To complement our Start-up September Competition this month we have gained insight from some of the West Country’s leading industry experts.
Today Lockton Insurance offer their expertise to help new businesses in Wiltshire get off the ground.
Insurance is a peculiar agreement, an insurance policy is purchased by a policyholder as a promise, money is given to an insurance company in premiums as a promise that they will protect your interest in the event of a claim, the benefit offered by the policy is peace of mind should the worst happen. The peculiarity is that as a policyholder you are buying something that you do not want to use. However, when called upon it is critical that the policy does respond. We have all heard of nightmare stories where claims are unsatisfied and policyholders feel let down.
To ensure that your business is protected here are Lockton’s top 5 tips for arranging business insurance:
1) Pay attention to your contractual obligations
Liability insurances are purchased either because they are required by statue (Employers’ Liability & Third Party Motor Insurance) or more commonly to satisfy contractual obligations (Public Liability, Product Liability, Professional Indemnity). Larger organisations and Local Authorities/Government Bodies will often request limits for these covers to match their own and there may also be requirements for specific policy extensions, warranties and endorsements. Some contracts may include clauses which surrender rights of insurance companies in the event of a claim and these can prejudice your insurance policy resulting in claims being unsatisfied or cover amended or even withdrawn. Always ensure that you furnish your insurance advisor with all information relating to your business activities and check that your insurance programme is adequate to satisfy your contractual obligations, we have seen examples where the requirement to arrange additional covers has resulted in premiums that are higher than the contract is worth.
2) Carefully consider the values of your property insured
The most common reason for claim disputes isUnderinsurance, having a sum insured which is less than the replacement value of the property. Insurance policies are subject to “The Condition Of Average”, this clause means that any claim which is subject to an element of underinsurance will result in any settlement being proportionally reduced by the extent of the underinsurance. To illustrate, if you had £10,000 of tools or plant or any other property and you had only insured this for £5,000; in the event that this property was lost or destroyed the insurer would conclude that the extent of under insurance was 50% and the settlement would be reduced by 50%:
- Loss = £10,000
- Sum Insured = £5,000
- Under Insurance = 50%
- Settlement = £5,000 – 50% = £2,500
Now imagine that this was your building or all your stock or your plant and machinery. The impact of underinsurance on businesses can be catastrophic.
3) Consider what happens after a Loss
If you are unfortunate enough to suffer a loss be that theft, fire or other damage the insurer will evaluate the loss, establish the cause and therefore cover, clarify the financial quantum and provide settlement. However efficient a process, the sourcing of replacements and/or repairs may take time and this will inevitably cause an interruption to one’s business. If you are likely to suffer a loss in trading thought should be given to the consequential loss in trade and appropriate Business Interruption insurance arranged. If you could avoid a loss by incurring additional costs perhaps the insurance policy should be constructed to provide the funds to cover some incurred costs and maintain your trading. If you are likely to lose clients if you are unable to trade and it’s questionable as to whether you will win them back, perhaps arranging a provision for some uneconomic protection would suit (spend more than £1 to save £1). Whatever the basis of your Business Interruption insurance it should be appropriate in indemnity and sum to cover the maximum potential interruption period. Question do you have any equipment or materials which are hard to source or have a time lag in delivery? How long would it take for you to return to the normal level of trading? Business Interruption cover is the most commonly overlooked area and in the event of a catastrophe can be the most critical!
4) Compare the Policy Wordings not just the High Level Sums and Limits
As the old saying goes, the devil is in the detail. All too often insurance policies are purchased and compared based on limits and sums insured, sections of cover or extensions and of course premium. However, with the advent of on-line quote and buy aggregators offering SME business insurance how often is the policy wording scrutinised? What conditions and warranties exist that restrict cover or place onerous duties on you as the policy holder? As a commercial client you are deemed a sophisticated buyer and therefore many of the protections offered to retail (personal insurances) will not apply, you do not have a cooling off period for instance. It is therefore crucial that you are evaluating the policies recommended based on how they will protect your business interests and not just the high level snapshot and premium. It is here where a Broker can offer professional independent advice.
5) Prepare for the worst
Insurance offers peace of mind that the financial burden of an insured loss will be covered. It is part of the solution not the solution alone. As an SME Business Owner you will wear many hats of responsibility, Health & Safety, Data Protection, HR & Employment law, Statutory Compliance, any applicable regulatory responsibilities (Financial Services, Food Hygiene etc). You are unlikely to be an expert in any of these fields but having a system of sound and clear record keeping and a series of processes and procedures along with a business continuity plan will help immeasurably should the worst happen. Take advice from experts and adopt some of their recommendations, be aware of your duties and responsibilities and where possible keep it simple. A Disaster Continuity Plan sounds rather grand but it can simply be a record of your important contact numbers stored off-site, a computer records back up, a secondary location to trade in the interim, the ability to divert phones and email, Remote Server or Cloud Server access. Make sure you have spoken with a Lawyer, Business Advisor, Accountant and Insurance Broker/Risk Management Advisor.
The biggest piece of advice we would offer is, If in doubt, ask!
To find out more contact the Lockton Bristol office who work across Wiltshire and the South West.
T: 0117 906 5000 E: firstname.lastname@example.org www.lockton.com