There are many potential pitfalls when arranging your business insurance. Here we explain some of the most common problems we see when taking on new clients.
Getting the right insurance for your business can make the difference between it surviving or not surviving following a claim. We often speak to businesses whose existing brokers have compromised on cover to keep premiums down, but potentially put their client at risk.
Here are some of the more common problems that we see, along with the solutions. Check your own business insurance to ensure that you’re not taking any unnecessary risks:
(1) Short Business Interruption indemnity periods
If you suffered a large loss such as a fire, repairing or rebuilding your property is not the only problem you face. Whilst the ‘material damage’ section of your policy covers your buildings and equipment, the business interruption section of your policy covers the hit to your profits, as well as increased costs of working. If you were unable to operate, your customers may go elsewhere – this may start out as a temporary arrangement, but you may then struggle to win customers back. Many businesses underestimate just how long their revenues will be affected following a large claim. They opt for a low indemnity period (the period for which you are covered after the date of the incident) as this can help keep premiums down. The ABI (Association of British Insurers) claims that 80% of businesses fail within 18 months of a large loss, so it is important to ensure that you have the cover you need.
(2) Stock levels
Valuing your stock at any given time seems relatively straightforward, even if stock levels do fluctuate throughout the year. However, if you have multiple locations or seasonal demand for your products, it does take more effort to get your insurance right. In the past, we have seen instances where clients’ stock levels have been divided equally between all of their premises, despite one central location holding most of the stock. We’ve also seen instances where seasonal stock levels haven’t been adequately covered. Insurers are very aware that your stock levels will be higher at certain times of year, and can allow for it accordingly. However, it’s very important that you work closely with your broker and ensure that they give the right information to your insurer.
(3) New capital and machinery
If your business buys new machinery or equipment, it is more than likely as part of an expansion or new project. Insurance may not be at the forefront of your mind when embarking on a new project, but it is important to advise your broker as soon as possible to ensure that you’re fully covered. In the past, when visiting new clients we have found that new capital additions such as expensive machinery have not been added to the insurance schedule. More often than not, this is because the existing broker has not visited them for a number of years, and never asked about new machinery at each renewal, so it’s important to ensure that your broker gives your business the right level of attention – not just when you sign up with them, but throughout the year and at each renewal.
(4) Emerging risks
Your business and the market you operate in will inevitably change over time, and so will the risks that you face. In recent years, we have seen significant growth in Directors & Officers’ Liability Insurance (which protects you against personal litigation for your actions as a company director) and Cyber Liability Insurance (which protects you against the effects of Cybe Crime). Both of these areas are examples of new and emerging risks in the market place, and it is an important part of an insurance broker’s role to bring such risks to your attention. You may not go on to buy these extra covers, but you will at least know the facts and be able to make an informed decision. We regularly speak to clients who had never been made aware of such covers.
These are just some of the main pitfalls that we commonly see with business insurance. The most important lesson from this is that it’s important to work closely with your insurance broker to understand exactly what you are covered for, and what you’re not covered for. At each renewal, remember that your business will have changed since your previous renewal, so it is worth putting in the time and effort to ensure that you check everything again.