Review Before you Renew

By smei

Posted 11/11/15

The end of the year is the perfect time to review your business insurance policy. It is advisable to review what cover you may need to add, subtract, increase or decrease, to ensure all risks are covered and that you can rest assured your business is fully protected. Some business owners cancel their policy every year in order to search the market for an alternative deal, whereas some will renew without asking questions or considering what may have changed since they last insured their business. Business owners buy insurance to protect their business, employees, the public and themselves and expect claims to be paid when a loss occurs. Making sure you do more to consider what may affect a claim being paid, and acting upon it, will often go far beyond saving a few pounds on the premium in the first place.

Look out for loopholes

It is important to thoroughly check your existing policy to ensure your cover is what you expect and make sure there aren’t any items which may have been left out and could potentially catch you off guard. Most policies will include cover for building, contents and business interruption. With these covers, you must insure the full value at risk. If you insure for less than the full value at risk you will be underinsured, meaning that any claims payment may be proportionately reduced by the amount that you are underinsured. For example, if you insure your building for £100,000 but the actual rebuild cost is £200,000 the building is underinsured by 50%. If the building was then damaged by fire for example, and the claim to repair the building is £50,000 the claim would be calculated as the sum insured, divided by the total value at risk, multiplied by the loss amount, which would leave £25,000 to be found elsewhere.  Look out for the clause in your policy documentation which is likely to be titled “underinsurance” or “average clause”. In 2012, a report published by the Building Cost Information Service (BCIS) revealed that 80% of commercial properties were underinsured. It could very well reflect the state of commercial underinsurance today as there is little evidence to suggest that this will have changed.

In January 2015, Zurich Insurance plc provided a technical document which stated that sums insured on buildings consistently lag behind the rebuild value by at least 20%. These findings demonstrate the scale of the problem. When calculating your rebuild figure there are a few things to consider:

  • Professional fees are often over looked. For example you may have to pay architects’ fees and structural engineers, not forgetting that a building may have to be re-built in a different way.
  • There may be costs for debris removal to make sure the building and surrounding areas are safe.
  • It is also important to allow for inflation from the start of your claim to the final rebuild and to consider the cost of VAT.
  • It may be helpful to have frequent professional valuations carried out on your property and consider what may have changed since your last valuation, as well as understanding your maximum stock levels (not just an average) and market prices for equipment (especially big and critical pieces of equipment e.g. frying ranges, restaurant kitchens).

If you are unsure about calculating the figure, it’s always worth speaking to your insurance broker for some guidance.

Avoid renewing unnecessary risks

Understanding exactly what your existing policy covers and comparing the small print across all of your policy documents may save you from duplicating your cover. You may save money by reducing coverage or cancelling policies that are insuring you for the same thing. Variations in the amount of inventory, equipment or your business stocks may mean that you need to reduce your cover and limit unnecessary costs. On the other hand this may need to be increased to ensure you fully protect your assets. There may also be new risks to consider from when you previously insured your business, for example burglaries in the area may have increased or the business next door may have been subject to a flood. It is important that the information you provide your insurance broker is accurate, as this allows them to help make sure you are fully covered for your needs.

Posted 11/11/15

Author: smei

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