Archive for October, 2009

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Business insurance claims – the role of quantum

Thursday, October 22nd, 2009

Insurance terminology in the UK has, believe it or not, come a long long way in the past 20 years.

What started as the plain English campaign seems to have been carried forward and insurers are aware that there paying customers do like to read and understand their policies. For this reason you tend to find less long words and best of all, less Latin. There is still a small smattering of Latin kicking around within policies. The position tends to be if the wording still mentions a Latin phrase then it is likely to be one that cannot be reasonably changed.

With the beauty of being able to Google words and phrases, any definitions you are unclear of shouldn’t take long to find out their true meaning. One such word is Quantum, this does not tend to be used in the policies so much but is used in a lot of communication regarding claims.

Quantum is Latin for amount. Under your business insurance policy, if you suffer damage then you make a claims against the policy. However, if a claim is made, it must first be established whether the insurer legally liable to pay the claim or not. Once this has been decided, they will then talk about Quantum, which is simply the amount the insurer will, or is likely, to pay. This will be after deduction of any excess that you, the insured, are liable for as defined in the policy wording.

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Commercial building insurance – flat roofs

Thursday, October 22nd, 2009

The vast majority of buildings, whether commercial or residential, have pitched (triangular and sloping) roofs that are made of slates or tiles.

Insurers prefer buildings with these roofs because they are less susceptible to damage from storms. As far as residential properties are concerned, the vast majority do have these types of roofs, which insurers consider standard construction. Residential properties in the 60’s and 70’s that had extensions tended to have flat roof extensions, which were usually roofed with ply board covered with felt on timber.

When this is new, it is all well and good, but after a few years of hot sun in the summer and frost and rain in the winter the roofs start to lose their effectiveness. This results in a higher likelihood of either the roof being damaged in a storm or water (rain) leaking through any holes or cracks. Residential insurers are usually happy if the overall roof percentage (that is flat) is less than 10%.

There is a much higher percentage of commercial buildings that have totally flat roofs because, in simple terms, property owners are not really that bothered about the aesthetics of their building as long as it solves a purpose.

Having a flat roof does affect the cover provided under your commercial building insurance policy. When obtaining a commercial property insurance quote, one of the main questions is how the building is constructed. You need to declare any flat roof you have. Most insurers will exclude cover for all damage caused to or by a flat roof over 10 years old.

Other, more progressive insurers, are happy to provide cover as long as you can prove that it has been inspected annually, by an approved contractor, and all necessary repairs carried out.

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Pub insurance – loss of licence cover

Wednesday, October 21st, 2009

When you visit any business that supplies alcohol, there is a sign above the main door (not very big mind you) that declares who is the licensee for the premises.

The local authority will approve the licence holder and this is renewed annually. Thankfully for the licence holder they do not have to be the person that serves the drinks. As part of being issued the licence, they are allowed to appoint members of staff to serve alcoholic beverages.

Whilst many pubs, bars and other licensed trade premises have sensibly diversified into selling foods and coffees etc, they still rely on the sale of the alcoholic beverages for a fair portion of the income.

If the licence is not renewed, then the business can still trade but it will be without the ability to serve alcohol. This may stop customers coming into the business and this will result in a reduced revenue. It goes without saying then that the protection of the licence is something of paramount importance to the business.

When looking around for a pub insurance quote, you may be asked whether you need “loss of licence insurance”. The answer to this should be a resounding yes. Many forward thinking insurers include this cover as a standard part of their cover.

You can usually specify an amount to be insured for, usually £50,000. This covers the decrease in value of the business if the licence is withdrawn.

Careful though, because the cover only applies to loss of licences outwith the insurers control. If a pub loses it licence because of constant illegal lock-ins, then an insurer will not pay out. But, if a change in planning laws causes a licence to not be renewed, then this is something that would usually be covered.

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The flooding season is here again

Wednesday, October 21st, 2009

In Scotland, we have now seen the first of the seasonal flood warnings for the winter 2009/2010.

Many years ago it was incredibly hard to get any information about potential flooding. You basically had to rely on the main TV channel weather forecasts, and as we all know these are not that reliable.

Modern technology has led to it being much easier to get information more quickly. Not only can you get dozens of different weather forecasts, you can also obtain up to date information on potential flooding.

In Scotland, the government department responsible is the Scottish Environment Protection Agency. They have an excellent website with details of the varying levels of flood warnings for Scotland.

Most commercial insurance policies will have flood insurance cover included. However, it is a good time to speak to your broker to see if you have any special conditions or increased excess in respect of your flood cover. For example, a warehouse insurance policy may have a condition that all stock is stored on pallets a certain distance from floor level, say 15cm, to prevent higher claims from low level floods.

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CWU post strike – how does this affect business insurance?

Tuesday, October 20th, 2009

Here in the UK, the Communication Workers Union are taking us back to the 1980’s.

This is not a nostalgia trip for skateboards, walkmans and bad pop but a throwback to the old days of industrial action.

There is a threat, most likely to be carried out that there will be two days of formal strikes by parts of the Royal Mail on the 22nd and 23rd October. We haven’t seen this much posturing from a union since the Thatcher era when she curbed the powers of the unions.

The other interesting point is that there is a Labour government in power, with a PM who, in the past, has been much more left leaning than Tony Blair. It will be interesting to see how things pan out, particularly as Gordon Brown has put Lord Mandelson in the hot seat so he doesn’t get the blame for this as well.

if you are a business posting letters or parcels, is this something (delays) that can be claimed under business insurance? Unfortunately, no this is not covered, if it were then the formal industrial action would be an exclusion.

What you are covered for is if parcels/packages are damaged in the post if you have wider goods in transit insurance including postal and courier deliveries. There is a possibility that the Royal Mail may hire in temporary staff to help with the backlog and these staff may not be quite so careful and items will be damaged.

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Burst pipes claims – what is not covered

Monday, October 19th, 2009

We are now coming into the time of year when both businesses and houses tend to suffer more claims for burst pipes damage.

What this means, in a typical business insurance policy, is cover for the damage caused by the water/fluid that leaks form the pipe(s).

The two main reasons why this happens in the winter are:-

Firstly, and more obviously, because as the temperatures get lower the water in the pipes can freeze. Frozen water takes up more space than liquid water as it expands, this is due to the impurities and air pockets/bubbles in the water. So, the water expands in a pipe which is not flexible enough to “soak up” the expansion. The only way it can deal with this is to split. It doesn’t need to be a big split for water to leak. Whilst the freeze is still on, there is not a problem because the frozen water is not going anywhere. But, when the thaw comes along the water then starts to leak out of the split, causing damage.

Secondly, and slightly less obviously, is that people tend to start their central heating systems again around this time of year. If the system has had any movement or knocks on pipes since it was last used, now is the time for the water to leak.

When making a claim for this type of damage, particularly under a commercial building insurance or commercial insurance policy, it is a common misconception that the pipe is covered as well.

Most commercial policies will cover the damage caused by the water but not the cost of repairing the pipe. The cost of repairing the pipe is usually much much less than the cost of damage caused, but it one that has to be borne by the insured.

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Commercial unoccupied building insurance

Friday, October 16th, 2009

If you have a domestic or household insurance policy you will be familiar with the questions normally asked by an insurer regarding buildings insurance. One usual question is whether the building is occupied on a regular basis.

Commercial building insurance policies will be based on similar information. Most policies are based on one of two types, whether it is occupied or vacant.

Occupied means that the property has a tenant, in the event of a claim or loss insurers would normally look for there to be a tenancy agreement in force as suitable proof that the building is occupied.

If you do not have a tenancy agreement in force, then the vast majority of insurers will consider the property to be unoccupied or vacant. Where a commercial property insurance policy has a tenant, one of the three main rating factors is the trade of the tenant. The other two are the location and the sum insured. The more risky the trade (for fire) the higher the rate. For example a woodworker is rated higher than a wholesaler of non-flammable items.

However, many insurers charge a higher rate for unoccupied building insurance cover. The reasons are because the building is more susceptible to many different types of risk. The main ones are fire, malicious damage, glass breakage and theft.

For this reason, if you declare that the property is unoccupied you will be charged a higher rate. However, if you own the building and use it yourself (ie no tenancy agreement) then you need to declare this to your broker or insurer.

If you are using the building on a regular basis (this means more than three times a week) then you will usually not get charged the full unoccupied rate.

The most important thing is to get this confirmed in writing at quote stage that the insurers are accepting the property is not tenanted, but is not unoccupied.

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Voided business insurance policies

Thursday, October 15th, 2009

Business insurance policies are one of the few financial products you can purchase where you can, technically, receive all of your money back. You don’t need to make a complaint to do this, as happened in the mortgage endowment debacle. But, the sting in the tail is, that when an insurer offers to return the premium paid, it is because they are not willing to pay a claim.

To explain, when you take out an insurance policy there is a a principle of utmost good faith. In very basic terms, you have to be truthful to the insurance company and, in turn, they have to be truthful to you.

If you do not tell the truth, then the insurance policy you have, which is a legal contract, is invalid.

The only way an insurer usually finds out if you are not telling, or have not told the truth, is when you have a claim. This is the problem, you may have a catastrophic claim against your commercial insurance policy, say a fire, and at this stage, the insurers start to check the facts you have declared. When you ask for a commercial insurance quote, you need to declare certain information. Insurers do not check out every minute fact to see if it is true, this is the utmost good faith. In the event of a claim, they understandably check whether you told the truth.

This can range from not telling the insurers about past claims, not declaring that your building was non-standard construction, not detailing past bankruptcies and a whole host of other reasons why an insurer could cancel your policy.

This is called voiding the contract. The insurer says that because you lied they did not consider all risk aspects and would not have wanted to underwrite the risk at the time. Therefore, they cancel the policy from inception and send you a cheque for every penny paid.

This is how you get your full refund, but you don’t want it, because it will not cover the amount that you are claiming for.

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Commercial Umbrella Policy

Wednesday, October 14th, 2009

Individuals, partnerships or businesses that own commercial or residential properties will usually arrange some form of commercial property insurance. There are a couple of scenarios when they will not do this.

Firstly, if the lease agreement that they have with their tenants is a full insuring and repairing lease, then it is up to the tenants to arrange the insurance cover. They will need to prove that there is adequate insurance cover in force to the landlords either annually or more regularly. In addition the landlord has their note of interest on the policy. This means that the insurers agree not to cancel the policy without notify the landlord in advance.

For example, if the tenant defaults on the insurance policy, then the landlords asset is not insured.

Secondly, and not recommended, the landlord or property owner could simply choose not to insure, or to self insure. A risky strategy when the full costs of rebuilding properties usually run into the hundreds of thousands.

If you have more than one property to insure, when seeking a commercial building insurance quote, you may be offered an umbrella policy. This is not a technical term, but a simple explanation of a policy that covers everything you need to insure (ie your commercial buildings) under one policy.

The added benefits of umbrella policies is that they may have “intention to insure clauses”. Effectively, if you buy a building, up to certain sums insured, then it is covered automatically by the policy. You will need to notify them within a couple of weeks usually (the insurers) but your asset is insured with immediate effect.

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Replacement cost of computers and software – what is more expensive?

Tuesday, October 13th, 2009

Many years ago, before Acorn, Sinclair and IBM started playing around with producing smaller home and business computers, the nearest you would get to a computer was by seeing one on television or in a film.

Most electrical appliances in the home were very basic with simple wiring (you could even fix most appliances yourself…) and the more complex items such as televisions and radios only had transistors and resistors. Chips were what you had for your dinner.

As time progressed though, we have moved to the situation in the late 1990’s where many homes had a personal computer. It may not have been small or compact but it was a computer.

Around this time, supply and demand came into play and the value of the hardware increased considerably and computer chips were worth a small fortune. A decent PC for work would set you back nearly £1,000 for just the monitor and the PC box.

As time has moved on and we have had/are in a severe recession, there has been a decrease in the replacement cost of these items. Computing power (including memory) traditionally doubled every 18 months (for the same costs). This is still relatively true.

How does this affect business insurance? When you are looking around for a commercial insurance quote for your business you will be asked to declare the replacement cost for your stock, business contents and electronic office equipment, including computers.

Whilst the replacement cost of the actual PC has reduced, software costs have not reduced as much. When you buy a bundled PC you normally receive free or reduced price software as an incentive. When declaring the replacement sum insured for your electronic office equipment, you need to ensure that the full cost of the hardware and the software. The software on a small office PC (hardware cost £300) could cost more than the actual hardware.

A simple check on Amazon should tell you the “market value” replacement cost of the software.

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