QBE has a market capitalisation bigger than the GDP of some countries.
QBE were underwriting "trade credit" insurance, also called debtor insurance which was used by subcontractors to limit the damage if a builder liquidated during a contract period.
QBE have delivered a knockout blow to subcontractors and the construction industry at the worst possible time.
When we had debtor insurance there was still a substantial loss after a successful claim. It cost 5k to make a claim and the insured only got 90% of the amount lost. If the amount lost was say 100k, you would get back 85k and a higher premium or be uninsured next time your policy was up for renewal.
In our case we had 3 million cover at a premium cost of 21k so if the above claim was made the net benefit was 65k if a builder fell over (after premium costs). Not fantastic but better than a kick in the arse which is what QBE delivered to subbies and the whole industry last week.
In 2 years we paid over 40k in premiums, we made one claim for 13k and from memory, got back 8k after the cost of the claim but it was the peace of mind that made this insurance worthwhile.
It did not take into account anything that followed the builder liquidation such as preferential payment claims made against your company.
Under the Insurance Contacts Act, 1984, insurers have the right to change their limits if they have a clause in the policy and no doubt QBE did.
So that is exactly what QBE did at the worst possible time and in doing so, they have reduced their exposure and as a consequence, increased the exposure of all their loyal customers.
They have reduced or pulled cover after looking at all limits above 500k. They have done a mass withdrawal of limits at certain levels and left the construction industry high and dry.
Invoices written after the QBE withdrawal date will not be covered. Every QBE trade credit policy holder in Australia may be affected.
"Insurance giant QBE has stopped writing trade credit policies for thousands of small and medium-sized enterprises, and radically reduced coverage for many larger businesses, in a move that could have major flow-on effects for the Australian economy.
The move will hit companies in non-essential sectors that QBE considers are most exposed to the economic fallout from the coronavirus crisis, such as hospitality, aviation and non-essential retail."
"In a letter sent to customers on the weekend and seen by The Australian Financial Review, QBE head of global credit John Sutherland said the company would no longer provide businesses in sectors not classed as "essential" with credit limits below $US250,000 ($407,000)."
You can also add the construction sector to the AFR's list. In addition to that you can add insurance brokers who specialised in debtor insurance.
The thing is they didn't just stop writing trade credit polices, no it was much worse than that, they withdrew cover mid contract.
Subbies and suppliers cannot get cover on builders now so they are forced to decide if they will continue providing material and services without the protection of cover.
That also puts builders at risk as they also have contracts with their clients.
In an act of treachery, QBE are using this pandemic to weasel out of their obligations and limit their exposure at the expense of the whole Construction industry.
We understand they need to look after shareholders but they should also have an obligation to look after their customers needs.
Their actions leave Subbies and Suppliers with nowhere to go other than to take the risk and work for builders with no cover in place. It puts builders at risk as they have contractual obligations to their clients and if they cannot find subbies willing to take the risk, their costs might rise to the point where they cannot full fill those obligations.
QBE are typical of underwriters, they are only there for the good times.
No doubt the person who wrote the clause that allows them to just dump polices mid contract will be lavished with a massive bonus for being so clever.
QBE's actions fly in the face of the Governments policy of keeping people employed and the construction sector working.
Would it have been the end of the world if QBE had to take some financial pain like the rest of the country or are they above us all?
As one subcontractor said on our private members forum;
"This seems like the equivalent of having fire insurance on your house which you pay every year and then during a bushfire season QBE just deletes it as the fire is coming over the hill towards you".
Governments need to get stuck into them for this act of bastardry.
I will post recent comments here.
From a steel merchant.
"They are also reducing their cover to suppliers such as steel merchants to businesses classed as essential service business. This will have a flow on effect for the construction industry as manufacturers will find it difficult to purchase materials to keep their businesses running and fulfil contractural obligation."
From a commercial fitout company.
"They have cancelled them in the middle of a job.
They won't hold it until the job completes - I have asked them.
It has been cancelled and I am contracted to complete the works."
From a supplier.
"We have had other customers who have had debtor insurance pulled. I think its a bit rich of QBE to take you premium payment and when things look like they are going bad they decide not to cover your debtors…"