Unfortunately we all live in a world of uncertainty and it’s our job to manage our clients’ risk when the unexpected happens. When it comes to short term insurance, it’s our job to know exactly what is expected.

Because we know that “_ _ it happens”, Brian Anderson Brokers cc offers a comprehensive arsenal of insurance products with all the major Companies and many dynamic niche’ risk product providers. Many things can wrong in the world of our clients, which is why specialist cover is required and arranged for them.

Fire, theft, hold up, money, motor vehicle accidents, liability, transit, all risks cover etc etc are just some of the many areas requiring protection. Understanding that is the reason that we deliver on our promises, Brian Anderson Brokers cc makes sure that you stay ahead of the game by offering you the product that matches your requirements; exactly. We strive for excellence in service delivery from claims and recoveries, right down to empowering you our client access to view your policy of insurance 24/7 wherever you may be.

Brian Anderson Brokers cc is a full service insurance provider.

We at Brian Anderson Brokers cc are fully compliant with current legislative requirements and our staff are trained and qualified to deliver on our promises.

Our current Professional Liability Limit is R7 500 000.00

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THE BROKERS CHALLENGE

Herewith follows a simple example of providing fire cover over a building, or is it so simple?

A client phones to arrange insurance on a building that he has just purchased. The Broker is requested to arrange fire insurance on a building for R10 million.


Adequate analysis

It is paramount for us as your Brokers to ask relevant questions in terms of FAIS thus ensuring that we have complied with the needs analysis adequately. But that is one thing, how about the fire section requirements to make sure that the client is adequately insured? Here are a few questions that should be asked before rushing off to arrange the cover:

1. How was the value of R10 million determined?
2. What has not been included in the valuator’s report?
3. Is the R10 million inclusive of:
   • Professional fees
   • Demolition costs
   • Municipal plans scrutiny costs
   • VAT?
4. Assuming that the fire figure of R10 million is adequate, which is unlikely, it is valid on the valuation date. What will the valuation be in six or nine month’s time?
5. How long will it take to rebuild the building – six, nine or 12 months? The estimate must be reasonable considering the current industry conditions.

Considering the policy wording

So, you might ask yourself, what does this have to do with the Broker and the fire section of the policy? Let’s take a look at each of the 5 questions above and apply the policy wording to the answers.

1. How has the value of R10 million been arrived at?
   Most clients will either tell you that they purchased the property for R15 million, but the bank valued the land at R5 million, so therefore the building must be worth R10 million. Or the client will tell you that a professional valuator has reported the “turnkey value” of the building and structures as R10 million. Either way, the client will be quite confident that R10 million cover is sufficient.
2. What has not been included in the valuator’s report?
   If a professional valuator has issued a valuators report, whether for the Bank or for the client, it is vital that this report be read and understood.
   Most valuator’s reports exclude the following:
   
   • Escalation in value beyond valuation date
   • Fees of all professional bodies
   • Municipal plans scrutiny fees
   • Value added tax
3. Does the value of R10 million include the following?
   
   • Professional fees – if the client read the policy wording, he would find that the policy requires the sum insured to be adequate to allow for an extra 15% thus catering for the employment of professionals to assist with the rebuilding of any damage.
   • Demolition costs – no one expects to demolish their building, but following a fire or bad storm claim, parts of the building, if not all of it, may have to be demolished. The policy does not mention any percentage, but it is advisable to allow for an extra 10% of the sum insured to cater for this risk. Municipal plans scrutiny costs – again the policy wording does not mention any percentage, but an extra 5% of the sum insured would not be amiss.
   • Value added tax – VAT must be added to all policy sums insured, or limits, since all claim payments are regarded as income to the insured.
   
   So taking the above into consideration, you will arrive at a minimum sum insured of R14.82 million.
4. What about a claim happening on day 360 of the policy year. Will the R14.82 be adequate?
   Since the policy must be adequate at the time of any claim, the sum insured must be projected to day 365, minimum. What is the anticipated building inflation rate for the next 12 months? Let’s say 15%, which is close but not 100% correct. Adding 15% to the R14.82 million means the sum insured for day 365 must therefore be R17.04 million.
5. Over and above this, how long will it take to rebuild the building, 6, 9, or 12 months? With the building industry hard pressed to complete contracts in advance of the 2010 World Cup Soccer event, it is more reasonable to assume 12 months.
   Remember that the policy wording allows Reinstatement Value Conditions with the resultant Average condition applying.

Let’s say it will take 12 months to rebuild the building following a total loss or near total loss. Add another 15% (compounded) to R17.04 million, and now the sum insured must be R19.6 million – say R20 million, just to be on the safe side. Of course there are other factors to take into consideration, like the Public Authorities Requirement Clause, but more about those in a later edition, since they do not really affect the Sum Insured.



Keeping the premium down

Relative to questions 4 & 5, there is a clause in the Fire Section wording that will assist in keeping the premium down. The escalator clause can be used, but note that the inflation factor must be re-calculated every year and advised to the insurer accordingly. If this is not done the clause does not operate, although the insurer will unlikely reduce the premium for this clause. This is an insurer’s software problem since few, if any, programmers have been told about the failure of confirming the Escalator Clause percentage(s).



Weighing up the odds

For us as your Broker and to do the job correctly as in this example we should tell the client that we would arrange fire cover on the building for a value of R20 million – double the amount initially requested to be insured for!

Or alternatively decline to carry out the client’s request. Clients do not like this alternative!

As your Broker, we would, in this instance, be almost forced to request that the client sign a document stating that they are not interested in the calculations above according to the 5 questions and that despite our recommendations that their instruction remains to insure the building for R10 million. Such a signed document would need to be obtained at each renewal, or alternatively convince the client to the correct method of insuring Fixed Assets.

Simple isn’t it?