Instructions and explanatory notes on completing the annual
statutory declaration – Section 40 MFB and Section 77 CFA
Premium Returns for the financial year ended 30 June 2013.
COMPLETING RETURNS
(1.) The premium that needs to be returned is the full amount of gross premium charged for
a class of insurance that is subject to contribution (excluding Stamp Duty and Goods
and Services Tax).
The gross premiums declared must include:(a) Premiums or extra premiums for an extension of any policy to cover
extraneous perils of any kind; but to exclude any amounts received by or
due to the company in respect to re-insurance contracts or agreements.
(b) Premiums relating to “fire service levy” (FSL). These amounts must be
included in the overall premium declaration; and also declared separately at
the bottom of the Return form - allocated between domestic and commercial
classes of insurance. Please note the amount declared must represent the
amount of ‘FSL’ collected/charged during the financial year.
(c) Gross premiums (premium & fsl) regardless whether policy is paid via
installment basis and may run over different financial years.
(d) Premiums charged for “terrorism” cover, including any FSL attached to
terrorism premiums.
(e) Administration fees/charges.
(f) Premium relating to “Net rating”; defined as “any practice or device
adopted by an insurance company involving the waiving of commission or
brokerage which has the effect of reducing the premium payable”.
(g) Brokerage, Commission or Bonuses and Discounts.
(h) Premiums which are due or received in the period 1 July 2012 to and
including 30 June 2013 where the effective/attachment date of the
transaction is prior to 1 July 2013.
(i) Premiums for transactions with an effective date prior to 1 July 2012
that were processed between 1 July 2012 and 30 June 2013 and were
not included in the prior years’ return.
NB: Premiums for classes of insurance subject to contribution must be
declared regardless of whether FSL has been charged/collected.
Do not include gross premiums:Document Number: 827067
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(j) For transactions processed prior to 1 July 2013 which have an
effective/attachment date of 1 July 2013 or later.
(k) For transactions (including cancellations) with an effective/attachment
date prior to 1 July 2013 but processed/collected on or after 1 July 2013.
NB: There will not be a requirement to lodge Returns for these transactions at
any time in the future.
(l) Any amounts of FSL which have been calculated as a refund that have
not been paid to the client due to your organizations decision not to
refund FSL in the 2012/13 financial year.
NB: It is imperative that the same method of calculating premium returnable for the
2013 Returns is the same as used by your organization in previous years, whether that
method is by declaring premiums based on processing date or premium receipt date.
Changes of reporting method to the MFB and CFA by your organization will not be
accepted unless agreed to by the Victorian fire services prior to lodgment of the Returns.
Please refer to the MFB/CFA letter of 8 March 2013.
Any potential refund(s) to policyholders due to “over collection” of FSL
enforceable under the Fire Services Levy Monitor Act 2012 or any other legislation
shall not be considered with completing Returns to the MFB and CFA.
(2.) Gross premiums declared must be
District (MD) or Country Area of
however, may be lodged based
available on MFB/CFA websites).
allocating post-codes.
in respect to property located within the Metropolitan
Victoria, pursuant to the respective Acts. Returns
on the MD post-code locality listing (Current list
Individual companies are responsible for correctly
Please note: In the event of any dispute the boundary as proclaimed and as indicated
in the Melways will prevail, as it does not coincide with all postcode boundaries.
(3.) The gross premium in respect to any insurance issued on property (stock in trade, plant
and equipment, contents, business interruption and the like) without reference to a
specific situation of risk or location should be fairly allocated to the MFB and CFA in
accordance with the asset schedule of the insured.
(4.) For insurance intermediaries lodging Returns, only risks placed exclusively with an
underwriting member of Lloyd’s can be returned under sections 40 (MFB) & 77 (CFA).
You must also be a current member of the Australian Fire Brigade Charges
Scheme (AFBCS) administered by PricewaterhouseCoopers (PWC). Risks placed with
participating underwriter(s) must be declared under Sections 44A and 80A of the MFB &
CFA Acts respectively.
(5.) Insurance intermediaries lodging Returns on behalf of Lloyds must include the words,
“on behalf of Lloyd’s” following the company name.
(6.) The person signing the Premium Return - a Statutory Declaration - must be the Manager
of the Company, the Secretary of the Company or the Appointed Agent of the
Company, or a person occupying such positions for the time being. For example,
CEO, CFO, Directors or Company/Corporate Secretary.
(7.) Contact details must be for the relevant person responsible for preparing and answering
queries relating to the returns, not necessarily the person that signs the declaration.
Position titles and group email addresses are acceptable.
Clarification on Classes of insurance subject to contribution
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Commercial classes of insurance
Mobile plant and machinery / equipment
For the purpose of returning premiums under the respective Acts, Mobile plant and
equipment that is not self propelled, not used as a road vehicle, is carried by another
vehicle/trailer from one site to another and unable to be immediately removed in the event of
an emergency - will require the provision of fire fighting services is therefore subject to
contribution. Basically, property which moves with the assistance of motorized wheels
(including vehicle standard attachments & accessories) will not be required to be returned.
Items identified during our inspections not being returned which are required to do so
included stock, tools of trade, unspecified items with a maximum limited, fixed plant, tower
cranes, generators, etc. It is important that these types of items are coded correctly and
easily identified for the purposes of declaring premium for returnable plant, machinery and
equipment.
Please note; the above does not apply to contracts works policy which extends to cover this
property.
Commercial / Residential strata title insurance
Where body corporate / strata title buildings / complexes incorporate mixed occupations
including residential apartments, the premium needs to be allocated between domestic and
commercial risk, based on a percentage of the sum insured (usually calculated on a floor
space ratio, including common areas and car parks). The same applies for residential
complexes which incorporate commercial / retail and office occupancy.
Hotels, motels, time share or serviced apartments (which provide a service office / concierge,
cleaning facilities and any other service) is not considered to be domestic property. Premium
splitting should not apply to these types of policies.
The above also applies and not restricted to Hostels / Nursing homes / Retirement homes /
etc.
Under the Regulations, commercial risks are subject to contribution at the rate of 80%
(portion of premium); and domestic/residential risks at the rate of 40%.
Jewelers Block
Common practice by the insurance industry for this class of insurance is to declare 10% of
the total premium, however in recent times the MFB/CFA have observed an increased
number of contributors declaring a lesser amount due to excluding premium attached to
sending’s / transit cover from the calculations.
It is imperative that 10% of the total gross premium (excluding Stamp Duty & GST) be
returned
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General property
The MFB/CFA have noticed during our inspections, a common trend on “All Risks” cover on
tools of trade, electronic equipment and the like, usually insured under a general property or
similar policy is being insured under “goods in transit” policy, marine cargo type policy or
under a “Mobile Plant and Machinery policy”. Under the Contribution Regulations, general
property is not required to be returned if fire is an excluded peril.
Furthermore, Goods in Transit insurance, for the purpose of CFA/MFB regulations, relates to
cargo/freight which is transported and delivered to an intended destination. We must also
point out, although there are many different product titles covering these items, they all are
classified under the regulations as a “General Property” class of insurance.
Static marine
The static risk portion of premium is subject to contribution; however this excludes storage
incidental to transportation. “Incidental”, for the purposes of the Acts, should be interpreted
as any item(s) being transported and stored for a minor/short period of time. Static risk
includes processing, packing or storage operations at any place. Insurers & intermediaries
need to allocate static premium based on underwriting considerations; separated from that
relating to transit cover so it can be identified as returnable premium.
Domestic classes of insurance
Personal mobile electronic equipment insurance
This type of insurance usually covers personal mobile phones, laptop computers and the like
for all risks. As the risk of fire is covered under these policies then the portion of premium
subject to contribution is 8% under item (5) of the Regulations.
Contents / personal valuables insurance
At inspections, the MFB/CFA have noted that in certain circumstances items usually
classified as contents (as per the standard definition of contents under most home/contents
policies such as antique furniture and furnishings which are usually located at the one fixed
location), are incorrectly allocated under “personal valuables” or similar sections of a
domestic insurance policy and returned at the rate of 8% rather than 40%.
Personal Liability Cover
Premium attached to this cover under a domestic type policy (including packaged policies i.e.
farm pack, business pack, etc) is required to be returned unless the following criteria is
clearly evident, in accordance with the regulations;
(A) is offered and given as an optional extra; and
(B) has a separate premium allocation; and
(C) is exclusive of all other policy sections.
The MFB/CFA conducted in excess of twenty-five inspections during the 2012/13
financial year.
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Common irregularities noted during contributor inspections that
are not in accordance with legislation
Misallocation of premium
Premium misallocation between the MFB/CFA occurs due to the following reasons:
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on large risks where multiple locations are insured
annual construction risk policies where annual declarations are not completed or if
completed, only declaring the terrorism risk zones
endorsements relating to change of risk location
incorrect postcode allocation within systems
incorrect manual processing
binders/bordereaux where insufficient information is provided/requested by the
insurer/underwriter.
Insurers and underwriters should follow the MD postcode listing available on the MFB and
CFA websites. Postcodes not appearing in the list relate to CFA areas. Please note; that
the three terrorism zones as per ARPC legislation (CBD, urban and rural) do not coincide
with the MFB/CFA boundaries.
In addition, in the event of any dispute the boundary as proclaimed and as indicated in
the Melways will prevail, as it does not coincide with all postcode boundaries
identified in the list.
Premium splitting
The MFB/CFA continues to be most concerned with this issue, especially on Industrial
Special Risks (ISR) or similar policies, and in recent times Contract Works policy.
The lack of transparency and rationale used by underwriters to derive the proportion of
premium for non fire/extraneous perils continues to occur. During our inspections we
commonly noted arbitrary splits. We understand this situation occurs mainly due to market
pressures and the impending change to the funding model, however in certain instances it is
not in the spirit of legislative requirements and intent.
Furthermore, returnable premium is not restricted to the fire peril only, and includes
extraneous perils of any kind. Although, two separate sections or policies are devised, it
does not necessarily meet all the above stated criteria under the Contribution Regulations.
We reiterate that under Regulation 8 of the MFB (Contributions) Regulations 2009 and
Regulation 7 of the CFA (Contributions) Regulations 2009, specifically (2) (b)(iv), reads:
“does not include a part of a premium for a class of policy that is subject to a contribution if
that part relates solely to an extension of the policy to include any other insurance….. in
which the risk of fire is not an insured peril, if the extension (A) is offered and given as an optional extra; and
(B) has a separate premium allocation; and
(C) is exclusive of all other policy sections.
Please Note: this requires all three conditions to be met.
Net rating
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During our inspections we observed greater compliance by insurance contributors when
dealing with this matter, however we remind you of common issues identified during our
inspections:
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Contributors not having an adequate system/process in place to capture any “net
rating” accounts (whether Fee For Service (FFS) arrangement or variation in
commissions outside the agreement), for the purpose of preparing and including such
premium in their Statutory Returns. We will continue to focus on what system is in
place to capture this information and the integrity of the system/process to produce
accurate information to comply with their obligations under the MFB/CFA Acts.
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Contributors which have broker interface systems i.e. broker link, Sunrise, etc that
allow insurance intermediaries to adjust commissions on policies. Contributors should
have reporting parameters in place to identify when this situation occurs, in order to
declare the gross premium (gross premium rate prior to adjusting rate by way of
reducing the commission rate).
Administration fees
Premium relating to administration fees (these range from a policy fee, insurer fee,
underwriting fee, installment fee, cancellation fee, etc) in a number of instances is not being
returned under the respective sections of the MFB/CFA Acts.
The MFB & CFA Regulations clearly state that if an insurance company or insurance
intermediary is required to lodge a Statutory Return under the respective Acts, then the
premium must include all administration charges. In both Regulations “premium” includes a
premium or extra premium received for all extensions to a class of insurance for extraneous
risks of any kind and all administration charges”.
Where an underwriting agency or insurance intermediary charge an administration fee or
broker fee (separate from a fee for service arrangement or in addition to commission paid by
the insurer), and it forms part of the total premium charged to the client, that fee amount is
subject to contribution and required to be returned.
NB: Where a fee is charged under a sectionalized type policy then only the portion of the fee
which relates to the returnable classes of insurance is to be included in the Return. For
example; if the returnable premium under a particular policy equates to 60 percent of the
total premium charged, then 60 percent of the fee is returnable.
Administration fees charged by local insurers is the responsibility of each contributor to
include these fees in their Return; whereas insurance intermediaries placing business with
Lloyds or offshore insurers are required to include administration fees in their Return.
Those lodging Returns with PWC in accordance with the Australian Fire Brigades
Charges Scheme (AFBCS), for business placed with Lloyds, should be declaring
administration fees (identical amount returned to the MFB/CFA) as a manual
adjustment (using the manual adj drop box in the PWC electronic return) with a zero
amount for fire service levy (unless charged and collected) when completing PWC
quarterly returns.
Declaring incorrect amount of “fire service levy’ (FSL) collected/charged
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In certain instances the amount received/charged for premium relating to FSL was changed
to reflect an assumed FSL rate. In effect working back the premium. This issue also
emerged when completing quarterly returns to PWC under the AFBCS.
The MFB/CFA emphasis that the actual premium and fsl charged/collected must be returned.
Please refer to 1(b) under “Completing Returns”.
For those companies lodging quarterly Returns with PWC in accordance with the AFBCS:the amount declared in the annual Returns to the MFB/CFA should equate to the total of
those quarterly returns relative to the MFB/CFA for that financial year.
Interpretation on returnable premiums under certain classes of insurance
This issue in particular relates to insurance covering “general property”, “mobile plant and
equipment”, ”personal valuables” and “static marine”. Premium attached to these covers
usually are not returned when required to do so or were returned under the wrong class of
insurance.
Please refer to pages 2 & 3 of this document which clarifies our interpretation and handling
of these insurances. We recommend you carefully read those pages.
Binding/bordereaux arrangements, facilities and schemes between insurers and
insurance intermediaries;
These arrangements often result in insufficient information provided by the intermediary
and/or requested by the underwriter to produce accurate data for the purpose of completing
returns.
Common irregularities found during inspections include; inaccurate client information,
insufficient risk location details, details relating to sums insured, breakdown of premium and
charges and inappropriate premium splitting.
In addition, remuneration arrangements for the purposes of “net rating” must be examined.
Your company’s Premium Returns must be completed and lodged with the MFB and CFA
before or on Monday 16 September 2013.
The Insurance Monitor FSL declaration is due on 18 October 2013 and is to be verified by an
assurance practitioner. NB: The FSL amounts declared to the Victorian fire services and the
Insurance Monitor should mirror each other.
(While a completed Premium Return may be initially lodged by email or facsimile
transmission before the 16 September 2013, the original signed document must be
forwarded to the MFB or CFA by the next available mail)
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