It’s generally a pleasant surprise when you find out that something you own is worth more than you thought. Like finding out that your stock of copper has increased in value or that you own more tools than you realised. In most cases, this is a good thing, but if you need to make an insurance claim and have accidentally under-insured your business, it could be disastrous.
Under-insurance is an increasing problem and can have devastating consequences. In the worst case, it can result in more premium being charged, different policy terms applied or a reduction in the claim payment.
Many factors can contribute to under insurance, not just simply getting the sums wrong: Not taking account of the intangibles such as product liability; not arranging cover in respect of business interruption as a result of damage at a key suppliers; failing to take account of the Brexit effect on the value of sterling which may make it more expensive to import goods such as replacement equipment or tools when needed.
Though it is very important to get the calculation of the value at risk for physical property such as buildings and contents to make sure that these are adequately insured, it is also essential to consider the intangible aspects of business risk. Think about those unknowns such as the costs of defending an allegation of legal liability against your business together with any settlement or award of damages. To work out the extent of a liability risk it is necessary to think about any potential claims that might be brought against you because of something you have done, like damaging or injuring a person or property. Reviewing any actions that have previously been brought against the business (or similar companies) is useful in assessing this risk.
Another key cover for organisations is business interruption. This insurance will crucially help a business get back to the trading position it enjoyed before an insured incident causes damage to its premises that prevented it trading. It is likely that 24 months is will be the minimum period needed to repair a property, fully recover a trading level and rebuild its the customer base and it would be wise therefore to make sure a business interruption policy has a 24 months ‘indemnity period’. In addition declaration-linked insurance because provides an uplift to the sum insured of 33%, providing that the sum insured and period of indemnity are both correct initially and declarations are made when requested by insurers.
If the worst happens the effort made to get the insurance program right at the outset will help a business get back on its feet more quickly. It is good practice to undertake regular reviews of risks and sums insured and to engage an insurance broker to work through these.
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