What is an eligible contract of insurance?

ARPC has a standard Terrorism Reinsurance Agreement (Reinsurance Agreement). The Reinsurance Agreement requires insurer customers to identify all eligible contracts of insurance within their portfolio and pay ARPC terrorism reinsurance premium based on all contracts identified as being eligible under the Terrorism and Cyclone Insurance Act 2003 (TCI Act). The Reinsurance Agreement specifies the premium payable based on risk location.

Eligibility

Any company who write eligible insurance contracts may reinsure its terrorism risk with ARPC. An eligible insurance contract is one which provides insurance cover for loss or damage to eligible property and associated business interruption and public liability losses (please refer to Section 7 of the TCI Act). Eligible property is defined as the following property that is located in Australia: 

• buildings (including fixtures) or other structures or works on, in or under land
• tangible property that is located in, or on, such property
• Eligible property as proscribed by the TCI Act.
• Farms can also obtain cover if they hold insurance against business interruption.

Exclusions

The provisions of the TCI Act do not cover;

• the building or contents of a mainly residential building, where the building sum insured value is less than $50 million or the floor space used wholly or mainly for residential purposes is more than 80%.
• contracts of insurance which provide cover for, inter alia, workers’ compensation insurance, marine insurance, aviation insurance, motor vehicle insurance, life insurance, health insurance, private mortgage insurance, medical indemnity insurance and professional indemnity insurance.
• property that is owned by Government or State.

Requirements to join 

In order to apply for Terrorism reinsurance with ARPC the following information is required:

1. Full company name and Australian Business Number (ABN)
2. Requested agreement inception date
3. Company street address
4. Company postal address
5. Primary contact (general contact person, include phone number and email address)
6. Secondary contact (general contact person, include phone number and email address)
7. Australian fire and ISR gross written premium for the previous financial year.

Once this is received and approved, ARPC will complete the schedule and respond with a signed copy of the Terrorism Reinsurance Agreement for your review and countersignature.

Insurer customer obligations

The Terrorism Reinsurance Agreement requires insurer customers to submit the following information:

Quarterly premium returns. These are required so ARPC can determine the reinsurance premium owed. 

- Premium received during the relevant period

- Quarter 1 – 1 July to 30 September – due to ARPC 30 October

- Quarter 2 – 1 October to 31 December – due to ARPC 30 January

- Quarter 3 – 1 January to 31 March – due to ARPC 30 April

- Quarter 4 – 1 April to 30 June – due to ARPC 30 July.

Annual Aggregate – these are required so ARPC can determine the total risk exposure ceded and are due to ARPC by 31 August every year.

Snapshot of risk exposure at 3pm 30th June split into three reports:

1. Street address details (only if there are insured risks with CBD postcodes).
2. All risks excluding contract works (all postcodes).
3. Construction risks (all postcodes) GWP Declaration – this is required in order to calculate the Insurer’s retention for the period (financial year). If no submission is received the default retention amount of $12.5million will apply. These are due to ARPC annually by 31 August for non-APRA regulated insurers and by 30 September for APRA regulated insurers. GWP for the prior financial year is to be reported, split into: 
   1. Eligible Premium:
      1. Fire and ISR
      2. Fire service levy (emergency service levy)
   2. Ineligible Premium. 
      1. Fire and ISR premium. 
      2. Fire Service Levy (emergency service levy)
4. The RISe system provides clients with a simple, secure, and effective means of submitting this information. To ensure the information held by ARPC is current, clients are requested to use RISe to verify their details at least annually and advise ARPC’s Underwriting Department of any relevant changes.

View our key due dates for information in the Cedant Quick Reference Guide [PDF 241KB].

The changes to the Duty of Disclosure on or after the 28th December 2015

There have been a number of substantive changes surrounding the duty of disclosure. The changes are extensive, so this is just a brief summary:

What does this mean for you?

According to the Government, the intention of this reform is to ‘…permit insurers to continue to rely on the accuracy, as at the time of inception or the previous renewal, of matters disclosed on inception and previous renewals’.The duty of disclosure will differ slightly depending on the type of insurance your apply for. For ‘eligible’ contracts of insurance the insurer is required to ask specific questions of the insured which are relevant to underwriting the risk. Policies renewed or varied by the insurer on or after 28 December 2015 are also subject to the ‘specific questions’ requirement or the insurer must supply a copy of the answers to questions originally supplied to them by the insured and ask the insured to disclose any changes.

’Eligible’ contracts of insurance are the following classes of insurance, but only when they are provided to an individual:

• motor vehicle and motorcycle
• home building and contents
• residential strata
• travel
• personal accident and sickness
• consumer credit products

When taking out a new policy considered an ’Eligible’ contract of insurance: Answer the specific questions on the application form truthfully and accurately. You must tell the insurer all information that’s known to you and that a reasonable person would be expected to provide in answer to the questions. You don’t need to provide information that isn’t relevant to the questions in the form.

When renewing a policy considered an ’Eligible’ contract of insurance: Answer the specific questions asked by the insurer or review the information you previously provided (the insurer will provide a copy of this). Tell the insurer about any changes (or tell your broker, so they can tell the insurer). If nothing has changed, simply tell the insurer that. There’s no need to provide any other information.

For all other policies, an insured has a duty to disclose matters the insured knows to be relevant to the insurer’s decision to accept the risk or that a reasonable person could be expected to know to be relevant to the insurer bearing in mind the nature and extent of the insurance cover to be provided under the relevant insurance policy and the types of people who ordinarily apply for this type of insurance. It doesn’t extend to matters:

• That diminish the risk;
• That are of common knowledge;
• That the insurer knows or in the ordinary course of the insurer’s business ought to know;
• As to which compliance with the duty of disclosure is waived by the insurer.

The duty is also ongoing between the date of application for insurance and the commencement of the policy. The insurer must notify the insured of the nature and effect of the duty of disclosure in the application for insurance, the renewal terms and the policy wording. On after 28 December 2015, if that period is greater than 2 months, the insurer must give a reminder notice to the insured of the ongoing duty.

When renewing or taking out a new policy – all other policies: (i.e. not considered an ‘eligible contract’.)

You must tell the insurer:

• all information that is known to you which is relevant to the insurer’s decision whether to insure you (and the terms on which to insure you); and
• everything that a reasonable person could be expected to know is relevant to the insurer’s decision, having regard to the nature and extent of the insurance cover to be provided and the class of people who ordinarily apply for the insurance. 

Most insurance products are underwritten by the insurer before accepting the application for insurance. The insurer considers and, in some cases, makes enquiries into the subject of the insurance. This is usually done in the proposal or application for insurance but also occurs at renewal or when an endorsement or variation to the contract of insurance is given.

If the non-disclosure is fraudulent, the insurer can cancel the policy and refuse to pay any claim.  If it is “innocent” then the insurer may reduce the amount of any claim to the amount that would have been paid had the disclosure been made.