Risk management and insurance protection for real estate agents
Published 23 June 2020
Real estate businesses are exposed to a broad range of risk exposures so it’s important to have comprehensive insurance cover for all your activities, and also to keep detailed records in case you do have to claim. Here are some tips to help you make sure your real estate business is properly protected.
4 steps to protection
The following 4 actions form the basis of ensuring you can make a successful claim.
Review your insurance program/insurance policies to ensure that you have adequate cover for your legal and financial risks. Consider discussing with your insurance broker any relevant changes to business activity that may be under way.
Disclose all relevant information to your broker. In particular, table any changes to business activity, emerging cash flow and trading concerns, and any mid-term adjustments that you may have made such as reductions to your levels of insurance cover
Ensure you keep detailed file records and maintain the right checks and balances, in accordance with regulations. Make sure your records are in order for property management inspections, and keep records of open house attendees’ names and contact details. Documentation is your defence in the event of a claim and is a valuable risk management tool.
Anticipate future insurance needs, as well as responding to immediate concerns, so your risk management plans are in advance, not arrears.
“Utilising an insurance broker that understands the real estate industry and all of its operations is key to ensuring your business is obtaining the right cover. Each aspect of a real estate business is reviewed an rated separately depending on the risk, whether you only engage in residential and commercial sales and property management, or your business undertakes more complex activities such as off the plan sales, valuations or business broking.”
Gallagher real estate insurance specialist Tania Olliver
Have the right policies in place
Whether your insurance applies to your business assets, employees, clients, customers or members of the general public you service, core insurance policies such as professional indemnity, liability and cyber are vital to safeguard your business.
Professional indemnity insurance
Professional indemnity insurance covers you and your business against claims arising from the services or advice you provide, and this includes inspection and maintenance where you provide property management services.
With increased occupancy rates and traffic within properties, it’s important to maintain property inspection schedules and ensure that all maintenance tasks are addressed in a prompt and timely manner.
Clear and concise communications with tenants and landlords is of utmost importance, and documentation and record keeping should be maintained as key risk management tools.
“A common mistake when purchasing your professional indemnity cover is not understanding the limit of indemnity you require,” Olliver warns.
“While each state industry body has minimum levels of cover required to remain compliant, your business activities may leave you open to much higher claims than you realise. Particularly with claims resulting from bodily injury through property management or open inspection activities, the limit of indemnity can often be insufficient.”
Employee practices liability
Employee practices liability insurance cover is designed to respond to risk exposures associated with claims by employees. Claims for wrongful dismissal, termination or discrimination are common.
A key focus is to consider how you are handling staff situations, such as appointments and promotions. What measures are in place to make sure staff are don’t have cause for complaint or so that you can defend a claim arising for an actions you may take?
An employee suffering a parasitic infection after a property inspection or conducting an open house might allege a failure on your part to take adequate measure to protect their health in the work environment.
Undue stress created by poor management, which could apply to a business that has variable risk management procedures in place that affect teams and locations differently, giving rise to a claim of discrimination.
Employers should be aware of the potential for claims alleging violations or breach of privacy by individuals whose personal information is communicated to others against their wishes.
Employee practices liability insurance can respond to claims alleging discrimination, retaliation and other employment-related wrongful acts.
Third-party liability coverage is also an option under most EPL policies. This provides coverage for discrimination and harassment claims by customers, vendors and other non-employees.
“As important as it is for you to cover your business and employees for misleading or negligent conduct in their business operations, it is also as important to cover yourself for employment related claims,” Olliver stresses.
“Employment practices liability cover can help cover claims against you for wrongful dismissal, racial or sexual discrimination or bullying and harassment and minimise the risk of the employer being required to meet settlement and legal costs in these events.”
Public liability insurance provides cover against third-party personal injury, property damage and advertising liability claims.
It is essential to have an effective risk management framework in your business continuity plan to avoid potential liability claims by members of the public. Site visits to unfamiliar locations heighten the risk of someone slipping, tripping, falling or otherwise sustaining physical injury or damage to their property.
Advertising liability cover comes into play when a claimant believes an advertised property has been misrepresented, either by inaccurate claims made for it or failing to reflect its positive attributes.
Cyber crime affects both large and small enterprises, with an estimated cost to the Australian business community of more than $29 billion per year. In 2020, for the first time ever, cyber risk was ranked the number one commercial risk globally by the Allianz Global Risk Barometer 2020, representing a significant shift in position when compared to 2013 when it was ranked as 15th.
We are seeing the use of alerts, SMS/text message scams and phishing campaigns to fraudulently obtain user credentials, with requests for information that leave businesses and individuals susceptible to fraud and other crime. Fraudsters are impersonating retail banks, government departments and other legitimate entities in order to target businesses in all sectors. Financial accounts and information, both of your business and those of business partners, are the targets, along with personal identity data.
Unfortunately, even with the best security and expertise in place, breaches are not entirely preventable. Security focus should be on detecting weaknesses and intrusions when they occur and having a predefined recovery and response plan.
Cyber insurance cover enables incidents to be addressed quickly, with data breaches generally triaged inexpensively and your IT security restored with minimal impact to your business. Support can also be provided to manage the mandatory data breach reporting requirement.
The scope and complexity of claims lodged for real estate agencies means that it pays to keep adequate file notes. The importance of documenting conversations and instructions to and from clients can be pivotal to your claim outcome.
It’s essential to ensure you have an accurate record of names and contact details of all attendees at open homes and inspections. These attendance records will assist you in notifying the individuals, businesses or authorities as required and in taking appropriate action in a timely fashion.
You still need to comply with privacy laws by disclosing this to the attendees and the purpose for which the information is collected.
Get informed advice
For real estate insurance that’s custom built to your requirements, talk to an insurance broker who specialises in the industry and understands your operations and risk profile.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient’s industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers’ control.
Insurance brokerage and related services to be provided by Arthur J. Gallagher & Co (Aus) Limited (ABN 34 005 543 920). Australian Financial Services License (AFSL) No. 238312