Combined commercial policies usually cover physical loss or damage to insured property caused by fire, lightning, aircraft, explosion, earthquake, riot, civil commotion, malicious damage, storm, tempest, flood, escape of water, impact by third party vehicles, impact by own vehicles and theft by forcible and violent entry or exit. Optional extensions include: accidental damage; subsidence; sprinkler leakage and terrorism.
Unless otherwise stated, cover is written on a reinstatement as new basis, it is therefore necessary for the sums insured to reflect present day replacement costs, with a provision for inflation.
In respect of buildings, the full reinstatement cost needs to include a provision for site clearance, debris removal, architects fees and other professional fees. If you are unsure as to the rebuild sum insured, or if this has not been reviewed for some time, we would recommend that you employ the services of a RICS (Royal Institute of Chartered Surveyors) approved surveyor, to ensure adequate levels of cover are in force.
The word average comes historically from marine insurance, but essentially means that in the event of a loss insurers will scale down a claim in proportion to the level of any under insurance i.e
(Sum Insured ÷ Full Value) x Full loss = The proportion that will be paid by the insurer.
An average condition usually applies to material damage and business interruption insurance covers, therefore care needs to be taken to ensure that declared sums insured remain adequate.
The ‘Gross Profit’ sum insured for insurance purposes differs from an Accountant’s definition of Gross Profit and is calculated as follows:
‘Turnover (plus closing stock/work in progress) LESS (opening stock/work in progress), purchases, carriage, freight, packing and bad debts’
Once this figure has been calculated, it needs to be adjusted to allow for the required indemnity period (e.g. 24 months = Gross Profit x 2), and also for any anticipated growth during the period of insurance.
What needs to be considered when determining the indemnity period, is the maximum time that it could take a business to get fully back up and running following a claim, taking into consideration the possible worst case scenario and the time it would take to;
– Replace stock
– Replace general plant/machinery
– Replace specialist machinery
– Demolish existing buildings and site clearance
– Design and plan for new premises, as well reconstruction
– Restore both the supplier and customer base
The indemnity period should be of sufficient length to cover a business until it reaches the operational level that it would have been at, had the loss not occurred.
Goods in Transit
Most insurers will exclude overnight theft from unattended vehicles, unless a vehicle is parked in a secure compound or garage, therefore we would recommend that the scope of cover be checked.
N.B. If you use outside carriers and goods are carried under the Road Haulage Association Conditions of Carriage 1998, insurance cover is provided up to £1,300 per Tonne. For many businesses this limit is not sufficient, therefore cover can either be arranged as an extension to a combined commercial policy or a separate marine insurance policy can be arranged.