Welcome message. July August Welcome to the July-August 2012 issue of Insurance Insight.

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1 July August 2012 Welcome message Welcome to the July-August 2012 issue of Insurance Insight. As we head into a new financial year, I d like to wish all businesses a prosperous and successful year on behalf of the whole team at EBM Insurance Brokers. In this issue, we take a look at crisis management planning, one of the services EBM offers clients. By taking the time to think through the critical what ifs of your business, you ll reduce the odds of disruption occurring in the first place and respond better if it does. One of the many potential sources of business disruption can come at the hands of leasing a commercial property, whether by unsustainable rent increases or disasters caused by poor maintenance. So it s timely that we look at borrowing to buy your own business premises within a self-managed superannuation fund, in light of a recent Australian Tax Office ruling clarifying what is and isn t allowable. I hope you enjoy this edition of Insurance Insight and look forward to keeping you up-to-date with EBM and industry news. Jeff Adams Managing Director If you wish to opt-out of receiving future newsletters simply click on the link at the bottom of this . 1

2 Borrow within super to buy your business premises The number of small and medium businesses borrowing within super to buy their business premises could rise under a recent tax ruling, which clarifies the rules on repairs, maintenance and improvements. The decision is just one of many applying to self-managed super funds (SMSFs) and the rules are complex so it s crucial to obtain professional advice before signing any contract, let alone paying a deposit. According to the Australian Taxation Office (ATO) ruling, SMSFs are allowed to use non-borrowed money to improve an asset, so long as the fundamental character of the asset is not changed. The ATO gave an example of a car wash business extended to double the number of wash bays as an acceptable change. Business people who already own their premises can also potentially transfer them into a SMSF, providing certain conditions are met, including meeting the definition of business real property. Buying or transferring your business premises into an SMSF carries a number of advantages including: the tax-deductible rent your business pays for your building helps to build your retirement savings the double whammy ; the SMSF pays a maximum of 15% tax on the rental income; you don t risk having to move because of a landlord s decisions; tax savings when the property is sold; and protection from creditors in bankruptcy. However, there are disadvantages, such as: your SMSF has to treat your business tenancy professionally on an arm s length basis that means paying regular, market rent and, potentially, taking recovery action against your business if you have trouble paying rent; when you die, the property might need to be sold to meet tax liabilities or settle a dispute between heirs if insufficient planning takes place beforehand; compliance - you need to make sure that you continue to meet the business real property test; and a commercial property might not be the best possible investment for your super fund, particularly with regard to diversification and liquidity. The Managing Director of EBM Insurance Brokers, Jeff Adams, said insurance was essential, regardless if business premises were held in super or outside of it and recommended sufficient life insurance to ensure the property did not need to be sold to pay out beneficiaries. You can find the ATO ruling at 2

3 Changes to emergency services funding under the spotlight Workers compensation claims can be complex, but EBM Insurance Brokers provides a free injury management coordination service to help clients manage them effectively and efficiently. Injury Management Manager, Amanda Tulloch, said the firm s familiarity with workplace compensation laws could save employers unnecessary disruption and cost. In one case, EBM negotiated with an insurer to reduce an estimate of outstanding costs against a client by almost $159,000 enabling a substantial reduction in premiums. As an experienced second pair of eyes Amanda, her team can identify new claims with the potential to lead to payouts over a long duration, co-ordinate claims management and help assess medical reports. With more than 14 years experience, Amanda says she enjoys liaising with the different parties in a claim to help clients: No two claims are the same. Injury management is provided free of charge by EBM Insurance Brokers to our clients for whom we have placed their workers compensation insurance. Tram fare evasion insurance scheme backtrack Two entrepreneurial and naive university students have backed away from a proposal to insure Melbourne tram users against receiving fines for fare evasion. After mooting a proposal for a $20-a-month Tramsurance scheme and launching a website, the pair reported an explosion of interest. Unsurprisingly, among the interested parties was Public Transport Victoria, which issued the 19-year-olds with a cease and desist letter. In an open letter to the authorities, founder Tom Pisel said it was cheaper to pay the occasional fine than pay for the fares, which were unaffordable for some. I understood that mathematically at least, Tramsurance could exist, he said, branding the idea a simple possiblity which had not in fact facilitated any transactions. According to Victorian Government figures, 20 per cent of tram travellers ride without a ticket. 3

4 The original Tramsurance website appears to have been replaced, with a photograph taken in hip Brunswick Street, Fitzroy, and a call for followers to spread the word on too high tram fares via social media. The Tramsurance Facebook page had 444 likes at time of writing. Crisis management planning EBM can help Pick your cliché. The catchy: If you fail to plan, you plan to fail. Or the time-honoured wisdom of Murphy s Law: Anything that can go wrong will go wrong. One of the services EBM Insurance Brokers offers is crisis management planning facilitation; a process designed specifically for each business to ensure that it can continue operating following a major disruption. EBM State Manager NSW & Corporate Account Director, Lance Costello, said the field of crisis management was broad but what the firm tried to do was sit down with business people and ask them to run through the big what ifs with the outcome of creating a Crisis Management Plan. Businesses can be disrupted by a range of factors including natural disasters, computer failures, product recalls, mis-management, illness of critical personnel and human failures. A major insurance loss can have a big impact and this is not a good time to be making critical decisions, Lance said, adding that decisions made before any loss can be made with a clear head when a business owner or manager isn t paralysed by grief, he said. Thankfully, a lot people will not have experienced a major loss. However, as the largest privately owned broking house in Australia with over thirty five years in the industry, our team has worked through many such losses it is what we do, Lance said. From our point of view, early intervention is critical if there is a crisis, he added. To illustrate the point, Lance gives the example of one client, who did have a Crisis Management Plan. Their roof was destroyed by a catastrophic hailstorm which destroyed an enormous amount of property throughout Sydney in They phoned us straight away. On the way to the premises, we ordered emergency tarps, arranged the assessor who, in turn, organised a builder to meet at the premises. We worked through the night with the client and, as a result, our client s roof was replaced within three weeks and their operation was back to normal within that period. The business next door waited 18 months to get their roof replaced due to the lack of available builders and ultimately fell into bankruptcy Lance said. By identifying what processes and functions were necessary to keep the organisation running, and developing contingency plans if they fail, businesses can be better prepared to face crises. 4

5 Insurance Veteran Jerom keeps clients for 20 years plus! Jerom Major has sat on both sides of the desk when it comes to insurance broking and underwriting, but has found broking more rewarding. It s a lot more diverse. I find it more interesting, says Jerom, who is Regional Manager South West for EBM Insurance Brokers in Western Australia. While underwriting involves applying pre-set formulas from rate books to situations, he says brokers need to understand each new business they deal with, its risks and which of many insurers can offer the most appropriate cover. Jerom joined the insurance industry straight out of school with another firm in his home town of Geraldton, rising to management before transferring to the big, wide world of Perth. More than twenty years later, he still has clients from his early days. Clients follow you around. It s a very personal thing... You know their business and where they are at, both personally and financially. Jerom moved to EBM s Bunbury office seven years ago, where he met his now-wife. Son Joshua, aged three, and daughter Jessie, one, soon followed so he sees himself staying put in Bunbury, despite challenges the region is currently facing. The South West has been hit hard by the decline of the timber industry and has not felt the benefits of the resources boom, he explains. People don t consider insurance that important until they re facing a major claim. Some say it will never happen. Unfortunately, it can, and I ve got examples. One claim we re dealing with could go in to the millions of dollars, Jerom says. With a busy working life, Jerom tries to spend as much time as possible with his children on weekends, taking them to swimming lessons and play groups. He does, however, get a chance to indulge his hobby of fishing during an annual two-week trip to chase big game fish with mates. All Enquiries: 1300 INSURE ( ) ebm@ebminsurance.com.au Sydney Melbourne Perth Gold Coast Bunbury Kalgoorlie Geraldton Karratha Sale Affiliated Offices: China, Hong Kong, Indonesia, Macau, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand, Lloyd's Coverholder Elkington Bishop Molineaux Insurance Brokers Pty Ltd AFSLN ABN Est