Under Insurance in Business Package Policies
The following highlights some of the issues:
- Fire & other damage section
- Buildings– while property values have been up and down to varying degrees around Australia, the cost of Building (Labour and Materials) has steadily increased. Consider the following points:
- Your loss could occur on the very last day of the policy in 12 months time – costs would have risen during this period
- Availability of Builders varies at different times of the year affecting their prices
- You may need to engage a Professional Architect or Designer to re-draft rebuilding plans – additional fees will be charged.
- You will need to submit new plans to Council, they can take varying times to respond and may reject your plans even if they are identical to what was previously built due to By-law changes.
- Stock & Contents– It will normally cost you more to replace Contents and Stock than you originally purchased. While many may choose to use only “indemnity” values for Stock as this is what they may have paid for them originally, to replace that Stock will cost more and may not be replaced until you are ready to re-commence the business, which could be some considerable time away. Consider also:
- Landlords fixtures & Fittings – are you responsible to insure these?
- Leased or Rental Equipment – is the terms of the contract requiring you to be responsible for anything happening to this property?
- Business Interruption Section– the major issue with this cover is that many policyholders choose not to take it which is a major mistake. 98% of those that do, do not insure for enough. Consider these points:
- Gross Profit Sum Insured– needs to factor in what could be generated in two to three year’s time. A Claim could occur on the very last day of the policy, you may not be back into your building for a further 18 months or more, then there is the period in re-establishing the same level of revenue generated immediately prior to the loss. There an allowance for growth and inflation needs to be factored in to any sum insured calculation.
- Indemnity Period– this needs to be set at a realistic level to match not only the fact that you will stop generating an income while your Building or location is out of action, but also the slow down until normal turnover levels resume.
- Claims Preparation Costs – You will need to pay for Accountants or other relevant professional experts to assist in proving your loss to Insurers. As claims are based on anticipated earnings, you need to establish historical trends, and other evidence that the financial losses incurred were fair and reasonable. Such experts are not cheap and the bigger the business, the bigger the sum insured that will be needed.
- Additional Increased Cost of Working – a very handy addition to the loss of gross profit in that it can be used to mitigate losses such as obtaining temporary premises elsewhere (if available), advertising or advising customers that you are still in business or located elsewhere. Allow for a reasonable amount here
- Public/Products Liability– Most businesses need to insure for much higher amounts than the $10,000,000 or even $5,000,000 limits chosen usually. It usually does not cost too much more to increase the limit as it is considered more of a catastrophe issue. Consider these points:
- If a manufacturer or deemed to be the manufacturer, the Products Liability limit is usually a one limit aggregate rather than each and every claim like the Public Liability section. Is it enough to cover a widespread number of claims due to the product causing an injury?
- Many Bodily injury claims take many years to make it to Court, which at that time will be awarding much higher amounts. Even worse is an injured child does not have to bring the matter to Court until they reach adulthood. What will Courts be paying for such injuries in 15 to 20 years time?
- Plant & Machinery – Many owners forget how they acquired their equipment, if it is readily available to be replaced, or is out of date. Consider these points:
- Valuation of Machinery – Are you using the most appropriate method?
- How long would it take to replace that Machine?
- What are the Shipping and Set up costs required for that Machine?
- Glass– Have you checked your Lease to see if you are responsible for the Glass replacement in windows and the Shop Front. This may include internal and external glass. It may include neon signage, curved glass, other display windows as part of Landlords fixtures and fittings. Make sure the policy will pay for all replacement for any type of breakages.
- Money – Many businesses think they will never keep more than their Float on hand and early in a Businesses life this may well be the case. However, over time, systems and processes become forgotten, you become too busy to bank as frequently. Many Insured have found they had more on hand only when they have been robbed. Either review the current processes or increase the Money sub-limits to a more adequate level.
- Burglary – Sums Insured are usually sub-limited to what is expected to be a worse case scenario balance with the limitations from good security. However, consider the following:
- Do you have contents located at other premises and have they been disclosed to insurers?
- What restrictions apply to Theft during business hours?
- Have the nature of the Stock or Contents changed so that there is more value in smaller items that can be easily removed ie Changing desk top PCs to Notebook Computers can mean instead of only two Computers stolen, 15 to 20 can easily be picked up and taken
This information is provided as general advice only and a more specific analysis of your risk needs can be made by separate appointment