You Can't Afford To Be Cavalier About Insurance

Sun Herald

Sunday November 21, 2004

Paul Coombes

It's important to buy the correct product rather than the cheapest, writes Paul Coombes.

WHEN you buy general insurance for your home, car, other possessions or travel, you are agreeing to an act of utmost good faith.

That means you will answer insurer questions honestly and your insurer, in turn, will act honourably when you make a claim.

So it's comforting to know underwriters settle about 98 per cent of claims, shelling out $55 million a day.

If you handle the truth carelessly, however, your claim can be denied, your credibility shot and you, your friends and your family can be grilled by in-house and police fraud units.

Not an appealing prospect. Yet figures show Australians are cavalier about preserving possessions despite living in a country ravaged by fires, floods, storms, cyclones and the odd earthquake, not to mention unnatural disasters such as theft.

DON'T LEAVE YOURSELF EXPOSED

Heather Reid, national public affairs manager at the Insurance Council of Australia, says 25 per cent of home owners aren't insured and 30 per cent are seriously underinsured, making property replacement virtually impossible. Seventy per cent of tenants and 30 per cent of owner-occupiers have little or no insurance.

"Small business is no better. One in six have no insurance," she says. "Those with cover are seriously underinsured and 70 per cent don't recover after an insurable event," she says.

It's not enough, however, just to have insurance, you need the right insurance. Hate to say it, but that means avoiding cheap products, which are normally that way for a reason.

Chris Wood, insurance partner at McCabe Terrill lawyers, suggests hiring a broker because they play hardball with insurers when needed.

"When buying or claiming from insurers you can encounter young turks either not matching products to needs or carelessly bouncing claims," he says.

"Buy insurance from those licensed by the Australian Securities and Investments Commission or the Australian Prudential Regulation Authority."

THE COMMON TRAPS TO AVOID

Insurance terms can be confusing, so be sure to check meanings. For example, "indemnity" doesn't mean replacing new for old after a loss; you get the amount of money for which the item is insured. Say a house is insured for $150,000, but costs $300,000 to replace you must pay $150,000.

"Reinstatement" insurance, which involves repairing goods, is another option, but this can also be inadequate, especially for items like machinery.

The most sensible choice is replacement insurance. If you keep insuring good condition items to current values, your payout will be the replacement cost.

To determine how much cover you should have for your home, multiply its area in square metres by the rebuilding cost in square metres. Next, add special features like pools, fences, blinds, windows and doors. And include debris removal and professional costs.

It's also important to periodically value each antique, painting and collectable worth more than $1000.

When selecting cover, watch out for policy exclusions such as flood, landslip and high tide.

HOW TO AVOID PROBLEMS WITH POLICIES

INSURANCE companies say fraud puts $20 onto each general insurance policy, so they want to stop it.

For this they have fraud units staffed by people with forensic skills. Some are former police officers and some claims are referred to police.

Graeme Adams, head of product and underwriting at NRMA, says you can avoid investigation by telling insurers about:

* Car accidents, thefts, traffic offences in the past five years.

* Licence suspensions/cancellations.

* Arson, crimes, fraud, wilful damage convictions.

* Insurance cancellations.

* Car modifications (and not claiming for an unfitted car alarm).

To give your claim the best chance of success, immediately report to police break-ins, damage and thefts.

It's also a good idea, in case you encounter problems with the insurer, to get copies of any interviews and closely monitor your insurer's investigations.

If the progress of your claim is sluggish, you can notify the company's Internal Disputes Resolution unit. It has 15 days to reply.

Your recourse, should you be denied a claim you think is legitimate, is to go to Insurance Enquiries and Complaints Ltd (IECL), an external body that investigates complaints (1300 780 808).

If that fails, you can challenge the insurer's decision through the courts.

CASE STUDY

JULIA Thomas's commercial property burnt down in 2002 when it was tenanted. She had insured the building for $800,000, while her tenant had contents cover of $290,000.

Julia encountered problems when her insurer Aon didn't pay the builders, dragging the work from the estimated two months to more than two years. And the contents insurance fell $60,000 short of replacement costs.

To get the premises operational again, take care of the builder's bills and cover the contents shortfall, Julia borrowed $1 million.

But, without giving a reason, Aon still hasn't paid her $800,000 building insurance claim. What's more, her premiums have leapt from $4000 to $17,000 a year.

Julia, now 62 years old, operates an Italian restaurant from her property and has morning, lunch and dinner sittings seven days a week to pay the loan interest. She wants settlement.

Aon declined to comment.

© 2004 Sun Herald

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