If the level of cover that your client is applying for is outside the standard limits (see table below), underwriting is required. This means that we’ll need to discuss and obtain further information from your client or yourself, so that we can negotiate and agree an appropriate level of cover with them.
Standard limits
To simplify the application process, we set up a schedule of predetermined levels of lost earnings compensation. This varies according to the structure of your client’s business. Below are tables setting out the standard limits based on business structure. These came into effect from 1 April 2008.
Cover is based on the last three years liable earnings average.
If your client has less than three years earnings, the cover requested has to be relevant to liable earnings or the Replacement Labour Cost schedule.
If the cover requested falls outside the standard limits, the request will be sent to the CoverPlus Extra underwriters for further negotiation.
ACC CoverPlus Extra has minimum and maximum levels of cover that change annually.
Variations
Variations can be negotiated where changes have been made to your client’s business that affect recent and future years. Where applications fall outside of these Underwriting Guidelines, we can still consider your client’s application (subject to assessment of further information from you or your client) via the underwriting process.
Determining the level of cover
When determining what level of cover is fair for a particular applicant, we may take into account replacement labour costs for certain industries. This is mainly used for clients who have less than three years liable earnings history.
Where the cost of hiring replacement labour is lower than the average liable earnings, ACC can negotiate down to that level. However, if the applicant’s liable earnings are lower than the replacement labour costs then the level of cover can not be negotiated up to that level.
Refer to the schedule of replacement labour costs (PDF 37K) that are used as a basis when negotiating.
What factors do we take into account?
There are some situations where liable earnings can be adjusted to reflect true earnings:
- income (generated from personal exertion) that has been paid to a trust
- losses carried forward
- farm income equalisation account movements
- non-revenue generating partner
- change of business circumstances
- any change that has occurred that can reasonably be expected to mean that future income will be different from past income
- claims experience
- payment of previous levies.
What factors don’t we take into account?
The following factors are not considered when agreeing a level of cover:
- personal income protection insurance
- weather conditions
- market conditions
- exchange rate movements
- return on investments
- favourable/unfavourable future industry conditions
- forecasted profit (exceptions considered are long-term contracts)
- interest or depreciation costs set against income
- the effect of book losses/profits on stock valuations under the Herd Scheme
- reducing cover for budgetary consideration.
Last updated: 4 August 2011