Aon commentary - draft Property, Stock and Business Agents Amendment (Professional Indemnity Insurance) Regulation 2012 NSW Fair Trading 5 October 2012
1. Introduction This document has been prepared in response to the NSW Department of Fair Trading s invitation to comment on the exposure draft Property, Stock and Business Agents Amendment (Professional Indemnity Insurance) Regulation 2012. Aon are grateful for the opportunity to provide you with advice. Aon is one of Australia s leading providers of Professional Indemnity insurance to the real estate sector In view of our long standing association with the sector and industry bodies, we believe that we are uniquely placed to provide you with meaningful commentary on your proposed legislation. 2. Scope of commentary Source: Summary Property, Stock and Business Agents Amendment (Professional Indemnity Insurance) Regulation 2012 1. Which classes of licensee will be required to have insurance? It is proposed that all classes of licensees under the Property, Stock and Business Agents Act 2002 will be required to hold and maintain a policy of professional indemnity insurance that meets the requirements of the draft Amendment Regulation, as a mandatory licence condition. The affected licenses are therefore as follows: real estate agent; stock and station agent; business agent; strata managing agent; community managing agent; and On-site residential property manager. 2. What are the proposed requirements in the exposure draft Amendment Regulation that the professional indemnity insurance policy must comply with? The exposure draft Amendment Regulation contains the following proposed requirements for a policy of professional indemnity insurance policy. 1. That the policy must provide cover for civil liability (including liability for personal injury) arising from any of the following: i. negligence ii. misleading or deceptive conduct; iii. fraud or dishonesty; iv. breach of contract; v. defamation; vi. interference with intellectual property rights; and vii. vicarious liability for the acts or omissions of others. 2. That the policy provides a minimum cover of $1 million for any one claim and $3 million in the aggregate for all claims made during the period of insurance.
In general employed licensees s would be covered by their employer s policy, however, each licensee would need to ensure that they are covered by a complying professional indemnity insurance policy. The exposure draft Amendment Regulation provides for a minimum level of insurance cover. Of course, licensees would be able to obtain a higher level of insurance cover if they consider it necessary. Licensees would also be free to obtain cover for a range of other insurance events that can be covered by professional indemnity insurance, provided the policy provided coverage for the mandatory requirements. Confidentiality Notice This report contains information, which is confidential to NSW Fair Trading and Aon Risk Services Australia Limited (Aon). Accordingly, we trust you will understand this report is given to NSW Fair Trading and its officers and employees in confidence and may not be used, reproduced in any form or communicated to any other person, firm or company without the prior approval of Aon. Privacy Notice Aon has always valued the privacy of personal information. If you would like a copy of our Privacy Policy, you can contact us or access it from our website at www.aon.com.au. Aon Risk Services Australia Limited 5 October 2012. Written and published by Aon Risk Services Australia Limited. This work is copyright and confidential. Other than as permitted by law, no part of it may in any form or by any means be reproduced, stored or transmitted without permission of the copyright owner, Aon Risk Services Australia Limited.
3. Aon response Do you agree with the proposed minimum amount of professional indemnity insurance cover of $1 million per claim and $3 million in the aggregate during the period of insurance? In principle, the question whether the proposed minimum amount of professional indemnity insurance cover of $1 million is adequate will vary according to the size of the agency and the context in which their activities are carried out. Using our own client base as an indicator, the proposed minimum Limit of liability of $1 million per claim is currently in line with client selection criteria. Whilst not conclusive, arguably this selection is based on price in addition to need and liability exposures. On an individual case by case basis we discuss with our clients their individual requirements and openly encourage clients to seek the maximum cover suitable to their business requirements Most commonly claims involve personal injury, involving tenants or guests suffering an injury on a property where proceedings are commenced against both the owner and the real estate agency/property manager. Generally the quantum for this type of claim is contingent on injuries suffered and effect on plaintiff's working capacity. They usually extend upwards of $25,000 plus contribution costs. As a starting point $3 million in the aggregate for all claims is currently in line with current market trends for this sector but it should be noted that for larger quantum claims legal expenses can quickly erode a limit. Recently, we have seen the overall volume of claims reducing, but an increasing tendency towards claims becoming more serious in terms of both their severity and those reaching litigation. Needless to say, the legal costs involved in settling claims are escalating. In view of the proposed amendment, we suggest that consideration be given to the following: Adjustment mechanism. A mechanism which allows for the minimum Limit of liability to be increased without having to refer to Government for passing an amendment to legislation. This comment is based on our experience e that whilst the legislation is only prescribing a minimum limit, and not a maximum, clients has a tendency to purchase only the minimum requirement. Therefore, should the claims trends and frequency or severity increase significantly in the coming years, the minimum limit could soon become inadequate. Scaled limits. Consideration should also be given to developing a simple scale, whereby the minimum limit is linked to a business activity indicator or turnover. Larger organisations would have a requirement to purchase higher limits due to increased business exposure. Are the proposed mandated insurable events appropriate? Aon believes that the proposed mandated insurable events are appropriate and coverage is readily available in the current insurance market. In addition to the causes of loss listed, we would also recommend the inclusion of the following: Fidelity Guarantee Bodily Injury Property Damage Run off 1
Appendix A. Aon credentials and capabilities Real Estate sector experience For many years, Aon has been an active service provider to the real estate sector. We currently provide services to more than 3,500 real estate sector clients nationally. Aon's association with the Real Estate Industry extends to over 40 years. In fact one of Aon s antecedent companies developed the first dedicated Professional Indemnity policy specifically for Real Estate agencies. In the ensuing time Aon has acted as Broker, advocate, risk manager and claims adviser to the industry nationally delivering product excellence and unparalleled service to our clients. Aon clients benefit from a range and depth of resources not available anywhere else from a single source and we have the trust, experience and expertise within the real estate industry. Aon Risk Services Australia Limited Aon Risk Services Australia Limited (Aon) is a 100% owned subsidiary of Aon Holdings Limited, which is in turn 100% owned by Aon plc. As required under the Financial Services Reform (FSR) Act, Aon Risk Services is a holder of an Australian Financial Services (FSR) license (#241141). As Australia s largest insurance broker, we are unrivalled in our ability to place insurance programs in the most cost- effective manner. With over 30 offices and staff exceeding 1,600, we place in excess of AU$1.8 billion of insurance premium in the Australian market with local insurers. Our values Aon is a values-based organisation. The activities and behaviour of our people is underpinned by our core values: Trust, Openness, Commitment, Teamwork, Integrity and Innovation. About Aon Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 61,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, reinsurance intermediary, captive s manager ager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon s global partnership and shirt sponsorship with Manchester United. 2
Appendix B. Thought leadership initiatives and innovation Aon is constantly striving to position itself as a thought leader in the area of risk-financing, risk management and insurance broking. Aon prides itself on its ability to be innovative in its approach to delivering cutting edge solutions with regard to policy wordings, alternative risk transfer options and on line document management. We see ourselves as thought leaders. In addition, we are gratified to receive a number of awards globally which validates the work we are doing. 2012 Large Broker of the Year Earned Innovation Award from Business Insurance for Aon s Risk Maturity Index 3
Contacts Melinda O Connor Facilities Relationship Manager Peter Lynch Sales Manager 4
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