Technical Updates – British Insurance Brokers' Association https://www.biba.org.uk The British Insurance Brokers' Association is the UK's leading general insurance intermediary organisation Thu, 21 Jun 2018 15:48:21 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.5 GAP Fleet Claims https://www.biba.org.uk/technical-updates/gap-fleet-claims/ Thu, 14 Jun 2018 08:59:27 +0000 https://www.biba.org.uk/?p=30091 GAP Insurance. Top up fleet claims, read some examples form GAP scheme provider Jackson Lee.

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GAP Insurance. Top up fleet claims, read some examples form GAP scheme provider Jackson Lee.

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BIBA Response to the EC’s Motor Insurance Directive REFIT evaluation https://www.biba.org.uk/press-releases/biba-reponse-motor-insurance-directive-refit/ Fri, 25 May 2018 12:31:28 +0000 https://www.biba.org.uk/?p=29945 Yesterday the EC announced its proposals on changes to the Motor Insurance Directive in light of a number of court rulings that have affected its

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Yesterday the EC announced its proposals on changes to the Motor Insurance Directive in light of a number of court rulings that have affected its application and has identified five areas for clarification. BIBA’s views on the proposals are set out below.

  1. Insolvency of an insurer

BIBA is satisfied with the EC’s proposal in relation to compensation arrangements ultimately being the responsibility of the home member state of the insurer concerned.  The Financial Services Compensation Scheme already fulfills this function in the UK.

  1. Claims history statements

BIBA welcomes the equality of treatment of claims history statements across differing member states but expresses caution in the detail of how these might be required to operate.  BIBA believes that any prescriptive requirement for uniformity will create an administrative burden, significant IT system changes and add cost into a system which already works well in the UK.

  1. Uninsured driving.

The current Motor Insurance Directive prohibits cross-border motor insurance checks on vehicles entering a national territory. BIBA welcomes the proposal from the EC that will  allow, without interfering with free-movement,  checks on the validity of insurance especially if they are driven by technology, are  non-discriminatory, not aimed exclusively at insurance verification and do not require the vehicle to stop.

  1. Minimum amounts of cover:

BIBA supports the harmonisation proposal that there should be equal minimum levels of protection across the EU member states to ensure that there is a sufficient level of minimum protection across the EU for the innocent parties to motor vehicle accidents in relation to personal injury compensation and damage to property irrespective of the type of vehicle.

  1. Scope of the directive (VNUK)

The EC is proposing to clarify the definition of “use of a vehicle” and incorporate the judgements of the Court of Justice of the European Union in the cases of Vnuk, Rodrigues de Andrade and Torreiro. The proposal is to change the definition to “use of a vehicle means any use of such vehicle, intended normally to serve as a means of transport, that is consistent with the normal function of that vehicle, irrespective of the vehicles characteristics and irrespective of the terrain on which the motor vehicle is used and of whether it is stationary or in motion”.  While the EC has indicated that the proposal clarifies the concept of use and where compulsory insurance therefore applies BIBA still has concerns over the application of this definition which we believe still lacks clarity.

Martin Bridges, Technical Services Manager at BIBA said: “Relating the need for compulsory motor insurance to rely on operating in respect of any ‘use, intended normally as a means of transport, consistent with the normal function of the vehicle…. irrespective of the terrain…’ will potentially still bring many more vehicles into scope from mobility scooters to motorsports because of the because of the possible legal interpretation of the definition of ‘transport’.  This leaves considerable uncertainty for potentially vulnerable customers wondering if they now need to buy insurance for a disability vehicle.”

Graeme Trudgill, BIBA Executive Director said: “Following the original Vnuk ruling BIBA, the UK Government, a number of other EU states and insurance bodies put forward a solution that would have brought considerably more clarity to this situation and prevented these potential unintended consequences.  In the Commission’s roadmap document one of the key suggestions was to consider changing the definition of a vehicle to ‘one used in traffic’.  This would have resolved many of the issues, however, the EC has moved towards motor insurance being the compulsory solution for liability wherever a vehicle is used – effectively including on private land. This goes beyond current UK legislation.

Currently, under UK law, users of a vehicle such as a tractor or fork-lift truck being used on private land would simply purchase public and employer’s liability insurance to fund any liability for compensation. It is unhelpful that customers will now potentially have to buy wider cover for many more vehicles types being used in more places.

We intend to continue to express our concerns that these proposals may increase bureaucracy, cost and uncertainly for personal and commercial policyholders, resulting in potentially significant unintended consequences in areas such as motorsports and for vehicles not previously requiring motor insurance.”

Ends

BIBA view of Vnuk

https://www.biba.org.uk/press-releases/biba-comment-joint-industry-response-motor-insurance-directive-refit/

EC press release

http://europa.eu/rapid/press-release_IP-18-3731_en.htms

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Business Interruption Declarations https://www.biba.org.uk/technical-updates/business-interruption-declarations/ Thu, 17 May 2018 08:30:44 +0000 https://www.biba.org.uk/?p=29849 The most recent (2017) survey of Declaration Linked Business Interruption insurance by the Chartered Institute of Loss Adjusters (CILA) highlighted the ongoing concerns of underinsurance

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The most recent (2017) survey of Declaration Linked Business Interruption insurance by the Chartered Institute of Loss Adjusters (CILA) highlighted the ongoing concerns of underinsurance in Business Interruption (BI) claims.  The latest survey, the fourth in nine years, identified that 47.5% of BI policies were arranged on a declaration linked basis and that 44% of those BI policies were under-insured and that the under-insurance shortfall on average was 44%.

Three of the top ten underlying causes identified in the CILA report were –

  • Misunderstanding the insurance definition of Gross Profit
  • Misunderstanding the basis period to be declared
  • Declarations not submitted or not requested

In an endeavour to assist brokers and clients BIBA has drawn together the attached ‘Business Interruption (Declaration Linked Basis) – Insurance Gross Profit Declaration Form’, which BIBA members may wish to use.

The form will help to address the three underlying causes highlighted above –

Misunderstanding the insurance definition of Gross Profit

This was found to be the most significant cause of underinsurance in the CILA survey.

An accountant’s definition of ‘Gross Profit’ is different to the insurance definition and this can lead to confusion when relying on an accountant to provide a figure for Gross Profit – either estimated or declared.   This topic is discussed in the excellent CILA, Insurance Institute of London and Chartered Insurance Institute publication ‘Business Interruption Policy Wordings – Challenges Highlighted by Claims Experience’, see https://www.cila.co.uk/cila/downloads/sig-downloads/business-interruptions/files-9/13-bi-policy-wordings/file

Some Insurers have adopted different terminology for Gross Profit to differentiate from the accountants’ definition – for example ‘Insurance Profit’, Insurable Profit’ or ‘Insured Profit’.

The Declaration Form refers to ‘Insurance Gross Profit’ and sets out a step-by-step guide how an accountant or auditor should calculate the declared figure from the last audited accounts.

It must be emphasised that insurers will have differing definitions of Gross Profit and it is important that the Declaration Form is amended to reflect the insurer’s definition – particularly in respect of Uninsured Working Expenses.  Also, care needs to be taken if your client’s Gross Profit calculation does include Uninsured Working Expenses additional to the BI policy Gross Profit definition (which will be shown on the policy schedule). These will need to be taken into account when the form is completed.

Misunderstanding the basis period to be declared

The declaration form should be completed in accordance with the BI policy wording.

The CILA research identified that the basis periods are as follows –

  1. The last 12 months prior to the policy period beginning – 44% of insurer BI wordings
  2. The Gross Profit anticipated in the policy period – 25% of insurer BI wordings
  3. The Statutory Accounts from financial year most nearly concurrent with the expired insurance year – 14% of insurer BI wordings
  4. The last set of Statutory Accounts ending most recently prior to the commencement of the insurance policy period – 14% of insurer BI wordings
  5. Other – 3% of insurer BI wordings

It is also important to understand that if the insured’s indemnity period is in excess of 12 months, the declaration to be supplied is only annual figures from the financial accounts, as the policy wording will usually allow for a proportionate increase.

Declarations not requested

The declaration-linked BI policy wording will include a requirement for the insured to submit a declaration, supported by accountant’s figures, and usually the policy will require the declaration to be made within a set time limit.

For example –

Insurer A – Premium Adjustment Clause

You will supply, within six months of the expiry of each Period of Insurance, a professional accountant’s declaration of Insured Profit earned in Your last financial year most closely corresponding to the Period of Insurance.

Insurer B – Declarations Condition

Not later than 6 months after the expiry of each Period of Insurance, the Insured shall provide the Insurer with a declaration confirmed by the Insured’s auditors of the Gross Profit earned during the financial year most nearly concurrent with the expired Period of Insurance.

In practice, many insurers do not pursue Gross Profit declarations and clients may not be aware of their obligations under the policy.  The benefit of declaration-linked BI cover to clients is that the sum insured is increased (typically by 133%) and the average clause is deleted.

With the Insurance Act 2015 creating new duties of disclosures on commercial clients it may be argued that failure to supply a declaration may result in a proportionate remedy being applied at the time of a claim, reducing a claim payment to the client.

It should be stressed that some insurers do provide their own declaration form, unique to their Gross Profit definition, and these should be used whenever possible.  They may be supplied by the insurer with renewal documents or be available on the insurer broker extranet sites.

BIBA would encourage brokers to inform their clients of their duty under the policy to provide a declaration and to supply the insurer declaration form – or if that is not available the BIBA declaration form – and ensure that it is completed and returned to insurers.

BIBA will be issuing further guidance on setting the Estimated Gross Profit sum insured for declaration-linked BI cover and also the setting of indemnity periods.

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Pool Re Updates its Proposition https://www.biba.org.uk/technical-updates/pool-re-updates-proposition/ Wed, 28 Mar 2018 13:47:28 +0000 https://www.biba.org.uk/?p=29436 Since Pool Re was formed 25 years ago, there has been enormous change not only in the terrorism threat landscape, but also within the insurance

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Since Pool Re was formed 25 years ago, there has been enormous change not only in the terrorism threat landscape, but also within the insurance market that is reinsured by the Pool Re scheme. Insurance products are very different, more commoditised and sold through a more diverse range of channels. Moreover, there are fewer commercial insurance companies than 25 years ago, primarily due to merger and acquisition, but the insurers are now larger or global entities with very different risk appetites.

Importantly the threat of terrorism is very different today that it was in the 1990’s. The IRA threat to mainland GB at that time was less complicated than the less discriminate and more diffuse threat today. Modern terrorists seem less predictable and are able to adapt their tactics and attack methodology very quickly. The advent of social media and the internet means that a disparate organisation such as DAESH can radicalise and then inspire its followers remotely to do harm to people and property across the world. This means that the very linear threat posed to Great Britain by the IRA, which was focused primarily on explosive devices, has shifted to a threat that can manifest itself through knives, guns, vehicles, planes, explosives or perhaps in future causing damage or harm by remote digital (cyber) means.

Terrorist groups have shown a high level of IT skill and innovation in embracing social media, and it became evident in 2016 that these skills may be deployed in a more direct way to trigger damage or destruction of property. We commissioned a research report from the Centre for Risk Studies at Cambridge Judge Business School (available on the Pool Re website) which highlighted terrorists as having the intent to use such means, but having yet to find the capability, although this was likely to change in the future. In light of this research Pool Re concluded that we should extend our coverage to cover damage caused by the use of remote digital means such as hacking or virus. The extension was approved by HM Treasury in September 2017 and took effect on 1st April 2018.

At its inception Pool Re provided a very narrow cover restricted to fire and explosion, which moved to ‘All-Risks’ including CBRN (chemical, biological, radiological and nuclear) in 2003. From 1st April 2018 the cover now includes damage caused by terrorists using remote digital means (cyber). This wider cover, provided as standard to any policyholder buying terrorism cover from a Pool Re Member, is now the widest coverage for terrorism damage available anywhere in the world, and ensures that the scheme is able to provide protection against damage caused by today’s terrorist. Crucially there is no financial limitation on the amount of terrorism cover, beyond the sum insured, that Pool Re member insurers can provide by virtue of the unlimited nature of the reinsurance agreement with Pool Re. We have also launched a number of other important changes to the Scheme from April 2018, and our Member Insurers will now be making these available to their policyholders.

One of the key changes we have made is to the way in which the Scheme deals with SME policyholders. We recognise that SME products have changed enormously in the past decade, both in terms of how they are structured and priced. Invariably now policies are packages with rating applied to a narrow set of values, usually material damage. Business Interruption is usually provided to a standard limit and is a non-underwritten coverage, so the consequence of Pool Re continuing to apply a rate to this limit was that our approach was out of step, and the reinsurance premiums incompatible with the underlying policy. Accordingly this has now been amended so that Pool Re reinsurance premiums for SME policies will be calculated solely on the material damage sums insured. This should make terrorism premiums significantly more competitive, especially outside of major urban areas, where a typical SME reinsurance premium could now be as little as £20.

We have also designed some initiatives that will appeal to mid-corporate clients, most notably the Vulnerability Self-Assessment Tool, a risk mitigation platform developed in partnership with counter-terrorism professionals and recently accredited as ‘Secure by Design’ (the police security assurance standard). Policyholders with more than £50m of insured assets can complete the question sets within the tool, receive mitigation advice and qualify for a 5% discount if they attain a certain standard.

The other changes include increased discounts for deductibles over £250,000 and wider availability of loss limit discounts. Furthermore the new rules recognise for the first time flexible limit coverages on BI, and allow discounts where these fall within certain criteria.

Finally, Pool Re has been working with Government to explore how the scheme could be extended to cover non-damage business interruption. The events in Europe in 2015/16 and then in the UK in 2017, highlighted the terrorism insurance gap and the restrictions imposed by the 1993 Act, which restricts our coverage to damage. In March 2018 Government advised it would be amending the 1993 Act to allow Pool Re to offer cover for non-damage terrorism and once the extended proposition has been built, which is anticipated to be towards the end of 2018, the Pool Re scheme will be able to offer coverage that truly recognises the modern nature of the terrorist threat.

S Coates
Chief Underwriting Officer
Pool Re

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Important information about CBL Insurance Europe https://www.biba.org.uk/technical-updates/important-information-cbl-insurance-europe/ Wed, 14 Mar 2018 11:09:43 +0000 https://www.biba.org.uk/?p=29338 The Central Bank of Ireland has informed the Financial Conduct Authority that it has made an application to the High Court to have a provisional

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The Central Bank of Ireland has informed the Financial Conduct Authority that it has made an application to the High Court to have a provisional administrator – Kieran Wallace of KPMG – appointed to CBL Insurance Europe dac (CBLIE) which underwrites construction related credit and financial surety insurance, professional indemnity insurance, property insurance, and travel bonding.

The Central Bank issued a direction to CBLIE instructing it to cease writing all business with immediate effect from 19 February 2018, until further notice. Under the terms of this direction, CBLIE cannot renew existing policies, which includes policies that renew automatically

Existing policies continue to remain in force however the Central Bank is recommending that policyholders contact CBLIE directly. Members that are using an MGA that has taken capacity from CBLIE may want to consider contacting the MGA to find out about their plans for replacing the capacity provider and on the continuing validity of existing contracts.

Brokers that have placed business with CBLIE directly need to consider whether it would be appropriate to contact affected clients, apprise them of the situation and seek instructions on whether the client would like their business moved (explaining the consequences of doing so).

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An update from CNA Hardy, BIBA’s Excess of Loss scheme provider a year on since the change in the Ogden/discount rate https://www.biba.org.uk/technical-updates/update-cna-hardy-bibas-excess-loss-scheme-provider-year-since-change-ogden-discount-rate/ Wed, 14 Mar 2018 09:06:41 +0000 https://www.biba.org.uk/?p=29334 The post An update from CNA Hardy, BIBA’s Excess of Loss scheme provider a year on since the change in the Ogden/discount rate appeared first on British Insurance Brokers' Association.

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Temporary Vehicles on Unspecified Motor Fleet and Motor Trade Policies and the Motor Insurance Database (MID) https://www.biba.org.uk/technical-updates/temporary-vehicles-unspecified-motor-fleet-motor-trade-policies-motor-insurance-database-mid/ Mon, 05 Mar 2018 12:58:50 +0000 https://www.biba.org.uk/?p=29250 In response to a query from a member we have put together the following guidance on temporary vehicles under unspecified motor trade and motor fleet

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In response to a query from a member we have put together the following guidance on temporary vehicles under unspecified motor trade and motor fleet policies and the MID –

The Motor Insurance Bureau (MIB) advice in respect of recording temporary vehicles for Motor Trade policies is –

‘The MIB recommendation is that all vehicle records that have road cover included are sent to the MID regardless of the period of cover in order to minimise the risk of being stopped by the police and possible vehicle seizure.

Untaxed stock vehicles (i.e. driven on trade plates) need not be notified, although if it is easier simply to notify every vehicle, this is acceptable – in fact this is the MIB’s preferred approach’.  

and in respect of Motor Fleet is –

‘All vehicles insured on your fleet policy should be added to the MID, unless they are not designed for road use. This includes:

  • All permanent vehicles registered to, owned by or leased to you, including long-term hire vehicles
  • Temporary vehicles such as courtesy or short term hire vehicles
  • Other vehicles, irrespective of the duration, regularly covered under your fleet policy’

Please see the attached links to the MIB website –

Motor Trade – https://www.mib.org.uk/media/135974/motor-trade-and-the-mid.pdf

Motor Fleet – https://www.mib.org.uk/media/135977/fleets-and-the-mid.pdf

It is important that you also follow the advice of the insurer in relation to recording temporary vehicles – many insurers have MID information on their broker websites.

The legal obligation for a policyholder to supply all vehicle information to their insurer is contained in the ‘Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003’. These state that should a policyholder elect not to update the MID with temporary vehicles held in their possession for less than 15 days, they do have a legal responsibility to create and retain records of such vehicles for a period of at least 7 years.

The information that needs to be recorded by a policyholder, as set down in the 2003 Regulations, is –

(a) the number of the policy under which the use of the vehicle is insured,

(b) the registration mark of the vehicle, and

(c) the period during which the use of the vehicles is (or has been) covered under the policy

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Grenfell Tower – Property and Liability Insurance Considerations https://www.biba.org.uk/technical-updates/grenfell-tower-property-liability-insurance-considerations/ Wed, 24 Jan 2018 11:33:54 +0000 https://www.biba.org.uk/?p=28921 Grenfell Tower – Property and Liability Insurance Considerations Following the terrible fire at Grenfell Tower on 14 June 2017, the Government has announced a Public

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Grenfell Tower – Property and Liability Insurance Considerations

Following the terrible fire at Grenfell Tower on 14 June 2017, the Government has announced a Public Inquiry which is being led by Sir Martin Moore-Bick (for the terms of reference for the inquiry see https://www.gov.uk/government/publications/grenfell-tower-inquiry-terms-of-reference-published ).

Dame Judith Hackitt is chairing an Independent Review of Building Regulations and Fire Safety also set up following the Grenfell Tower tragedy.  The interim report, issued in December 2017, (see – https://www.gov.uk/government/publications/independent-review-of-building-regulations-and-fire-safety-interim-report ) found that:

  • a culture change is required, with the construction industry taking greater responsibility for what is built
  • the current system for ensuring fire safety in high-rise buildings is not fit for purpose
  • a clear, quick and effective route for residents to raise concerns and be listened to, must be created.

The Grenfell fire has reminded those responsible for fire detection/elimination/protection in high rise buildings that great care needs to be taken and appropriate safety checks conducted.

There are a number of insurance implications arising from the fire and BIBA’s Liability & Accident and Property Committees have debated and considered the following issues –

Property Insurance Issues

The Department for Communities and Local Government (DCLG) has requested that Local Authorities and Registered Social Landlords identify and record the number of properties above 18 metres high, including whether any panels used in new build or property refurbishment are a particular type of cladding made of aluminium composite materials (ACM). However, it has also been identified that ACM may also have been used in the construction of schools, NHS hospitals and universities and similar enquiries are being undertaken. It is also understood that ACM cladding may have been used in the construction of hotels, offices and other commercial and leisure sectors.

A number of issues have been raised following the fire, some of which may need to be considered when making a ‘Reasonable Search’ and ‘Fair Presentation of Risk’ of any property insurance as part of the new obligations under the Insurance Act.  These include

  • Adequacy of sums insured for Property policies. Not only the adequacy of the building sum insured, but also whether the cover for loss of rent and alternative accommodation is sufficient? The indemnity period will also need to be carefully considered.
  • The construction of the building (structural frame, external walls, internal walls, floors, roof) and the materials used not only in the original build but also materials attached to and forming part of the building (cladding etc).
  • What fire protections are in buildings? – fire alarms, sprinklers, service risers, fire doors etc. Is there a log/checklist of all fire safety equipment to identify condition and maintenance?
  • Refurbishment of properties – What additions/changes to the building have been made? E.g. extensions, new heating (do internal walls retain their integrity against fire spread?), what materials have been used in the course of refurbishment.
  • If cladding/insulation has been used what is the combustibility of the insulation material? There are five categories: Combustible, Fire Retardant, Approved Fire Retardant, Fire Resistant and Incombustible.  Any cladding/insulation will need to comply with the relevant Building Regulations and Standards applicable at the time of installation.
  • Fire risk assessments, protections and procedures. Fire risk assessments are required by the Regulatory Reform (Fire Safety) Order 2005 and virtually all those with control of non-domestic premises are required to ensure that a suitable and sufficient fire risk assessment is undertaken, and, in most cases, recorded.  This should be carried out by a responsible person who implements appropriate fire precautionary and protection measures along with maintaining a fire management plan.  The assessment may require review and change following any works undertaken.  Regular inspections by the building owners or agents are essential to maintain the integrity of physical and management standards.  Clear records should be maintained.

Liability Insurance

Legal liability has not yet been determined in the Grenfell Tower case. This is likely to take some considerable time due to:

  • the public inquiry
  • the number of potential claimants
  • potential cost – compensation to direct victims and substantial consequential losses, plus legal costs
  • the number of potential defendants (fridge manufacturer, resident of flat at source of fire, landlords, management company, local authority, developer, contractor, panel supplier)
  • HSE and Police investigations and potential prosecutions

Legal liability could arise in:

  • Negligence
  • Nuisance
  • Failure to warn
  • Breach of professional duty
  • Contract – breach of contract, contractual responsibility, collateral warranties, fitness for purpose, deleterious materials, pure economic loss etc.
  • Breach of statutory duty – health & safety regulations, building regulations
  • Criminal – HSE prosecutions, corporate manslaughter, gross negligence manslaughter

There may be many liability exposures that would need to be considered, including –

  • local authority/property owner/landlord
  • management company
  • architect design liability
  • main contractor and sub-contractor
  • cladding manufacturer/supplier
  • manufacturer of the domestic appliance that caught fire
  • who makes the decisions regarding works/refurbishments

The question of limits of indemnity under public liability, employers’ liability, professional indemnity and directors’ & officers’ policies will need to be considered, including –

  • Nature of the property and use
  • The potential for multiple injuries and deaths (especially in light of the recent change to the Discount Rate for personal injury compensation)
  • Consideration of significant property damage.
  • Consideration of other losses including: alternative accommodation; damage to adjacent property in the area; denial of access.

Please see BIBA’s PI Volume 6 ‘Managing under-insurance’ which discusses special considerations for liability limits – https://view.publitas.com/biba/professional-indemnity-volume-6-managing-under-insurance-a-guide-to-prevention/page/1

Other liability insurance considerations may include –

  • Products liability – are there efficacy exclusions in products liability policies of suppliers/installers of fire protection and suppression equipment?
  • Remedial costs in relation to the costs of replacing cladding on other buildings.
  • Has the relevant limitation period for remedial works expired?

Professional indemnity insurance for consultants and contractors involved in cladding work has come under the spotlight –

  • PI insurers’ renewal questionnaires are more detailed, sometimes seeking information on work involving cladding going back as far as 15 years.
  • Premiums and excesses are increasing for consultants and contractors involved in cladding. PI cover is being restricted in some cases to an aggregate limit of indemnity rather than each and every claim. We further understand that some insurers are applying prior work exclusions in relation to cladding work.
  • Block notifications is a delicate issue. There is case history to the effect that if a broker fails to raise the issue with a client when there is an arguable case to make such a notification then the broker could be liable (see Ocean Finance & Mortgages Ltd v Oval Insurance Broking Ltd).
  • As ever, it depends on the PI policy wording as to whether a notification of circumstance should be made to insurers. The claims conditions and definition of a claim should be reviewed.

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Blog – The Collapse of Carillion https://www.biba.org.uk/technical-updates/blog-collapse-carillion/ Wed, 24 Jan 2018 11:05:08 +0000 https://www.biba.org.uk/?p=28919 With the recent news of Carillion’s collapse, we thought we should reemphasise the importance of trade credit insurance and the new scheme provided by CMR

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With the recent news of Carillion’s collapse, we thought we should reemphasise the importance of trade credit insurance and the new scheme provided by CMR Insurance Services. The recent demise of Carillion demonstrates that no matter the size of a company, it can still fail and often with a much more catastrophic effect. CMR can provide your clients, through their specialised managed policy, a comprehensive protection against the risk of suffering a bad debt. For more information on the BIBA member scheme or to contact CMR please click here. Also, don’t miss their webinar on 14th February, where they will explain the importance of trade credit insurance and how it can help businesses grow.

This blog is brought to your by CMR Insurance Services

The Collapse of Carillion

The collapse of giant Carillion has shaken the construction world. The devastating aftermath continues as the numerous suppliers and employees struggle to come to terms with the fall out. We know that Carillion had been struggling for a long time: shares plummeted from over 200p to 14p in the past year, the result of money lost on large contracts which in turn ran up vast debts.

On 10 July 2017, Carillion issued a trading update that referred to a £845 million impairment charge in its construction services division. As a result, their share price dropped considerably. At the end of September, Carillion’s 6 month financial statement ending 30-June-2017 displayed losses of £1.15 billion. At the same time, Carillion’s debts grew to just under £1 billion. Facing such a disastrous financial struggle, the only way out would be a takeover. That unfortunately never materialised.

Many suppliers to the UK’s second largest construction company will be sweating as to whether they will be paid. Prudent businesses will be waiting on their credit insurer to pay claims to cover these losses they will ultimately suffer. Once again Carillion’s collapse points to the necessity of trade credit insurance and highlights why BIBA has chosen to team up with trade credit insurance specialist CMR Insurance Services as our new scheme provider.

Through CMR, members will be able to provide a product to clients that protects the risk of non-payment from their debtors. Secondly but significantly CMR will keep their clients up to date with the financial situation of their customers. These early warning signs can help guide businesses away from the ticking time bombs of less secure businesses to strong and stable customers, a welcomed reassurance in these uncertain times.

Credit insurers will be paying claims against the losses to those companies that have had the foresight to take out credit insurance policies against companies such as Carillion. Why not offer this new scheme to you current clients? They will be wary of bad debts as it is patently clear that any company, no matter the size, can fail.

For more information, get in touch with CMR and their experts to understand how a trade credit insurance policy could help your customers grow. Also, don’t miss their webinar on 14th February, where CMR will explain the importance of trade credit insurance and how it can help businesses grow.

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REMINDER – Members offering Private Motor Insurance – CMA Return due on 1st February 2018 https://www.biba.org.uk/technical-updates/reminder-members-offering-private-motor-insurance-cma-return-due-1st-february-2018/ Mon, 22 Jan 2018 10:52:14 +0000 https://www.biba.org.uk/?p=28857 Annual Compliance Statement If you offer Private Motor insurance including optional NCD Protection, the Competition and Markets Authority Private Motor Insurance Order 2015 requires you

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Annual Compliance Statement

If you offer Private Motor insurance including optional NCD Protection, the Competition and Markets Authority Private Motor Insurance Order 2015 requires you to submit on 1st February 2018:

  • Annual Compliance Statement – a statement confirming compliance with the Order (please see Schedule 3 on page 19 of the CMA Final order – here), and
  • Average NCB Discount[s] – details of average NCD scales being applied by your panel of motor insurance providers (please see Annex 1 on page 19 of the Order)

The average NCD scales you send must have been updated by insurers, to reflect average NCD percentages granted to their policyholders from 1st January 2017 to 31st December 2017.

This means that insurers only have the month of January 2018 to collect together all necessary data, recalculate average NCD percentages and provide them to software houses to integrate into the system. For this reason we recommend that you do not try to submit your compliance statement early, as the average NCD scales which need to accompany this are unlikely to be available until very close to the 1st February 2018.

You may find that some insurers will show their average NCB tables on their broker website.

The information is to be e-mailed to the CMA at their e-mail address – pmi.order@cma.gsi.gov.uk

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Recent Motor Insurance Case Law extending ‘Use of a Vehicle’ under the Road Traffic Act following the CJEU ‘Vnuk’ judgement https://www.biba.org.uk/technical-updates/recent-motor-insurance-case-law-extending-use-vehicle-road-traffic-act-following-cjeu-vnuk-judgement/ Tue, 17 Oct 2017 11:11:56 +0000 https://www.biba.org.uk/?p=28135 Use of a Vehicle – R&S Pilling (t/a Phoenix Engineering) v UK Insurance Ltd [2017] EWCA Civ 259 In this case the Court of Appeal

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Use of a Vehicle – R&S Pilling (t/a Phoenix Engineering) v UK Insurance Ltd [2017] EWCA Civ 259

In this case the Court of Appeal held that repairs to a vehicle were considered to be use of a vehicle.

Mr Holden, employed by R&S Piling, was permitted to undertake repairs to his car in R&S Piling’s factory premises.  In the course of the repair his car caught light whilst he was welding it and the fire spread to his employer’s factory premises and adjoining premises.

AXA Insurance were Property and Public Liability insurer of R&S Piling and UK Insurance were Mr Holden’s motor insurer.  AXA brought a claim against UK Insurance arguing that the repairs were consistent with use of a vehicle.  The judge held that held that undergoing repairs was not part of the normal function of a vehicle, and that it was an “accident” as it was a fortuitous or unexpected event.  AXA were allowed to appeal.

The Court of Appeal  judgement was  that carrying out repairs by Holden to enable the car to be in a safe condition and pass its MOT so he could continue to drive it was consistent with the normal function of a car.

The Master of the Rolls held that such an interpretation was consistent with the EU Motor Insurance Directive’s aim in protecting victims of motor accidents, and also with the wording of the Directive, which used the word “use” rather than “operate” or “drive”.

Use of a Vehicle – Christopher Wastell v (1) Estate of Gordon John Woodward (Deceased) (2) Chaucer Syndicates Ltd [2017]

Woodward owned a hamburger van which was parked in a layby.  He had stepped out into the road whilst returning to his van after displaying a sign for his business on the opposite side of the road. Woodward was hit by a motorcycle and was killed instantly and Wastell, the motorcyclist, was badly injured.

Woodward had no public liability insurance, but his partner had a motor insurance policy insured with Chaucer Syndicates, on which he was a named driver. The policy, however, did not cover the use of the van as a business.

The issue for the court was whether the accident arose out of “the use of a vehicle” for the purpose of s. 145(3) of the Road Traffic Act [1988] which provides that compulsory motor insurance must insure the drivers named in the policy in respect of death or personal injury “caused by, or arising out of, the use of the vehicle on a road or other public place”. 

Chaucer Syndicates argued the motor vehicle was not being used as such and instead was being used as a stationary hamburger van with the purpose of selling burgers to passers-by. Furthermore the activity of placing and adjusting a business sign was a self-contained activity.

The Court had to determine ‘what was the use of the vehicle on the road’ and then ask ‘whether the accident arose out of that use’. The relevant use in this case was a hamburger van. Although Woodward and his partner did not disclose to Chaucer Syndicates that the van was to be used in this capacity, that was found to be irrelevant – the claim had to be dealt with according to the wording of the Road Traffic Act rather than the scope of the contract of insurance.

The accident arose out of the use of the van as a hamburger van which was parked up in order to sell hamburgers and Woodward was in the process of returning to his van after putting up a sign to further that activity. It was held that the accident was closely linked to using the van on the road and the issue was determined in favour of Wastell.

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See the results of our Brief Brexit Survey https://www.biba.org.uk/technical-updates/see-results-brief-brexit-survey/ Thu, 05 Oct 2017 15:03:09 +0000 https://www.biba.org.uk/?p=28070 2017-09-26-Survey-Monkey-Responses-Brexit

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2017-09-26-Survey-Monkey-Responses-Brexit

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ABI Trade Credit Insurance Guide https://www.biba.org.uk/technical-updates/abi-trade-credit-insurance-guide/ Wed, 24 May 2017 14:56:52 +0000 https://www.biba.org.uk/?p=27277 The post ABI Trade Credit Insurance Guide appeared first on British Insurance Brokers' Association.

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Aggregation within Solicitor’s PI and possible implications to the wider PI market https://www.biba.org.uk/technical-updates/aggregation-within-solicitors-pi-possible-implications-wider-pi-market/ Thu, 18 May 2017 13:46:46 +0000 https://www.biba.org.uk/?p=27197 Supreme Court Case judgement on ‘aggregation’ within Solicitor’s PI AIG Europe v Woodman  The Supreme Court recently reached its long-awaited judgement in the AIG v

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Supreme Court Case judgement on ‘aggregation’ within Solicitor’s PI

AIG Europe v Woodman 

The Supreme Court recently reached its long-awaited judgement in the AIG v Woodman case, with it creating more certainty surrounding the application of ‘aggregation’ within Solicitors Professional Indemnity (PI) insurance.  To arrive at its decision, the Court fully scrutinised the aggregation wording within the minimum terms and conditions (MTCs) of the Solicitors Regulation Authority (SRA) which limits cover to one claim for “all claims arising from the same or similar acts or omission in a series of related matters or transactions…”.  It is yet to be seen whether this judgement will have any material impact on either the solicitors or the wider PI market.

The solicitor had advised on the development of two holiday resorts in Turkey and Morocco which were being financed by private investors.  One of its duties was to advance funds from the investors for the purchase of land but this money was released to the developer before adequate security had been put in place and the developer collapsed financially before the land was purchased.  The investors, totalling more than 200, sought recompense from the solicitor and their PI insurers, AIG, with the insurer arguing that all claims should be aggregated into one under the MTCs, limiting their exposure to the £3m limit of indemnity rather than the total amount sought by the investors, being more than £10m.

Their argument was rejected by the Commercial Court and Court of Appeal, but they then referred it to the Supreme Court, who took a much more simplistic view in interpreting ‘aggregation’ within the MTCs, deciding that claims merely had to have some inter-connection between transactions rather than an intrinsic relationship.  The same Court decided that, as the two projects were separate and unconnected, they could not be aggregated together so there would be two separate £3m claims, but this was still a very good result for the insurer.  It is worth pointing out that the benefit of aggregation could be the other way when multiple excesses could be due from a policyholder.

Although it seems to be an important judgement it possibly only reinforces the interpretation of policy coverage that many PI insurers would have assumed, and wanted, to be the case already.  For this reason it is unlikely to have a dramatic impact on the solicitors PI market in the short-term.  It could also be questioned as to how much of an impact this will have on the wider PI market as the determination of aggregation will always depend on both the facts of the case and the specific wording of each policy, but it could of course prove influential.  One change that is more likely is some PI insurers looking to tighten their wordings around aggregation to minimise their exposures as even small wording differences can have a large influence how the Courts interpret the operation of cover.

The very nature of legal services create an environment where a ‘series of related transactions’ (and therefore the potential for aggregation) is more prevalent than most professions though the others most likely to be affected in a similar way are surveyors and possibly also IFAs and insurance brokers.  As well as the long-standing risk of a rogue or insufficiently trained/supervised employee, there has been a huge increase in the prevalence of online trading and its associated risks.  Many brokers also now have binding authorities in place with the ability to quote rates, bind cover, produce policy documentation and even manage and settle claims, and each layer of authority carries with it an inherent risk of an error or omission being repeated multiple times.  Added to this are the increasing variety of distribution channels of insurance products, often via wholesale brokers and MGAs, and these can create a less transparent and more dangerous broking environment than the traditional model.

In the current competitive environment, where insurers are under significant pressures with underwriting returns and competition between brokers and against direct business is fierce, a shorter-term approach can manifest which enhances fluctuations in market appetite and business being moved more frequently.  This presents inherent dangers for brokers who may have to change the underwriters who support a particular scheme or transfer a book of business.

Although the dangers of aggregation may not be quite as prevalent as with solicitors, insurance brokers do have potential exposures and should always continue to face these risks in a cautious and risk aware manner to avoid ever finding themselves in the same position as the solicitor firm in this case.  It would certainly be prudent for brokers to check their own PI insurance for how it deals with aggregation and this highlights the ever increasing importance of choosing a quality insurer with a long-term approach and reputation for supporting insureds when claims are notified.

With thanks to Matt MacLaren, Griffiths & Armour Professional Risks. A BIBA Accredited PI Broker.

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The Discount Rate Change and Limits of Indemnity https://www.biba.org.uk/technical-updates/discount-rate-change-limits-indemnity/ Fri, 05 May 2017 15:20:49 +0000 https://www.biba.org.uk/?p=26858 We provided an update on the change in the discount rate from 2.5% to -0.75% on 28/2/2017 – click here > The Government have now

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We provided an update on the change in the discount rate from 2.5% to -0.75% on 28/2/2017 – click here >

The Government have now issued a Consultation paper ‘Personal injury discount rate: how it should be set in future’ which closes on 11 May 2017 click here > to which BIBA will be providing a response highlighting the impact on insurers’ reserves, the likely increase in insurance premiums and the potential for underinsurance in liability limits..

The consequence of the change in discount rate has resulted in significant increases in insurers’ claims reserves on current policies for catastrophic personal injury – Willis Towers Watson, the global advisory firm, estimates the impact of the change on insurers as a material one-off reserve charge of approximately £5.8 billion.  BIBA attended an industry stakeholder meeting to discuss the consultation and a case was highlighted for an SME business whereby a claim reserve for a personal injury on a public liability policy was increased from £8million to £15million, due to the change in the Discount Rate.  The SME purchased a limit of £10million and the likely consequences will be the bankruptcy of the SME.

Publically available information on Public and Employers’ Liability injury claims is limited, but we have been advised of the following incidents –

  • PL claim – child severely injured by vehicle on construction site, contractor responsible for traffic management found to be negligent. Claim reserved at £9million originally, following change in discount rate reserve now increased to £20million.
  • PL claim – child injured by falling bough from a tree in park. Claim settled prior to discount rate change at £5million within the primary PL limit – claim would have been significantly higher post discount rate change.
  • PL claim – property owner’s policy – tenant fell down external stairs of building suffering severe injury. Claim reserved at £4.5million originally, following change in discount rate reserve now increased to £6.5million.
  • EL claim – Claimant aged 19 at accident causing tetraplegia. Reserve originally £9million, increased to £20.1million following discount rate change.  EL limit of indemnity £10million.
  • EL claim – Claimant suffered spinal cord injuries leading to complete paraplegia following an accident at work.  Reserve originally £15million, increased to £27.5million following discount rate change.  EL limit of indemnity £10million.

We have seen a number of publically reported high-value motor insurance claims, including –

  • Collier v Norton (click here to see BIBA Legal Supplement) settled at £23million before the change in the discount rate.
  • claim settled on the date that the change in the rates was announced, using the new -0.75% rate settled at £28million, click here
  • Manny Helmot, settled in 2010 at £14million pre discount rate change.
  • Wasim Mohammed, settled in 2010 at £11.15million pre discount rate change.

and also high value medical malpractice claims, including –

  • Maisha Najeeb, settled in 2014 at £24million pre discount rate change.
  • Milly Evans, settled in 2014 at £10.8million pre discount rate change.

Members may wish to consider reviewing liability limits of indemnity with their clients.  Indemnity limits are commonly £10million for Employers’ Liability, and anything from £2million and above for Public and Products liability (although we understand that there are still some e-traded Public Liability policies available with limits of £1million).

BIBA members may wish to consider using BIBA’s Professional Indemnity Initiative Volume 6 ‘Managing Under-Insurance a Guide to Prevention’ in assisting in raising awareness.  Pages 34-39 of the Guide – ‘Liability – special considerations’ – discuss liability limits of indemnity.  Please see a link to the guide here >

In considering limits of indemnity, members may also wish to consider –

  • Property damage and product liability claims may also result in significant losses.
  • The adequacy of limits of indemnity for losses occurring today that may manifest themselves in the future – will the limit of indemnity in place currently be sufficient for claims that may arise in the future? Asbestosis and Mesothelioma claims are being pursued today from exposures many years ago against EL policies with limits of indemnity arranged with limits of indemnity as low as £100,000.
  • We understand that some insurers’ response to the change in the discount rate is to reduce the limits of indemnity that they provide for primary layers.

BIBA have in place a Scheme for members with CNA Hardy for Excess Layer Public, Products and Employers’ Liability, with the ability to underwrite limits up to £20million in excess of the primary limit for organisations with turnover not exceeding £50million.  CNA Hardy can provide short-term or longer terms policies to ensure that their policy falls in line with the primary insurer.  Click here >

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BIBA’s response to the DfT Consultation on the ECJ Vnuk Ruling https://www.biba.org.uk/technical-updates/bibas-response-dft-consultation-ecj-vnuk-ruling/ Thu, 13 Apr 2017 08:12:26 +0000 https://www.biba.org.uk/?p=26631 The post BIBA’s response to the DfT Consultation on the ECJ Vnuk Ruling appeared first on British Insurance Brokers' Association.

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The Riot Compensation Act 2016 and The Riot Compensation Regulations 2017 https://www.biba.org.uk/technical-updates/riot-compensation-act-2016-riot-compensation-regulations-2017/ Thu, 06 Apr 2017 13:37:07 +0000 https://www.biba.org.uk/?p=26585 Technical Update : The Riot Compensation Act 2016 and The Riot Compensation Regulations 2017 Background:- The Riot Compensation Act 2016 repeals the Riot (Damages) Act

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Technical Update : The Riot Compensation Act 2016 and The Riot Compensation Regulations 2017

Background:-

The Riot Compensation Act 2016 repeals the Riot (Damages) Act 1886 which was deemed as being no longer fit for purpose.  The Act is a culmination of an independent review of the Riot (Damages) Act carried out by Neil Kinghan in 2013 and a Government consultation in 2014 which resulted in The Riot Compensation Bill which was introduced to the House of Commons in June, 2015. BIBA met with Neil Kinghan and also responded to the consultation.

The Riot Compensation Regulations 2017 are the result of the Home Office consulting with the police, the ABI and large insurance companies in December, 2016.

Effective Date : Other than Sections 11 and 12 of The Act (which came into force on 23rd March, 2016) both the Act and The Regulations came into force on 6th April, 2017.

Summaries :

The new Act creates a more effective process for both businesses and individuals to claim compensation following damages incurred by riot.

The Act introduces several key changes which: –

  • Allow insurers who have met claims from people or businesses to claim compensation from the local policing body.
  • Allow people and businesses, which are not insured, to claim compensation from the local policing body.
  • Require that the amount of compensation must reflect only the loss directly resulting from the damage, destruction or theft of the property. Consequential loss is not covered.
  • Compensation is capped at £1m on each claim
  • Allows for claims on motor vehicles which are not insured for riot damage, but which are covered by an insurance policy at the time.

The Act also makes provision for the formation of a riot claims bureau and subsequent regulations for changes to the period of time a person or business would have to make a claim.

The definition of ‘riot’ is now in accordance with section 1 of the Public Order Act 1986. See http://www.legislation.gov.uk/ukpga/1986/64

Full details of the Act can be found at : http://www.legislation.gov.uk/ukpga/2016/8/contents/enacted/data.htm

The Riot Compensation Regulations 2017 provide for the practical implications of the Riot Compensation Act, 2016,  especially around claims procedures, notably:-

  • Where more than one person has a legal interest in property each person may make a claim under the 2016 Act. No person may make more than one claim in respect of the same postal address.
  • A claim must generally be made within 43 days from the end date of the riot. But in respect of claimants whose insurers have refused to pay the whole or part of a claim, 43 days from the insurers decision. Supporting evidence is to be provided within 91 days.
  • Other than motor vehicles and business stock which are subject to depreciation or valued on a replacement basis replacement is allowed on a new for old basis.
  • If a claimants home has been damaged rendering it uninhabitable claims for alternative accommodation may be made but are limited to a maximum period of 132 days from the date the property was damaged.
  • Claims made by persons taking part in the riot, contributing to damage during the riot or committing a criminal offence relating to the riot may be decreased or refused.

Full details of the Regulations can be found at : http://www.legislation.gov.uk/uksi/2017/371/pdfs/uksi_20170371_en.pdf

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ELTO Broker Guide 2017 https://www.biba.org.uk/technical-updates/elto-broker-guide-2017/ Fri, 31 Mar 2017 09:58:31 +0000 https://www.biba.org.uk/?p=26519 The post ELTO Broker Guide 2017 appeared first on British Insurance Brokers' Association.

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Technical guidance to members, from NAPIT, on demonstrating compliance with the Electricity at Work Regulations 1989 https://www.biba.org.uk/technical-updates/technical-guidance-members-napit-demonstrating-compliance-electricity-work-regulations-1989/ Wed, 15 Mar 2017 09:47:18 +0000 https://www.biba.org.uk/?p=26366 1st March 2017 Demonstrating Compliance with the Electricity at Work Regulations 1989 Introduction The Electricity at Work Regulations 1989 (EAWR) were introduced under the Health

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1st March 2017

Demonstrating Compliance with the Electricity at Work Regulations 1989

Introduction

The Electricity at Work Regulations 1989 (EAWR) were introduced under the Health and Safety at Work etc Act 1974 (the HSW Act) and is the primary legislation concerning the safety of electrical systems and equipment in the workplace.

Like the HSW Act, the EAWR applies principally to employers, employees and the self-employed. Duties are imposed on people (called, ‘Duty Holders’) according to their level of responsibility within the company.

It is important that people recognise their responsibilities under the EAWR. The penalties for non-compliance are daunting. Failure to discharge a duty can result in an unlimited fine, imprisonment of up to two years or both.

This article will consider the duties imposed by the EAWR.

‘Reasonably practicable’ and ‘absolute’                                                            

The term ‘reasonably practicable’ is used in connection with some duties in the EAWR. Where this term is absent, the requirement is said to be, ‘absolute’, which means that it must be met regardless of cost or any other consideration.

The phrase, ‘reasonably practicable’ means the risk must be balanced against the measures needed to control the risk in terms of money, time or trouble.

Primary Electrical Duty Holders

Employers, directors and managers etc. are classed as, Primary Electrical Duty Holders and their responsibilities can be summarised simply as the need to ensure:

  • safe procedures
  • safe places
  • safe people

If an accident is judged to be attributable to the negligence of a Primary Electrical Duty Holder, that person is liable to prosecution in addition to the company.

Some of the duties in the EAWR are non-technical but other duties require technical knowledge. Primary Electrical Duty Holders may appoint additional Duty Holders, such as a Duty Holder (Electrical).

Responsibilities of the Duty Holder (Electrical)

The Duty Holder (Electrical) must be able to ask and answer the following questions:

  1. Do I know the risks arising from our activities?
  2. Do I know how to eliminate, control or reduce them?
  3. Do I communicate the above information through my company or organisation?
  4. Do I know that staff are complying with those measures?

If the Duty Holder (Electrical) is unsure of the answers to any of these questions, he or she will need to:

For new premises…

  • Carry out a Risk Assessment and formalise any new systems of work into safe working procedures
  • Include in your procedures, where necessary, the use of ‘Permits to work’ coupled with physical lock-off systems where appropriate
  • Inform and train your staff along with any external contractors you employ
  • Provide regular informal group discussions on safe working practices and procedures
  • Observe all parts of the  procedure,    modify if necessary, and continue to monitor

When revisiting existing premises…

  • Confirm that the risk assessment of working practices, environment and equipment is still valid
  • Determine what can be done to remove any identified hazards and then address them
  • Should unavoidable hazards remain, develop a safe system of work

Reducing risk

One way in which risks of non-compliance can be reduced is by the use of external specialists to provide an Electrical Compliance Inspection Service.

One example of such a service is that jointly offered by NAPIT and Travelers, one of the world’s leading insurance companies, to their policyholders. This service is completed by a NAPIT Inspector who will assess three areas; Safe Systems of Work, Safe Place of Work and Safe People at Work. This involves looking in detail into a number of areas, such as, the presence of risk assessments, safe working procedures, staff competence, qualifications and training records, procedures for safe isolation, adequate maintenance records including, programmes of works for undertaking Electrical Installation Condition Reports (EICR) and Portable Appliance Testing (PAT), and procedures for the rectification of identified faults.

Demonstrating compliance with the EAWR

In any proceedings for contravention of the EAWR, a person must be able to prove that he or she took all reasonable steps and exercised all due diligence to avoid the commission of that offence.

By having a comprehensive Electrical Compliance Inspection of your electrical system and procedures and documentation completed by an experienced Inspector, you will have clearly demonstrated your commitment to complying with the EAWR.

Contact details:

info@napit.org.uk

Tel: 0345 543 0330

www.napit.org.uk

Follow us on Twitter: @OfficialNAPIT

Like us on Facebook:  www.facebook.com/OfficialNAPIT

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Discount Rate Review – Reduction to -0.75% https://www.biba.org.uk/technical-updates/discount-rate-review-reduction-0-75/ Tue, 28 Feb 2017 12:39:41 +0000 https://www.biba.org.uk/?p=26306 The Lord Chancellor has announced (27/2/2017) a reduction in the personal injury Discount Rate from 2.5% to -0.75% and will be effective from 20th March

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The Lord Chancellor has announced (27/2/2017) a reduction in the personal injury Discount Rate from 2.5% to -0.75% and will be effective from 20th March 2017.

The Rate change is based on a three year average of returns on Government index linked Gilts.

This will mean that insurers, when settling claims to claimants with catastrophic personal injuries, will be required to pay increased compensation sums.  Claimants with long life expectancies may expect lump sum awards increased by 50%, or even higher depending on circumstances, when the new rate comes into effect.

The reduction in the Rate will likely have a substantial impact on motor and liability insurance premiums for both consumers and business.

In announcing the change the Lord Chancellor accepted that the reduction will have ‘significant implications across the public and private sector’, but went on to say ‘the law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants.  I am clear that this is the only legally acceptable rate I can set.’

A further consultation, to be issued before Easter 2017, on the Discount Rate was also announced  to consider options for reform including whether an independent body should set the rate in future, whether there should be more frequent reviews and whether the methodology of assuming claimants will only invest in Government Gilts is appropriate.

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