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Brokers face a tough challenge as they advise their commercial clients on the best cover for a diverse range of businesses in a myriad of different industries. In this exciting new series, FAnews asked the underwriting experts at various insurers to recommend cover for various businesses and share their very interesting answers with our readers.

In this first article in our series, Santam puts together an insurance package for a clothing manufacturer.

The universal first step

"One should always consider what the insured owns or what the business is responsible for that needs to be insured," says Santam. "By way of an extensive risk management process the insured should identify the risks that may have an impact on the business.

"Once these risks are identified, the insured should decide which of the risks may be managed by way of a physical risk management programme (i.e. install burglar bars, burglar alarms, fire extinguishers, surge arrestors etc), what part of the risk should be transferred (e.g. portion of the risk may be transferred to an insurance company in terms of an insurance policy) and what part of the risk should be avoided (e.g. instead of transporting the finished goods by means of their own transport, the insured may opt to outsource transportation to a transport contractor)."

This process will apply equally to all commercial insurance risks, but let's take a closer look at the cover the experts at Santam suggested for our clothing manufacturer.

Fire

The fire load in this industry is considerable as large volumes of dry cleaning solvents are kept. Packaging material and bolts of material are highly flammable and generate vast amounts of material scraps and dust. Steam irons and tailoring tools provide an ideal source of ignition as the larger concerns operate 24 hours in three shifts, which may result in inadequate maintenance.

The various pieces of machinery, raw materials and finished goods, as well as the building, whether owned or rented, may be damaged by fire, lightning, explosion, special perils (storm, wind, water, hail, snow) or malicious acts, which are covered in terms of the Fire Section. If the insured owns the building, the cover may be extended to include damage resulting from subsidence and landslip.

Business Interruption

Damage to buildings, plant and stock may result in lengthy interruption of the business with an extensive reduction in turnover. The insured may also need to incur substantial additional expenditure to prevent loss of business and clientele (e.g. renting new premises, paying overtime to keep up with outstanding orders etc.). The business interruption section provides cover for a reduction in turnover and an increase in cost of working.

Clothing manufacturers that are dependant on single suppliers should consider extending the cover to also follow damage to property at the supplier's premises by an insured peril (as insured under the fire section).

If the insured delivers his goods to a single buyer or small number of clients, cover should be extended to follow damage to property by an insured peril (as insured on the fire section) of clients which may result in the finished goods not being delivered.

The erratic supply of amenities (e.g. electricity) could cripple an industry dependant on constant supply. This section could be extended to provide cover for interruption of public utilities (water, electricity and gas) and interruption of public telecommunication.

The insured selects an indemnity period during which he will be indemnified (e.g. 3, 6, 9 or 12 months). The indemnity period is dependent on the availability of alternative premises, equipment (e.g. imported vs local) etc. Care should be taken to ensure that the annual gross profit is insured if the indemnity period is less than 12 months.

Theft

The insured may endeavour to protect his premises by installing burglar bars, security gates and burglar alarms. However, as has happened in the recent past, interruption in the power supply may render alarm systems inoperable which allows burglars access to buildings without being detected. Recent trends also include armed robberies in which stock is taken at gunpoint.

The insured should consider what his maximum loss could be in the event of a burglary or armed robbery taking into account the physical risk protection and insure this exposure under the burglary section. Pilferage is not insurable in terms of the burglary section and is considered a trade risk.

Money

The insured may keep large amounts of cash on the premises to pay salaries and wages and pay suppliers. Clients may pay accounts by way of crossed cheques. Armed robberies are commonplace and even if the cash and crossed cheques are transported by a security company, the insured can incur a substantial loss. Money kept at the premises after hours, should be contained in a locked safe with adequate SABS grading as most commercial policies are restrictive in terms of the amount of money that may be kept in a specific safe.

Fidelity

Theft by employees is commonplace. The insured may elect to cover this exposure by taking out fidelity insurance, however, the insured must be able to prove that one or more of his employees were involved in the losses.

Goods in transit

The insured is required to move large volumes of raw materials to his premises and finished goods to the distributors. He may elect to insure the risk of loss as a result of an accident, theft or hi-jack or he may elect to employ a transporting contractor to transport the goods on his behalf in which instance the contractor may be held liable for any loss or damage to the goods.

Business All Risks

A large number of small items such as cellphones, laptops, etc., that may be damaged or lost can be insured under this section. All risks cover is provided, with a few exceptions, of course! As this insurance is relatively expensive, the insured should consider whether insurance is practical and whether he should carry the risk within the working capital of the company.

Public liability

As a general rule, the public is not allowed in any factory, however, it could happen that a customer visiting the premises is hurt in an accident. A fire may occur on the premises as a result of the negligence of the insured. In both instances the insured may be held liable and cover for this fall under this section. The cover may be extended to provide cover following loss, injury or damage resulting from a defective product.

Group personal accident

Large industrial presses, cutting machines and other tailoring tools are used and accidents do happen. The personal accident section provides cover for injured employees (all employees should be insured on a named basis or the total number per occupation). Death cover, permanent total disability and temporary total disability cover is available.

Motor

The deteriorating road conditions, increased number of vehicles on the road and the increased incidence of vehicle thefts and hijacks have necessitated the insurance of motor vehicles. At least 1 in 3 vehicles will be involved in an accident annually. With unlicenced drivers roaming the streets and a large number of uninsured vehicles, changes of successful recovery from a guilty party becomes problematic. In the event of one of the insured's drivers causing an accident, (or worse bumping into an expensive Ferrari!), the policy will pay for the damage to the insured's vehicle as well as injury to any third party and damage to third party property (subject to standard exclusions).

Electronic equipment

The accounts department, HR and marketing department will all use computers, faxes and photocopiers, which needs to be insured against loss or damage following fire, lightning, storm, malicious damage and theft. The electronic equipment section was tailor-made for all risk cover on electronic equipment.

Machinery breakdown

The mechanical breakdown of equipment due to operator error, faulty design, faults at workshop or in erection, bad workmanship, lack of skill, carelessness, shortage of water in boilers, short circuit etc. needs to insured. A large number of the machines may be covered in terms of the lease agreement or the maintenance agreement and the insured should ensure that he does not purchase insurance cover on items that may be covered in terms of another agreement.

Machinery Breakdown Business Interruption

The breakdown of any of the plant and machinery may result in the interruption of the business, especially in the event of the equipment being imported. This section provides cover in terms of the reduction in turnover following damage or loss of machinery insured in terms of the machinery breakdown section.

Don't miss the next edition of FAnews in which the industry experts will design the most suitable cover for other businesses brokers may encounter in the marketing efforts. If you would like a specific type of business explored in this series, e-mail [email protected] with your suggestion.