Managing and maintaining your insurability as a commercial enterprise is critically important in any market and arguably even more so in current conditions where a delayed, reduced or rejected claim could seriously impact on business survival.
Denis Ternent , Executive General Manager, Broking Services, Glenrand M.I.B. says a number of what he calls “insurability hot buttons” need to be taken into account in this respect.
Firstly he says: “As you have a far better knowledge of your risk than your insurer, it’s important that you advise your broker of any material changes to your risk – in other words make sure your provide information that may affect the insurer’s perception of the risk they are covering.
“Examples could be a change in a manufacturing process which is more hazardous than the previous process, the production of a new product, signing of leases or contracts which may impose additional liabilities on you, relocation of your premises, warehousing of customers’ property, hiring of plant and equipment etc.
“But it’s important to remember that without full disclosure, you could find you are not insured for a particular risk or items of property and that could mean your claim is denied. In extreme circumstances, insurers may void the policy in its entirety if the aspect of non disclosure is that material.
“Secondly, all insurance policies operate on a ‘no premium - no cover’ basis. If premiums are not received by insurers on or before due date you may not be covered. This condition is now being more strictly applied by insurers. Monthly premiums are payable in advance.
“To avoid ‘average’ being applied to your claim, the new replacement value at the time of reinstatement of the lost or damaged property must be declared to insurers at the commencement of the policy period. Virtually all material damage and business interruption policies are subject to the condition of ‘average’. Should your declared values not represent the replacement value, insurers will invariably reduce the settlement amount in direct proportion to the level by which you are under insured.
“It’s vital therefore to review your insured values on an annual basis and if necessary, utilise the services of a professional valuator. Your broker should give you guidance in setting your sums insured, but the onus is always on you to ensure the adequacy of your declared values.
“Buildings for example are normally insured subject to what’s known as Reinstatement Value Conditions. This technical term means that your sum insured should represent the cost of replacement, not at the time of the claim, but at the time of reinstating the building.
“This condition makes allowance for the time it takes to repair or reinstate the building from the date that building was damaged.
“Again, should you be under insured in this respect you will receive only partial payout of the building’s replacement value, in terms of the ‘average condition’.
“To avoid this, you should make allowance for all professional fees (e.g. architects’, quantity surveyors’, consulting engineers’ and municipal plans scrutiny fees), additional costs (e.g. cost of demolition, clearing and erection of hoardings) etc when setting your insured value.
“As for Gross Profit or Business Interruption cover, care must be taken to accurately calculate your anticipated future gross profit/revenue in accordance with the policy definition. Under insurance in this respect could have a detrimental effect on your business.
“Finally, an important factor to bear in mind when evaluating your indemnity period, is to carefully consider the length of time it will take to not only reinstate the lost or damaged property, but for the business to return to the level of turnover immediately prior to the loss.
“Remember that where an indemnity period of less than 12 months is selected, the declared value must represent the gross profit/revenue for a full 12 months. Insurers will adjust the rate accordingly for a lesser period. “
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