February « 2012 « BusinessInsure Blog

Archive for February, 2012

Increased wet perils excess on business insurance policies

Tuesday, February 28th, 2012

There are not many people in the UK who would honestly have thought, back in October or early November 2011 that we would be going through such a mild winter. Here in Eastern Scotland, we have only had two snow flurries which managed to last a few hours at most. In addition, the overall temperatures have been un-seasonably warm for the past four months.

Everyone was expecting another bad winter after the significant snow fall and cold weather of the previous winters. Practically every shop you went into in the build up to Christmas was selling some or all of the following, snow shovels, salt, winter clothing, ice scrapers and/or special foot grip attachments to go on your boots.

But, none of this was really needed. A few panics occurred, but at the end of the day nothing serious. Which has all been good for the business insurance industry, because they were absolutely hammered in the past few years for burst pipe losses. As the temperatures drop, the water in pipes that are either un-lagged or not sufficiently lagged, starts to freeze. As the water freezes it expands and whether you have copper, brass or plastic pipes the chances are that either the pipe will split or one of the joints will fail. Then, when the temperatures go back up, the ice melts and the water takes the easiest course of exit from the pipe and goes out of the crack, split or failed joint.

Most of the policies that were hit the worst where the commercial packages, such as shop, pubs and office insurance and the property insurance policies, such as flats, houses and commercial premises. Many insurers have standard excesses of £100 or £250 any one claim. But many of them have decided that they are not going to work with these excesses and have increased them to £500 or even £750 just for, what insurers call, wet perils. A wet perils is a water based one, either burst pipes or storm, in the main.

The problem is that many of them are not making you fully aware of this alteration. To us, it should be in big flashing lights at renewal or quote stage, but guess what? Some of the insurers are not making you fully aware of this.

This is why it pays to work with a business insurance broker, because if the broker does not make you aware of this changed term at renewal, and continues to offer the same insurer, then you have some come back to them if you are suddenly faced with a £750 excesses compared to £100 last year.

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Commercial property owners insurance – reinstatement and indemnity.

Monday, February 27th, 2012

Commercial property owners insurance policies can be used to cover both commercial or business buildings and residential ones. The residential ones are usually those properties owned by an individual or business entity and rented out to third parties. You do not need to run as a business and make a profit for this to go on a commercial policy. Alternatively, they can be a block of flats, where there is a management or residents association that buys one policy to cover all the flats in one building, or complex.

One of the big questions, that usually only rears its head at renewal, or quotation stage, or when there is a claim, it what sum insured should be used? We have covered this many times before and will continue to do so in the future as it is so important. As a commercial property owners insurance purchaser, it is up to you, the policyholder, to decide on a suitable sum insured. When we say suitable, it needs to be sufficient in order that insurers will not look to reduce any claims settlement due to under-insurance.

The purpose of the policy is to protect the legal building owner (this cam be mutli-parties as well) against the unexpected event or events that may cause damage. The basis principle is that, if a loss occurred, the owner of the building should be put back in a similar position to that which existed before the loss. ie if the roof blows off in a storm, then the policy should pay sufficient funds to put the roof back.

There are some alternatives, reinstatement or indemnity. Most of the modern day commercial insurance policies, that we deal with, are on a reinstatement basis.

Reinstatement is what is more easily called new for old. It is to reflect the cost of replacing the building, irrespective of its age, size, location or construction materials.

Indemnity is more related to the actual value of the business asset and makes reductions for wear and tear.

A reinstatement policy is what everyone needs. In 2012, with replacement costs of everything from bricks, to carpets, to copper pipes to windows, changing on a weekly basis, you want a policy that will replace what has been damaged. But, you really do need to make sure your sum insured, for the buildings, is sufficient to cover:-

1) The rebuilding of the property.

2) The cost of clearing the site of all debris, in the event of a loss.

3) All architects, surveyors and other fees, including those legally necessary.

4) An allowance for the inflationary costs of materials over the next year.

If you are in any doubt, speak to a business insurance broker. Whilst we cannot give you a rebuilidng cost over the phone, we do deal with enough property owners and commercial landlords to know whether a sum insured looks light, or heavy.

Posted in business insurance broker, commercial property insurance, commercial property insurance quote, commercial property owners insurance | Comments Off

Commercial property owners insurance – noting the financial interest

Saturday, February 25th, 2012

As a business insurance broker, we are approached on a regular basis by businesses, who are looking for alternative quotes for the commercial building insurance. They do not actually own the buildings, but are billed by the landlord for an annual insurance premium. The premium that the landlord is quoting is too high for the tenant, so they ask us to get an alternative quote. This is in the hope that they can go to the landlord and say, you are charging us £x but we can get a quote for £y.

The problem is, that if the landlord does not agree to changing the insurer, the tenant, in the terms of the lease, have no say whatsoever in this. Even if the landord is charging double the premium, if the landlord does not want to change then you have to continue to pay this. However, there are certain circumstances when you may be able to insure the building, on behalf of the landlord.

One - if the landlord allows you to change the policy, you need to check whether the lease allows you to insure it in your name, with the landlord noted as a beneficial owner. This normally only happens on a full insuring and repairing lease.

Two – if the landlord agrees to go with the other quote, we, as a broker, need to provide the quote to the landlord. Insurers need to know detaisl such as bankruptcies or claims in the past five years. We can only get this full information direct from the landlord.

Any problems, please speak to a business insurance broker.

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Commercial property owners insurance – choosing your sum insured

Friday, February 24th, 2012

There are, in the main, two types of insurance you can get for buildings. Domestic or household policies and commercial ones, including those residential properties that are let. For your own house policy you always used to have to declare a certain sum insured, sufficient to rebuild. Then, around 10 or 15 years ago most insurers started to offer cover on blanket sums insured. This meant that, for example, any house up to 6 bedrooms was automatically covered up to, say £400,000 sum insured. This saved the household the need to work out their individual rebuilding cost. One of the major UK insurers used to give you an indicative sum insured, based on your postcode, age of property, number of bedrooms, number of storeys and whether the property was detached, semi-detached or terraced. Having worked at that particular insurer, albeit on a short term project basis, I saw exactly how much time they spent administering that process. It was much easier for them to turn around and change the way they covered domestic buildings to the blanket sum insured basis.

For commercial properties, there has always been a difficulty in working out what the sum insured should be. You could have two very similar commercial properties in the same street, with the same square footage, where the rebuilding cost would be very different. The reasons being that the construction materials used are different, roofs have been replaced, internal changes have been made and a whole host of other amendments. For this reason it is very, very difficult for a commercial insurance company to give a recommended figure for the rebuilding costs.

The difficulty is, that it is down to you the owner of the building to insure for the correct amount. Previous blogs have explained the difficulties of claims when average is applied. This is another reason why you should, wherever possible, deal with an independent business insurance broker. If we are approached by a client who is looking for a quote on a commercial building and we are asked to quote for a sum insured that appears to be low, or even very high, then we will tell them this. A sum insured is not just to cover the rebuild costs, but also the architects, surveyors and legal fees, as well as the costs to clear the site of all debris that remains from a previous loss.

If you went to one of the websites that offers to compare business insurance, many of them will also offer commercial buildings insurance. Just try a couple of them, you can put in risk details for the centre of London, and a sum insured of £50,000 and they will still quote without raising any questions about the suitability of the sum insured. Speak to a broker though and they will explain the problems with inadequate sums insured and will recommend that a quote on an increased sum insured is taken out.

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Employers Liability Insurance – new employees most likely to suffer an accident

Thursday, February 23rd, 2012

Anyone who has a business or has ever employed anyone will, or should, know that you need to have employers liability insurance. It is not something that is a nice to have, or something that a sensible and prudent business will take out. It is quite simply a legal requirement, if you have employees (and the definition of employees is quote wide), then you must have a valid policy in force covering injury, illness or disease to your employees.

Recent research from the Health and Safety Executive says that new workers are as as likely to have an accident in their first six months than they are in the rest of their working lives. Now, this is some serious statistic and it really states the importance of making sure that you have a full and robust training process in place, particularly where you are involved in manual work of any sort.

As a business insurance broker, we see employers liability claims day in day out. We have seen many claims made, and paid, that you really would not think were valid, all because the employee did not get the proper training. A recent one, saw a claim for a member of staff falling of a footstool while trying to reach a window blind. Because? They had not been trained in how to use a footstool.

You really need to make sure that you undertake full training for everything nowadays. The government websites are a great source of help, just search on line for health and safety and/or training.

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Business building insurance – full insuring and repairing leases – part II

Wednesday, February 22nd, 2012

A belated follow up to last weeks post on the effects of a full insuring and repairing leases on business and commercial property owners insurance policies. One of the basic doctrines of all types of insurance is that you can only insure something that you have a financial interest. However, you can still insure something that you do not own, where required to do so under contract. This usually occurs in two different types of scenario. Firstly where you are leasing or hire purchasing a physical asset and secondly where you are renting a property. Both are similar, except that in the first scenario you may end up owning the asset after a number of years whereas in the second, you are simply leasing and there is no purchase element to this.

In our previous blog, which shed some light on FRI leases we stated that the lease will require you to do many different things (for example you may need to redecorate every x years or when you vacate the property), but in the main there are three. The lease will state that you have a suitable insurance policy. Also you will need to have a specific sum insured (for the buildings and maybe loss of rent payable) and lastly the financial interest of the owner is noted.

Looking at the first point only, the lease will say that you need to have a suitable commercial property owners insurance policy, or some similar wording. The leases that we have seen, do not usually go beyond this point unless to specifiy it must be with a reputable insurer and a list of the perils, or risks, that need to be covered. When agreeing to the lease, your solicitor should point out to you the requirements of this part of the lease, if it applies to you. It may well be that you have to arrange the policy and prove that cover is in place, before you even move into the premises. The best place for you to go to arrange a policy like this is a business insurance broker. Forget the internet sites that offer to compare cover for you. You want to deal with an individual who can discuss your needs and wants and if you need to, they can email documentation to the right person at the right time.

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Commercial property insurance – any leeway on the rebuilding cost?

Tuesday, February 21st, 2012

When we are asked for a commercial property insurance quote, there are many questions we fire back at the customer. As a broker, we planto market someones business around to get the best price possible, for the widest cover. The slight problem being that not every insurer asks the same questions. We therefore need to ask for all the relevant information so that we can approach a range of insurers, because that is what a broker should do.

Mainly though, quotes are based on three key pieces of information. Firstly, the address, secondly, how the building is occupied and thirdly the sum insured. Contrary to the way domestic policies are sold, for commercial insurance, you need to tell us the sum insured for your building. There are no online calculators or easy means of calculating the exact rebuilding cost. The only usual way is to pay a valuation expert otcome in and see the building. Otherwise, you just use a rough guide of between £100 and £200 per square foot.

The problem, for the policy purchaser, you, is that if you under insure, or do not have an adequate sum insured, you can be penalised in the event of a claim. The relevant clause in your policy wording is called Average. If you have a building that should cost £1,000,000 to re-build and you only insure it for £100,000 then you are only paying one tenth of the required premium. You can understand that if there is a claim above £100,000 then you will not be covered. But, the way average works, quite correctly, is that if you have a claim for £100,000 then your insurers will only pay out one tenth of that loss, is £10,000.

The good news though, is that insurers do build some leeway into these figures. They understand that rebuilding costs are changing on a month by month basis. Most average clauses do build in a leeway of 10 to 15%. It depends on the insurers, as mentioned above. Make sure though that you are working with an independent business insurance broker, who can get you all of the different options.

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Product liability insurance – duty of care

Monday, February 20th, 2012

Before 1932, in the UK at least, there was no case law to support the doctrine of duty of care. Within a business insurance contract, you can have (in the main) three types of liability cover. These are public, product and employers liability. Those of us that have gone through the extremely enjoyable (!) process of studying for professional insurance exams, will remember the case of Donoghue v Stevenson.

We will go into more depth on this case in later blogs. It is sometimes called the Paisley Snail case, which hopefully will intrigue some of you to read a bit further. In August 1928, May Donoghue and a friend went to a cafe and ordered some drinks. May had a bottle of ginger beer. Part of this was poured into a glass, which she drank, then the remainder was poured, by her friend, at which point it was claimed the remains of a snail fell into the glass. Lovely!

As you would expect, Mrs Donoghue was very ill with gastroenteritis and suffered sever shock. Eventually there was an action brought against the the ultimate manufacturer. The key thing being that there was no relationship, under contract, between Mrs D and the manufacturer, Mr D Stevenson. But the case was successful.

The liability cover, under a standard policy, to which this relates, is product liability insurance. There is no legal requirement to have this cover, but when you look at the above case, the thousands of cases since, and the prevalence of no win no fee solicitors, you can understand there is a need for this cover.

Whether you feel you have a direct relationship with an individual or other legal entity, you may well find out one day that you do have. If you do not have, but feel there is a need for products liability, now is the time to speak to an independent business insurance broker about all of your insurance cover needs, wants and requirements. Remember, a broker will quote for nothing, it may just take 10 minutes of your time.

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Business building insurance – full insuring and repairing leases – part 1

Wednesday, February 15th, 2012

As a follow up, this is a brief explanation of how commercial property owners insurance can be arranged, by the tenant, via a full insuring and repairing lease. The caveat is, that this is a simple blog, it is not intended to be legal advice from a property professional or qualified practitioner. It is however bang up to date advice from a business insurance broker that deals with these requests day in day out.

If you own a building, your house for example, you can arrange insurance cover. If there is a fire, then your insurance policy will pay out to you to repair any damage. The same would apply to a flood, burst pipe or storm that damages the property. Now, you may not technically own the property, because you have a mortgage. We have all seen the adverts, you may lose your home if you do not keep up repayments etc etc. What this means is you have a loan to buy the property. Until the last penny of that loan, or mortgage, is paid off, you do not get back the deeds to the property. The mortgage company keep these important bits of paper for you until they have received all their monies. To me, this means that you do not own the property outright until you have paid for it.

The same applies to commercial property, your bank or whoever is financing the property (if applicable) can at any time, only through default, instigate proceedings to get the property from you. Believe it or not, this is not their preferred course of action. A lot of people think the banks are desperate to do this but it is very costly to them and they usually only break even. They would much rather you paid the repayments across the full term.

Anyway, back to the buildings. Even if you have a loan or mortgage against the property, you insure it. If you lease a building, you pay the insurance premium, or a fair proportion of it, to the landlord. But, there is another scenario, where you have a full insuring and repairing lease. You may have a lease, for example, over five years with an option to cut, or cease the lease after three years. The lease is a lengthy legal document (you know, one of those with no punctuation that you really, really struggle to understand). A full insuring and repairing lease will state, that as a term of you leasing the property, you must arrange:-

a) A suitable commercial property insurance policy.

b) At a specific sum insured.

c) Noting the interest of the beneficial owner

Tomorrow, we will explain these three terms.

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Commercial building insurance – full insuring and repairing leases

Tuesday, February 14th, 2012

The vast majority of UK businesses will rent, or lease, the business address from where the business trades. It is simple economics that it is cheaper, in the short term, to rent a premises than to take out a mortgage or a business loan to purchase. Whilst in the long term it may be better economically to take out a mortgage on a property, very few businesses can absorb the ongoing costs of this.

This means that in the majority of cases, when arranging their business insurance, the actual bricks and mortar, the structure, are not included in the costs of the policy. You will normally pay a monthly rent, a monthly service charge and contribute to, or pay in full, an annual insurance policy. If it is a building with more than one business in or more than one address, then the commercial landlord will normally arrange one overall block policy for the whole building;. The costs are then sub-divided, hopefully on a proportional basis, between each of the tenants.

In certain cases though, usually when you lease the whole building in it’s entirety then you may have what is termed a full insuring and repairing lease. In theory, this should be cheaper rent wise, than a standard lease. The reason being because the lease is more onerous, upon you the tenant, because you are responsible for all repairs to the building and you need to insure the building as well.

You do have a choice between adding this to your existing policy or arranging a separate commercial building insurance policy. It may be preferable for you, or even cheaper, if you arrange a separate policy. You can keep tabs on this one separately and you can also provide this to your landlord for information, without having to provide potentially confidential business information to them which may be in your standard package policy. This is where you need to speak to your business insurance broker to get them to at least price up the different options for you.

Tomorrows blog will concentrate on what your policy has to do to comply with your full insuring and repairing lease.

Posted in business building insurance, business insurance, business insurance broker, commercial building insurance, commercial buildings insurance, full insuring and repairing lease | Comments Off