It’s that time of year when members consider their protection requirements for the upcoming year. A recent issue has been valuations and making sure that assets are detailed on the register. It’s raised challenges for some members when making a claim.
Filing a claim following a major property loss can be overwhelming, especially when determining whether damaged items should be repaired or replaced. The LGIS Property covers either repair costs or replacement value of damaged property. Understanding this distinction is essential to navigating the claims process effectively.
To provide some practical tips, Risk Matters talked to our specialist independent loss adjusters, Paul Martelli and Robert Mitchell about the most common issues they see when adjusting claims.
Paul Martelli is Director – Natural Resources and Robert Mitchell is Executive Adjuster – Property, Casualty, Technical & Special Risks at Charles Taylor Adjusting. Both have extensive experience with complex property claims and intimately know the mechanisms and workings of local governments in reinstatement of damaged property.
Congratulations to the Shire of Yilgarn who were award their Tier 3 Silver diligence in Safety Award. James Sheridan, CEO LGIS and Christ Gilmour, Risk Specialist – Regional visited the
Shire on Tuesday 26 February to meet the Yilgarn team and present the award.
In February this year the Australian Tax Office (ATO) made a private ruling on the following question: ‘Is the income compensation component of the redemption settlement payable under Workers Compensation and Injury Management Act 2023 (WA) included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (Cth)?’ The ATO’s very short answer was ‘Yes’.
It’s a question very few people want to ask but given the current cyber risk landscape shows no signs of slowing, it’s likely an inevitable question for organisations, including local governments.
What does a loss adjuster do?
LGIS often appoints independent loss adjusters when a property claim is complex. Their role is to assess and quantify the loss; adjust the claim in accordance with the policy coverage, terms and conditions; and assist members with reinstatement and settlement of the claim.
They’ll often visit the asset, take photos and talk to members as part of this process.
Generally, repairs are undertaken where the property is damaged, and it is economically viable to repair the structure/building in lieu of replacement. Repairs involve restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new.
Conversely, replacement is only generally undertaken if the property is lost or destroyed. In the case of a building or structure, the rebuilding thereof to a condition equal to, but not better or more extensive than, its condition when new.
In some instances, determining if an asset is non-repairable can be self-evident (i.e. destruction by fire). In others, expert assessment, for example, by a structural engineer, may be sought.
The economics of repair versus replacement also needs to be considered. In some cases, out-dated building techniques/ materials, for example, may make repairing a partially damaged structure more expensive than full replacement; in any case, LGIS will only respond to the lesser cost.
To assist with such an assessment, a quantity surveyor may be engaged to establish the cost of repair versus replacement, using engineering advice where appropriate. Such enquiries often fall within the remit of loss adjusters when assessing and managing a claim.
A well documented effect of COVID-19 and the associated closed borders and economic stimuli packages was the restrictions in movement of labour, supply constraints on materials and the increase in construction projects, resulting in construction costs increasing by approximately 30 to 50%.
Equally, buildings are renovated, extended and have new hardware installations such as heating, ventilation and air conditioning (HVAC) , electrical, data etc. This increases the amenity of the building and impacts the replacement value for consideration in the event it is damaged or destroyed.
Both of these factors impact claims and the application of ‘Average’ or ‘Co-insurance’ when a loss occurs. In simple terms, the “Average” or “Co-insurance” clause is an insurance policy (similarly to the LGISWA Protection) feature that reduces the amount of a claim if the insured value of the property is less than its full replacement value.
To help safeguard against this, it is beneficial for members to undertake a complete valuation by a professional valuer every three years and to declare such values at renewal. Annual desktop reviews are strongly recommended.
This has two main benefits:
The roof, a timber frame covered with tiles, of a member’s civic centre failed. The building was well used by the community and the member needed to maintain services throughout the reinstatement process.
The roof structure was about 20 years old and since construction, a new HVAC system had been installed to the roof, as well as other infrastructure.
The roof was reportedly engineered and constructed to withstand the additional loadings from the HVAC and other equipment, but nonetheless several trusses had failed along the bottom chords. Further inspection of the other trusses found all had defects.
Due to the extent of damage, the member vacated the building and found an alternative location for an indefinite period while they considered repair options.
The member had two options:
The member decided to go ahead with the replacement option and brought forward long term plans to renovate and upgrade the building.
While that is entirely understandable and beneficial to the member, the cover available under LGIS Property Protection is not designed to pay the improvement or additional rental expenses while carrying out works more extensive than or unrelated to the covered damage, being the repair costs.
This option was more costly, predicated not only in the broader scope of works, but also the prolonged reinstatement period and extended requirement for an alternate premises, thus increasing the costs to maintain normal operations [Additional Increased Cost of Working – AICOW].
The claim was adjusted in accordance with the policy coverage available. This meant quantifying the property damage at the lesser cost, being the like-for-like repair option, minus the cost to rectify the proximate cause of the roof failure (i.e. repair and rectify the failed bottom cords). Also considered, were relocation costs and alternate accommodation costs commensurate for athe duration of the repair option.
The adjustment was undertaken through site inspections and detailed discussions with the member , engineer and quantity surveyor. A scope of works for like-for-like repairs and a reinstatement program (construction schedule) were both developed, the latter taking into consideration reasonable procurement policies and processes.
The key aspect to the adjustment was to determine the cost of like-for-like repairs and the duration of such and to settle the claim, accordingly, as opposed to the costs realised for the full roof replacement, upgraded structure and any unreasonable delays in progressing repairs.
Following completion of the works, with the altered roof and structural improvements, the repaired building would need to be professionally revalued and LGISWA notified to ensure that the declared and replacement values align.
Navigating complicated losses is challenging and the following should be considered as part of your local government’s response to major loss:
Asset planning – have a clear understating of long-term strategic plans for asset replacement. Create detailed lists of damaged or lost items, including description, purchase dates and values. The provision of building plans, contracts and insurance details of builders, surveyors, architects.
Expediency – whilst local governments are held to higher procurement standards, these should be executed efficiently to ensure limited disruption and expedient reinstatement of the asset.
Set expectations – this is a critical step in the process. Council or senior executive will be interested in the loss. It is important that all stakeholders understand the challenges in major losses.
Clear communication – engagement with LGIS and its adjusters is critical. Be present during inspections and ensure nothing is missed. Provide all documentation, photos and inventories. Follow up promptly if additional information is requested.
For more information contact your LGIS Account manager.
The recent WA Local Government Convention was an excellent opportunity to chat with members and talk about the issues that matter to you. LGIS also appreciated the invitation from WALGA to provide members with an update at their AGM on our 2023/24 results and achievements. For more information, our end of financial year reports, A Year in Review and Annual Financial Report, are now available on the LGIS website or you can read the article on page 18.
Even the smallest or most remote local government in Western Australia is connected to the global commercial market through their protection. Over the next few editions we’ll look at the
factors of concern and influence for each portfolio for LGIS, this edition we’re looking at LGIS Liability and Property protection.
Working from home and hybrid working is now common practice for many local governments. It offers plenty of benefits to individuals and employer alike. It can provide meaningful flexibility for employees to juggle multiple demands and is now expected by many recruits.
LGIS is the unifying name for the dedicated suite of risk financing and management services for WA local governments, established by the WA Local Government Association in conjunction with JLT Public Sector (part of the Marsh group of companies). LGIS is managed by JLT Public Sector (ABN 69 009 098 864 AFS Licence 226827).
Risk Matters, via this website, is designed to keep members, their staff and elected members informed on topical risk management and insurance issues and LGIS programs and services.
