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Client advisory - Last updated 15 May 2020
Under alert level 2 the Government announced that early learning services can safely begin operating from Monday 18 May 2020.
We wanted to update you on what this means for your centre’s insurance cover. This advisory aims to provide answers to the most common questions about the policy.
Alert level 2
Insurance does not respond in alert level 2 as services are able to operate to their full licence numbers providing they can continue to meet public health measures around personal hygiene and contact tracing.
Public health control measures
Public health officials have advised that early learning services are safe to be open at alert level 2, if appropriate public health control measures are put in place. Specific measures to be taken in early learning services include:
Alert level 3
We can confirm that insurers have agreed that the policy will respond at Level 3 for lost fee income where parents keep their children at home following Government guidelines for level 3.
BI12 Infectious Disease
This insurance covers loss directly resulting from interruption to or interference with the business in consequence of action taken by a lawfully constituted civil authority following the outbreak of any infectious notifiable disease under the Health Act 1956 or the Biosecurity Act 1993, or their amendments, resulting in the ordered closure of the premises.
The policy covers loss of parents' fees less expenses saved during the closure period. The policy cap is 25% of annual turnover stated in the policy schedule up to a maximum of $250,000 per site.
The policy would also pay any shortfall of Government bulk funding if there were any claw backs from the closure period.
The progress payment is an initial cash flow payment and there will be top-ups in most cases; the final calculation will be for lost revenue (parents' fees and WINZ) less saved expenses (including rent rebate if applicable).
The Cash Flow Model guide on the ECC website illustrates how the insurance claims payments are calculated. To access this login to the ECC website, go to COVID-19 resources for ECC members and download the ‘Insurance Assessment and Cash flow Model’.
Depending on terms of the centre’s lease, the centre may have the right to obtain a rent abatement from the landlord during closure of the centre. Any such rent abatement will be treated as a saved expense as part of any claim. To avoid a potential shortfall in your claim, any rent abatement negotiations need to be authorised by the assessor prior to agreeing this with your landlord.
We do not take the subsidy into account when calculating your insurance claim. The wage subsidy is a matter between you and Work and Income, in accordance with the signed declaration in accepting a government payment.
Our understanding of the wage subsidy scheme is that centres claiming the initial subsidy would be required to repay the insurance claim portion of the wages only. This would be verified by your accountant at the wash-up stage.
Please see below for advice we obtained from Katie Brosnahan – Regional Commissioner at the Ministry of Social Development (MSD) which supports this:
“A business is eligible to receive the Covid 19 wage subsidy if they are taking active steps to mitigate the financial effect of Covid 19 and will suffer a 30% decline in actual or predicted revenue.
They need to make a claim on their insurance policy, and once payment has been approved and they receive it, they will need to repay the portion of the insurance payment to MSD that covers the costs also covered by the wage subsidy ie if some of the insurance payment is to cover rental of premises, they would not need to repay this portion, only the part that covers staff wages.
They can email details of the overpayment to: COVID19subsidy_overpayment@msd.govt.nz quoting their Business name, IRD number and contact details together with a brief description of the reason for the overpayment. The team will then contact them directly to process the overpayment.”
One of our core responsibilities as a broker is to ensure you have all the information you need to make informed decisions about the risks your Early Childhood Centre faces. With the effects of Covid-19 being felt in a number of ways by our clients across the country, we wanted to share some proactive advice to help you protect what’s important during this difficult and unprecedented time.
We hope you find the information above helpful, if you have any questions or if you would like to speak to us regarding your insurance please talk to your broker