Top 10 Insurance Tips
Our Top 10 Insurance Tips
1. Don’t Just Assume Your Broker/Insurer Knows Everything
– Enter into regular communications.
– Check all documents and statements of fact/proposal forms to ensure that the information contained therein is complete, correct and up to date.
2. Disclosure All Material Facts & Keep Insurers Updated
– This is of paramount importance as the claims verification process is now far more rigorous than ever before and insurers will perform checks for CCJs, insolvencies etc.
3. Check Your Basis Of Cover
– Most policies provide cover on a ‘reinstatement as new’ basis, however if any plant and machinery has been purchased second hand/reconditioned, then so long as ‘like for like’ replacements would be widely available in the event of a loss, cover may be more appropriately arranged on a specified ‘indemnity’ basis.
– Where cover is provided on a ‘reinstatement as new basis’, the sums insured need to reflect the full reinstatement as new costs, allowing for inflation.
4. Be Aware Of Average
– Most policies carry an average condition, which essentially means that in the event of a loss, insurers would scale down a claim in proportion to the level of any under insurance:
i.e. (Sum Insured ÷ Full Value) x Full loss = The proportion that will be paid by the insurer.
– The average condition usually applies to all sections of covers, therefore care needs to be taken to ensure that the declared values remain adequate at all times.
5. Check Your Scope Of Cover
– Material Damage – Buildings: Don’t confuse the market value of a property with the rebuild value. Even with new builds, the cost to demolish, clear a site and rebuild following a loss, will be significantly greater than the original build cost. Be mindful that not all insurers apply index linking when offering renewal terms.
– Material Damage – Contents: Don’t assume your contents sums insured are adequate, as the total cost of replacing all business contents purchased over the years, including plant, machinery, tooling, fixtures, jigs, racking, fixtures and fittings etc can so much greater when itemised and added up. If stock levels vary, ensure that adequate cover is in place for the worst case scenario.
– Goods in Trust: Check whether you are contractually responsible for insuring any free issue materials, tooling and other good in trust. If so, ensure that your policy covers these.
– All Risks: If laptops and/or other business contents are taken away from the premises, check what territorial limits apply.
– Business Interruption: Many commercial policies provide cover on a ‘Gross Profit’ basis, however the sum insured for insurance purposes differs from an Accountant’s definition of Gross Profit and is calculated as follows:
‘Turnover (plus closing stock/work in progress) LESS Purchases (less opening stock/work in progress)’.
Once this figure has been calculated, it needs to be adjusted to allow for the required indemnity period (the maximum time that it could take your business to get fully back up and running following a claim) e.g. 24 months = Gross Profit x 2) and also for any anticipated growth during the period of insurance.
– Goods in Transit: If goods are sent by hauliers/third party carriers, don’t assume that they will fully indemnify you in the event of a loss, as the Road Haulage Association Conditions of Carriage 1998 only provide cover for up to £1,300 per Tonne! Where cover is arranged for own vehicles, check whether overnight theft cover is operational and the conditions that may apply.
– Liability: The limits of indemnity for Employers and Public Liability usually provide cover on the basis of ‘Any One Occurrence’ however for Products Liability the limit is the total insurers would pay for ‘Any One Occurrence and in the Annual Aggregate’.
6. Consider Your Need For Run-Off Cover
– If you change your business activities and/or corporate structure, it is always prudent to maintain run off cover for professional indemnity (PI), directors & officers (D&O) and public/products liability (PL) polices. This is because PI and D&O polices would only respond to ‘claims made’ during a period of insurance and ordinarily PL policies only respond to damage or injury ‘claims occurring’ during a policy period (unless written on a ‘claims made’ basis like PI & D&O).
7. Check Compliance With Policy Terms, Conditions & Endorsements
– Insurers impose these for a reason – usually as a result of previous claims/losses!
– Check your policy wording, as well as the schedule of cover and statement of fact/proposal forms.
– For commercial policyholders, these are likely to include amongst others: minimum security conditions (physical and alarm); electrical inspection requirements; work away exclusions; portable heater exclusions; trade specific exclusions and/or conditions etc
– For fleet policyholders, these are likely to include: driver checks; reporting requirements in respect of changes of vehicle and MID updates; all vehicles being owned by/leased to the policy holding company (unless specifically agreed otherwise); no employee owned vehicles to be driven under the fleet; no business use or commuting, other than in respect of the policyholders business etc
8. Be Aware Of Claim Reporting Procedures And Requirements
– Insurers do at times impose very strict reporting requirements, irrespective of whether as claim is to be made.
– Always forward communications to insurers, unanswered and without delay and do not enter into any discussions in respect of liability
9. Additional Covers
– Don’t just rule out optional additional covers, as some of these can provide invaluable protection for you and your business.
10. If In Doubt Ask!
– If an issue arises, such as an employment related matter, tax investigation, contract dispute etc, contact us as you MAY have access to advice lines and/or cover if you have commercial legal expenses and/or a Management Practices Liability (D&O) policy in force (N.B. there are strict requirements in respect of the notification of incidents that may give rise to a claim, so if in doubt check!)
In closing, we would just like to draw your attention to the following:
UK insurance industry reviews have identified that:
– Up to 80% of Commercial Properties are underinsured
– Over 40% of Business Interruption policies are underinsured
– Many businesses don’t have adequate machinery, plant and trade contents sums insured
– Over 70% of businesses involved in a major fire either do not reopen, or subsequently fail within 3 year
The Financial Conduct Authority’s (FCA) review into SME Commercial Claims found that:
‘While businesses often talk of being ‘confident’ about what they are covered for prior to a claim, many find that the terms and conditions, warranties and exclusions subsequently prove that they didn’t have the cover they thought they had’
