Common Insurance Pitfalls
Commercial insurance policies are complex contracts between a business and an insurance company. For best practise you should be seeking the advice of a good insurance broker; preferably one that understands your business and the industry in which you trade. Below are just three of the pitfalls commonly witnessed by Boswell Aftermarket.
Under-insurance
For some policy holders, it may appear economically beneficial to under-insure stock, business interruption, buildings etc to receive a marginal saving on their insurance premiums. For others, under-insurance occurs gradually over time and remains undetected until too late. Either way, it is a potentially costly error and great example of a false economy. Where a business is under insured the insurer is entitled to apply ‘average’, a clause which reduces the claim settlement in line with the level of under-insurance. For example your business contents are insured for £50,000 yet it would actually cost £100,000 to replace them, meaning you are only insured for half the sum. If there was a theft of let’s say £30,000, you would only receive £15,000 in settlement, leaving your business to make up the shortfall.
In 2011 Ashley Minors, Boswell Aftermarket Director was approached by Keith Howells, Managing Director of Round Tower Spares for a quotation on their commercial insurances. Upon reviewing their policy Ashley immediately noticed the buildings sum insured appeared low and suggested Mr Howells have the premises surveyed. The survey revealed an under-insurance of £580,000, nearly 2/3 of the sum insured. If Mr Howells had needed to claim, the application of average would have caused the settlement value to be reduced by 2/3. i.e, if there had been a loss of £300,000, the settlement would have only been around £100,000, leaving the business with a deficit of nearly £200,000.
Ashley states “Under-insurance is far too common. Sometimes we see insurance documents where the sums insured are only a fraction of the actual values and the policy holder is completely unaware of the consequences.”
Leaving Directors and Managers exposed
Companies and associations are facing an increasing spotlight from all areas of their business. Customers, shareholders, employees, creditors and various other stakeholders all have the ability to seek compensation against their companies and associations’ directors and managers. A developing blame culture in the UK means it is more important than ever for directors and officers to protect themselves against claims arising from their decisions and actions taken whilst managing the business.
“Unfortunately, for a director or senior manager, the threat of prosecution should be of genuine concern” states Ashley. “As a result we have seen a significant increase in the amount of Director and Officer Liability policies arranged over the last few years. Cover is relatively inexpensive and widely available. A good broker will be able to advise you further”.
Insuring on a Retail or Shop policy
Shop insurance policies are designed to protect motor factors that simply supply retail products such as car detailing consumables, car accessories and tools. This type of policy is not designed to cater for businesses that supply brakes, clutches and other hard car parts, especially where this involves supply to trade customers. An easy way to tell if your insurance policy is correct for your business is to look at the business description, usually detailed on the front page of your insurance schedule. If this states ‘car and accessories retailer’ and you supply hard car parts to the trade, it is very likely the policy is not covering your business appropriately. A commercial combined product is more suitable and will cover claims arising from the sale of hard car parts.
“Shop insurance policies can also present other issues for motor factors” states Ashley. “The standard limits provided on these policies can cause complacency by insurance brokers. They can rely on these limits rather than understanding the client’s business and establishing the adequacy of the insurance bring provided. Purchasing inadequate cover is false economy”