Historically, a business needing to insure its assets and activity would need to purchase different policies for each cover required. This frequently resulted in businesses having many different policies from different insurers with various renewal dates. In the event of a major loss such as a fire, multiple insurers could be involved with multiple claims, each with its own excess. Therefore, Commercial Combined policies were introduced, which gathered all the main exposures of the company together into a single policy, simplifying not just the administration, but the claims process, as one Insurer would handle everything, with a single excess.

Commercial Combined 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.

In addition to property cover, combined commercial policies have additional cover sections that can be tailored to meet your requirements. These can include: Business Interruption, All Risks cover for property away from an insured premises; Goods in Transit; Money & Assault; Employers Liability and Public & Products Liability. Increasingly, insurers are offering further cover extensions, including Cyber, Directors & Officers and Engineering Breakdown Cover to name but a few.

Sums Insured
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, plus an allowance for VAT if you are not VAT registered. It is important to note that the Buildings Sum Insured, which is often called “Declared Value”, relates to reinstatement cost and not market value. 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.

Condition of Average
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 underinsurance i.e. (Declared Reinstatement Value ÷ Full Value) x Full Loss = The proportion that will be paid by the insurer.

The following are Examples of the Condition of Average being applied to Insurance Claims, prior to the deduction of any policy excesses:

  Declared Reinstatement Value Actual Rebuild / Reinstatement Cost Amount of
Claim
Amount Payable
by Insurers
% Under-
insurance
Uninsured
Shortfall
Example 1 £800,000 £1,000,000 £250,000 £200,000 20% £50,000
Example 2 £500,000 £1,000,000 £250,000 £125,000 50% £125,000

Despite the claim amounts in both examples being less than the total Declared Reinstatement Values, the policyholders would only be covered for a % of their losses due to the Declared Reinstatement Values being underinsured by 20% and 50% respectively. N.B. for Buildings Insurance, the Declared Reinstatement Value needs to represent the full reinstatement cost prior to the application of any Day One Inflation Provision.

This average condition applies to all sections of covers, therefore care needs to be taken to ensure that your Declared Reinstatement Values and Sums Insured remain adequate at all times.

Business Interruption

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 Purchases (less opening stock/work in progress)’

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.

If there is any aspect of your commercial insurance arrangements you would like to discuss, please complete our ‘Request A Call Back’ Form below:

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or Call Us on 01384 442 165 during Office Hours (Monday – Friday, 9am-5pm)

We will gladly discuss and review your insurance requirements, and answer any questions you may have.