Trustees’ Liability (TL) insurance provides cover for superannuation funds and trustees for claims brought by members arising from “Wrongful Acts” committed in relation to the fund.
But in the current insurance environment, sometimes the worst wrongful act that trustees can commit is not paying enough attention to the process of obtaining TL insurance.
There has been a lot of recent media coverage about the difficulties in obtaining some types of insurance, and, where cover is available, the rising cost of premiums charged. TL insurance has also been affected, not so much by increased claims paid by insurers, but more by a decrease in the number of insurers writing this class, nervousness about recent negative investment returns and, in some cases, a lack of understanding by insurers of recent changes in legislation and regulations affecting super funds.
Here are some key points that may help trustees achieve the best possible outcome for their insurance cover:
* Start the process early. All necessary documents should be with your insurance broker at least two months before the expiry date of your current policy.
* Talk to your insurance brokers about what services they intend to offer this year. If they only supplied you with one option last year, put them on notice that this will not be acceptable this year. Ask them for a written list of the insurance companies they will be approaching on your behalf. Ensure that the broker is acting as your agent and not as an agent of the insurer whose quote they are recommending. If you are in doubt about this aspect — ask them. They are bound by law to tell you.
* In preparing the application form, pretend you are a school leaver seeking your first job and you don’t have the advantage of a face to face interview. Bearing in mind that insurance underwriters may see 10 — 20 applications every day, how do you present yourself in order to stand out from the others? Ensure that the application is typed. If there is insufficient space on the form to answer any question, include an attachment. Generally, the more information you can give about the fund, the better. For example, do you use consultants (if so, who, and for what functions), have your trustees received training, do they undertake ongoing training, what risk management practices do you have in place and is there a web site that insurers can access?
* How is your fund affected by the new Financial Services Reform (FSR) legislation? Are you applying for a licence? Which legal or other firm are you using for advice on FSR?
* If there have been past TL insurance claims, document them fully, including an explanation of how they arose and a comment on liability.
* In relation to supporting information, give original documents where possible, such as annual reports to members or brochures. A copy of the fund’s latest financial statements is also required. Ensure that all information is current.
* If yours is a defined benefit fund with recent negative investment returns and the sponsoring employer has either agreed to increase contributions or has provided APRA with a letter undertaking to meet any fund shortfall, enclose evidence to that effect. Insurers are more impressed with proactive risk management than the head in the sand approach.
* Once the documentation has been submitted, keep in regular contact with your brokers — don’t wait for them to come back to you. Often, further information is requested by insurers. Don’t pay lip service to these questions. Answer them fully and frankly.
* Unless you are totally happy with insurer security, price and scope of coverage, don’t accept a quote from one insurer only without considering other options. There are at least eight insurers locally offering this cover, and while not all may be prepared to provide terms, there should be few funds that cannot obtain at least one set of alternate quotes for comparison.
The current challenging insurance market conditions are not likely to improve in the short term, and only with timely planning and preparation of your insurance submission can you be confident of getting the best outcome for your trustees and the fund.
— Ros Lyon is national commercial underwriting manager, Professional Liability Division, at QBE Insurance (Australia).
