imageThis is the twenty first edition of Claim Solutions’ Newsletter. It brings news of climate change, what an insured really thinks of the claim process and common mistakes when presenting stock claims.

The list of possible insured events on page 4 includes a mix of fires, explosions, gas leaks and a cyclone. With events such as these insurance is a key component of any risk management strategy.

A more comprehensive list is available on our web-site.

We specialise in the preparation of insurance claims. Please do not hesitate to contact us if you require specific claims assistance or simply have a general enquiry.

To see a list of recent losses,

Climate, Claims and Premium Change

The Bureau of Meteorology reports 2005 was Australia’s warmest year since reliable widespread temperature observations began in 1910. It also reports Australia and the globe are experiencing rapid climate change. Global warming is a natural phenomenon thought to be accelerated by human activity including the emission of greenhouse gases.

Increased temperature is expected to lead to more frequent extreme climate and weather events such as cyclones, severe storms, windstorms, hailstorms, floods and bushfires.

Australia has had its fair share. Some of the significant events listed by The Bureau of Meteorology as severe include several cyclones affecting Northern Australia e.g.Monica (Apr 06), Larry & Glenda (Mar 06), thunderstorms in Melbourne (Dec 03), hailstorm in Esperance (Dec 04), a tornado in East Fremantle (Aug 99), severe hailstorm in Sydney’s eastern suburbs (Apr 99), hailstorms in Brisbane (Dec 98), thunder storms and tornadoes in Armidale (Sep 96), severe thunderstorms and wind gusts on Sydney’s North Shore.

The estimated cost from these events alone is in excess of $3 billion. This is before including the Ash Wednesday bushfires in Victoria and South Australia (Feb 83) and Cyclone Tracey in Darwin (Dec 74).

With the increased incidence of severe weather comes increased claim payments. This necessarily leads to an increase in premiums.

At the moment the insurance industry is managing but this may not be so under the burden of accelerating claims and premiums.

Global warming is an issue for and beyond the insurance industry. It is one where education, awareness and control are all required.

An Interview with An Insured

imageClaim Solutions have been preparing claims for many years and posed five questions to a client whose claim was recently completed.

1. What was the most suprising element of the claim?
A number of areas surprised me.

The first was the level of documentation required. I had no idea it would be necessary to produce documents for almost every component of the claim including quotations, invoices, payroll records, sales records and profit and loss statements.

I was also surprised at the level of specialist assistance available including fire reinstatement specialists, engineers and accountants.

2. What was the most satisfying area of the claim?
Its completion! Our claim arose from a fire which affected the business for around 9 months. The claim was settled 12 months after the date of loss. It was a lengthy process requiring considerable time commitment. My staff and I would have had to devote much longer hours to the claim if we had not appointed Claim Solutions to share the workload and direct our activities.

3. What was the most disappointing element of the claim?
Cash flow! The fire caused an immediate and ongoing reduction to sales. Many costs such as wages, power & a proportion of rent, continued. Our resources were further drained when fire reinstatement builders required us to pay the GST on building works up front before commencing work.

Progress payments from Insurers did not alleviate this problem as these were made irregularly and well after costs were incurred.

4. Would you do anything different in the event of another claim?
Yes – I would appoint a claim preparer from the inception of a claim.

5. Do you have any recommendations for other claimants?
Review your insurance policies now. Make sure they are adequate before you have a loss.

Document, document, document! It is important to record all activities associated with the claim. I suggest you keep a diary of all communications and a file containing all correspondence, quotations, invoices, payroll records, etc.

In the event of a claim or any general enquiries please do not hesitate to call Claim Solutions

Odd Spot – Inflaming Nudists

imageApril news reports from around the globe brought us an odd spot from the home soil of Bowral, NSW. A man from a nudist colony set fire to a spider’s nest and badly burned his buttocks. He poured petrol in what he thought was a funnel web spider’s nest and lit a match. The fumes exploded. The helicopter rescue service reported: “the man’s lack of clothing probably contributed to the extent of his burns.” and “the fate of the bunkered spider was unknown”.

This led to our search of similar incidents. In January a man kicked a spider crawling up a wall and broke his leg. Then there was the nudist in West Palm Beach, US, in April working on his recreational vehicle when the generator exploded.

If ever you doubted why firemen and mechanics wear overalls...

The Stock Reconstruction

imageMona Lisa operates a chain of women’s fashion stores trading as Da Vinci Designs. On 9 April 2006 she received a call advising her flagship store in Toorak was in flames. Mona visited the scene to discover all that remained was a sodden, black mass of expensive couture. There was one saving grace. While all the stock in the showroom was destroyed, a quantity of recently delivered garments in a storeroom was still sealed in plastic and miraculously survived unscathed. To prevent smoke contamination Mona arranged for the garments to be collected and trucked to her warehouse for redistribution and sale in other stores.

Mona estimated the stock had a retail value in excess of $500,000. Her broker informed her it was covered by the standard Mark IV ISR policy. Mona needs to submit a stock claim. How should she proceed?

Mona has already made her first mistake. She arranged for the undamaged stock to be removed without a stocktake or providing the insurer the opportunity of verifying the quantity and nature of the garments on hand. Mona must immediately contact her warehouse and ensure the goods are recorded. She then needs to contact the insurer and allow them to check the records accurately reflect the undamaged stock. Hopefully none of the stock has been transferred to alternate stores, or if so, full records have been kept.

It is not possible to count the damaged stock. This is unrecognisable. A stock reconstruction is required. As part of its stock control Da Vinci Designs conducts a quarterly stocktake. The last stock count was performed on 31 March 2006. The reconstruction commences with the quantities of stock on hand as at 31 March 2006 adds purchases and deducts garments sold from 1 April 2006 to the date of loss (9 April 2006). This provides the total quantity of garments in the store immediately before the fire. If Da Vinci had a perpetual inventory system which keeps track of the garments on hand at any point in time a reconstruction may have been unnecessary.

The undamaged garments need to be deducted from the reconstructed balance to determine the volumes destroyed in the fire.

The stock destroyed in the fire needs to be valued. The garments fall under Basis of Settlement Clause (b). This covers the replacement cost at the time and the place of replacement or, if the property is not replaced, the value at the time and place of the damage. The garments will be replaced with similar items. This may take time as most were imported from Italy. It may be appropriate for Mona to value the garments at original cost and submit an interim claim to be adjusted when the replacements arrive. The replacement cost may be considerably different than original cost due to availability and fluctuating exchange rates.

Unlike many other categories of property, stock is not subject to the “Reinstatement or Replacement Memoranda”. This means Mona is entitled to make a claim and receive payment before the stock is physically replaced.

Mona’s stock claim was ultimately settled for replacement cost.
We can learn from Mona.

  1. If damaged stock cannot be counted it is imperative to count the undamaged stock.
  2. The insurer must be given the opportunity of verifying this.
  3. The ISR policy covers replacement cost when the stock is replaced. This may be greater than historical cost.
  4. The claim needs to be submitted promptly to encourage a progress payment.
  5. The cover should be supplemented with cover for Consequential Loss.

About Claim Solutions

Claim Solutions provides a specialist insurance claims service.  Our firm is recognised as one of the leading practices in this field with both national and international companies featuring amongst our clients.  Our aim is to provide an efficient, professional and complete claims service which responds to your needs in times of crisis. We are available to assist in relation to any of the above incidents or similar losses.

The Articles which appear in this Newsletter are not intended to be a substitute for specific technical advice.

Let us find the Solution to your Claim, please contact us on +61 3 9642 8578 or email: