BIBA Chief Executive, Steve White, discusses how you can protect your business with confidence in an ever- evolving industry and gain awareness of the dangers of under insurance.
At present, under insurance is an ever increasing problem that has the potential to cause devastating consequences for businesses across the country. Whilst a lot of times it is generally a pleasant surprise to realise that an asset that you own is worth more than you had originally thought, if these have been accidentally under insured then this can lead to disastrous consequences with any future insurance claims. In the worst case, it can result in more premium being charged, different policy terms applied, or a reduction of claim payments.
To make matters worse, the issue of under insurance is being exacerbated with the lead up to Brexit as the value of the pound falls. This has made it more expensive for businesses to import goods such as replacement equipment and tools. Indeed, it is worth remembering that the problem of under insurance is not just limited to buildings and contents, although it is of course vital that these are adequately insured. You should also consider intangible ‘unknowns’ such as the cost of defending an allegation of legal liability against your business, together with any settlement or award of damages.
With regards to commercial buildings and contents, there are three simple steps that can be taken to negate the risks of under insurance. You should always ensure that:
- Buildings are insured for their rebuild cost and not market value.
- Contents, plant, tools and equipment are insured on a replacement as new value, not the value on your balance sheet.
- Stock sum insured represents the cost of raw materials, work in progress and finished goods.
Moving back to liability risk, it is possible to work out its value by thinking about any potential claims that might be brought against you or your business. Claims can be brought upon by numerous factors, such as damaging or injuring a person or property.
Making an estimate of the value of awards that might be made against your business and their frequency will help you to request a suitable level of cover as a ‘limit of indemnity’. Most of the time insurers offer levels of £5-10 million of indemnity cover, which might seem a lot but can equally prove not to be enough if there is a serious incident or numerous connected claims. If you are looking for any advice on this, you would have to get into contact with an insurance broker since this is a highly technical area.
Another key consideration to make is exploring business interruption cover. Regarding this, businesses should be aware that two years is more than likely to be the minimum period needed to rebuild a property, fully recover a trading level and regain a customer base. Bearing this in mind, choosing a minimum of 24 months as an indemnity period is always wise. Furthermore, businesses should also consider buying declaration-linked insurance because it provides an uplift to the sum insured of 33%. This is, however, providing that the sum insurance and period of indemnity are correct initially and declarations are made when requested by insurers.
All in all, whether or not the value of your businesses assets and risks are going up or down, it is always wise to carry out regular reviews and work with your broker to understand the basis of your cover and the level of insurance needed. As mentioned, the stakes could not be any higher at the moment and therefore it is important to make sure you are sufficiently protected.
To provide you with further information and help on these issues, BIBA has produced a guide with backing from the Federation of Small Businesses.
