Insurance is often an expensive alternative in risk management, and should only be used when the other approaches outlined above have not been able to reduce a risk to a level your organisation is prepared to tolerate. Having said that, insurance remains an important part of most risk management plans. Remember that insurance does not prevent an accident or event – it only provides some compensation for financial loss if the event does happen.
There are two main types of insurance:
- General insurance
- Life insurance
Life insurance protects against death or disability for the person insured, while general insurance provides cover for property damage, loss or theft, public liability, workers' compensation and so on.
Your organisation may be legally required to purchase certain types of insurance such as workers' compensation insurance if it employs staff or compulsory third party motor vehicle insurance if it owns motor vehicles. Also, some incorporated associations are required by law to have public liability insurance.
In taking out insurance you have to decide on three things:
- What to insure
- Which broker or insurance company to deal with
- The type of policy or level of insurance required
What to insure
As pointed out above, insurance can induce a false sense of security, and should only be used to cover risks which you feel are not adequately covered in other ways. Even then, not all uncovered risks are worth insuring against. For example, risks that have high frequency but low impact are often not worth insuring against, if only because you would not generally make claims for losses incurred under those risks. However, if the law requires you to take out certain insurance, you must comply.
Which broker or insurance company to deal with
Your organisation can obtain insurance either by dealing directly with an insurance company or through an insurance broker. The advantage of using an insurance broker is that they should be able to get you the best available deal for your insurance needs. Whatever you decide on, make sure that the broker or company you are dealing with is reputable. If you are not dealing with a well known insurance company or broker, you should check to see that they are registered with the Australian Prudential Regulation Authority (formerly the Insurance and Superannuation Commission) who can be contacted on 1300 545 88 49.
Choosing a policy
There are a diverse range of policies available and prices for what is essentially the same package can vary to a surprising degree, so the message is `shop around'. Some questions to consider in deciding between policies are:
- Have you read the policy carefully? Do you know exactly what you are covered for and what is excluded? Do you need a lawyer to help you understand the policy?
- What insurance do you need? Compare policies based on your requirements, not based on added extras that you don't need.
- Under what conditions, if any, would you have to pay some proportion of a claim?
- Are there limits to how much can be paid under each individual claim, or limits to what can be paid out under the policy in any single period?
- Does the insurance company have the option of replacing goods rather than paying cash?
- Does the policy provide for a “new for old” replacement, or does it only insure the present market value of the property?
- Have you insured for enough value? Note that if you insure for less that the full value of the property, then your insurer will most likely only pay a proportion of the value of the property.
- Have you provided all the necessary information? Policies invariably require you to provide a range of information to the insurer - failure to do so could leave you with no cover.
- Are any discounts available to you?
- Are you over-insured? Insuring your $500 typewriter for $2,000 is simply a waste of money - you'll only be entitled to the $500 that the typewriter's worth.
- Is your insurance coverage adequate, and have you updated it regularly?
- Have you done everything required in the policy? A policy may require you to do certain things to maintain coverage, such as installing security systems.
If your insurance needs are unusual, particularly large, or if you don't feel confident about any aspect of taking out insurance, you should consider getting further advice. There are a range of useful publications available on insurance, and you should be able to find someone who can advise you.
Types of insurance
There are many types of insurance which should be considered to reduce risks to your organisation, and in the case of unincorporated associations, risks to the committee members personally. Various forms of insurance which could apply to your organisation are described below.
This is compulsory insurance required by all employers to cover injury, sickness, or death of their employees regardless of whether the employer is negligent. Failure to take out workers' compensation insurance will leave the organisation open to any claims for compensation by employees and subject to a fine. In addition, if your employee or contractor claims and received payment from WorkCover when you don't have a policy, WorkCover has the right to recover double your usual premium and one and a half times the amount paid to your employee.
If your organisation employs a self employed contractor to perform work which does not involve the supply of materials to you (such as a gardener or cleaner), it is compulsory for your organisation to take out WorkCover insurance to cover that contractor. The premiums are inexpensive, but the penalties for failure to comply are severe. Committee members are usually not employees and are therefore not covered by WorkCover.
Motor vehicle comprehensive
This insurance covers damage to your organisation's vehicle and damage to other people's property of any type, including vehicles. It covers theft, fire, legal costs and may cover towing costs. These types of policies usually require the claimant to pay an excess on any claim. In some circumstances the insurer will remove the excess in return for payment of a higher premium.
Motor vehicle third party property, fire and theft - this is a cheaper type of insurance which covers damage to other people's property, but only covers the insured's vehicle for fire and theft. No cover is provided for damage to the insured's vehicle. If the insured's vehicle is stolen and then later found in a damaged state, this type of insurance will not cover the cost of repairs.
This covers damage to structures owned by your organisation. Policies may cover damage caused by fire, storm, tempest, rainwater, lightning, and explosion, impact by vehicles, animals or aircraft, earthquakes, riots, malicious acts and, if agreed, flood. Carefully check the definition of flood, as not all events may be covered.
A policy usually covers only the depreciated value of the building insured at the time of loss. This type of "indemnity" insurance will not cover the cost of replacement of the building and for this reason, reinstatement or replacement insurance is recommended. Consider also extending your building insurance policy to cover "extra costs of reinstatement", such as costs of complying with the requirements of public authorities and "removal of debris" which can be a costly exercise.
If your organisation is underinsured, the "co-insurance" or "averaging" clause found in some policies may operate to leave the insurer liable to compensate you for only a proportion of your loss which may be a lesser figure than the underinsured figure contained in the policy. Premium discounts can often be negotiated where fire fighting equipment is installed in the premiums and more generous discounts will usually apply where an automatic sprinkler system is installed.
If your organisation is leasing premises the landlord will usually be responsible for building insurance, but this will not cover contents owned by your organisation. Fixtures which have been installed by your organisation in the landlord's building and which remain the property of your organisation to remove when the premises are vacated, are not covered by the landlord's building insurance. Contents should be insured against damage or destruction by the same causes set out above in building insurance. The contents policy will also cover theft and your organisation should take care to identify whether the policy provides for indemnity, in which case only the depreciated value of insured items will be paid, or for reinstatement or replacement, in which case the new replacement cost will be paid.
This insurance covers profits lost following the occurrence of a specified incident (such as fire) until you are able to resume business. This type of insurance needs to be reviewed regularly so that the figure insured can be updated to take account of projected profits and inflation. The indemnity period during which payments are made should be long enough to allow for re-establishment of your business.
Covers your organisation's liability to pay compensation to persons other than employees who suffer injury, damage to property, death on your premises or as a result of your organisation's operations. If your organisation is leasing premises there will usually be a term of your lease requiring you to maintain public liability insurance in both the name of your organisation and the name of the landlord for a certain amount (a common figure is $10 million). In every case the claimant has to show that the injury, damage or death was caused through your organisation's negligence.
This type of insurance is relatively inexpensive and is essential given the potential damages and legal costs that could be incurred in any case. It is especially important in the case of unincorporated associations because every member of the unincorporated association can become personally liable to pay the compensation and legal costs of an injured party if negligence is proved on the part of the unincorporated association.
In the case of any association, whether incorporated or unincorporated, compensation will not be paid to a member or volunteer for injuries suffered in an accident if negligence cannot be proved. This type of risk can be covered by a separate accident policy. Employees and employed directors who are injured are covered by WorkCover which does not require negligence to be proved.
If your organisation is running a function (such as a fete, fundraising function or lecture) at premises owned by another party, it is advisable to arrange public liability insurance to cover that particular function. Any insurance held by the owner of the premises may not cover your organisation.
Professional indemnity and manufacturer’s liability
If your organisation manufactures any item which is sold to the public, even to benefit charity, it must be fit for the purpose for which it is sold. Consumer protection laws impose certain obligations on manufacturers that cannot be excluded, restricted or modified. Manufacturers and retailers may decide to take out a products liability policy to insure against claims arising from defective products.
If your organisation claims to provide reliable advice to the public, which proves to the detriment of the person receiving the advice, you may consider a professional indemnity policy to cover legal liability arising from professional negligence.