss scenarios, impacts on the Business, people and operations.  Consider possible solutions that do not include insurance and then consider the types of insurance that will transfer risk.  But remember, insurance is not a “catch all”.  Insurance must be part of your management of risk exposure but it must be formulated to play its role as part of a carefully structured package.

The traditional approach by insurance companies has been to insure for full values at risk; all Gross Profit, Loss of Rent, Additional Increased Costs of Working, Claims Preparations Costs and insuring for the longest Indemnity period.  But as Brokers we work with you, as part of your Business, to analyse possible scenarios specific to your activity, rather than the one-size-fits-all approach.

For instance; if fire causes the loss, it may be a matter of showing a Loss of Gross Profit, Loss of Rent or associated cost limits attached to the asset by comparing last year’s turnover with market forces this year, and your claim begins to take on a common sense, pragmatic approach.  Longer Indemnity periods are not always the answer in such a case but they may well be the answer for a manufacturing operation.  Service and retail have a different set of needs.

We’ve talked before about the Hurricane Katrina and New Orleans Orient Express Hotel test case.  The bottom line was that there was no insurance claim because the Loss of Turnover was not as a result of the hotel damage, but caused by the visitor market disappearing.

Changes to Residential Insurance

How much money would you need to rebuild your home or other property that you own?  Insurers throughout New Zealand are adopting house insurance policies based on a Sum Insured Replacement Value cover, replacing the open-ended, square metre replacement insurance that provided actual replacement with no limit on the sum insured.

It is now your responsibility to insure for a specific amount.  The new regime limits the maximum amount payable.

This puts the control in your hands to stipulate the amount that it will cost to rebuild your property in the event of a total loss.

This is a fairer and more equitable approach.  It also requires you to take control and consider the real Replacement costs involved.  But the downside is that you need to carefully and accurately calculate the value.

The sum insured is the maximum amount that the insurer will pay to repair or rebuild your home when you make a claim.  So you need to think about the full cost of rebuilding, including demolition and removal of debris, architect and design fees, professional fees and costs of compliance.  Think about the cost of replacing swimming pools, tennis courts, retaining walls, driveways, fences, sheds and garages.  The slope of the land on which your house sits needs to be taken into account, along with the quality and style of the property.

Keep in mind that while you can estimate the costs of bricks and mortar, labour, consent processes and services, demand may surge in the event of a major event, such as the Christchurch earthquakes, and prices tend to increase.

The change reflects global reinsurers looking to better manage their own risks and bring New Zealand into line with other countries.

As your Broker, we will work with you to update your policy at its renewal.  We recommend that you engage the services of a Valuer, Quantity Surveyor, Architect or Builder to help you accurately calculate Replacement costs.  Or you could use an online calculator, based on the information you provide.  Go to www.hurfordparker.co.nz and click on the “Links” tab and then select either Cordell Express Residential Valuer or Cordell Comprehensive Residential Valuer.  (Cordell is an independent building and construction information provider)