The British Insurance Brokers’ Association (BIBA) has launched a guide to help small businesses avoid under-insurance.
The guide is published at time when businesses are potentially more vulnerable to the risks of under-insurance as a result of uncertainty in the run up to Brexit leading to a fall in the value of the pound. This currency fluctuation may make it more expensive to import goods such as replacement equipment, plant or machinery.
This is an additional concern given that the guide was initially produced following findings of ‘an alarming degree of under-insurance’ by the Financial Conduct Authority (FCA). The guide aims to help businesses buy the right level of cover to protect them against loss or damage to their property and injury to employees or someone else caused by their business.
Finding at the time of a claim that an insurance policy is not sufficient can have devastating consequences to a business. Under the Insurance Act, under-insurance might result in a ‘proportionate remedy’ being applied, possibly resulting in additional premium, different policy terms or a reduction in claim payment.
In BIBA’s guide, businesses are advised to get correct and regular valuations, consider how the risks to their business change including areas such as cyber risk and data protection, and to base the sums insured for buildings on the cost of rebuilding and not the market value.
Regarding Brexit, the guide advises businesses to consider that the effect of the planned EU exit might have an impact on the cost and the delivery time for replacement machinery, plant or other contents if a supplier is based in the EU, which will need to be factored in to the amounts insured.
BIBA Chief Executive, Steve White also advised that when reviewing an indemnity period for a business interruption cover, businesses should consider that 24 months is likely to be the minimum period needed for a business to fully recover its trading level and rebuild its customer base. He said: “If you buy a simple online package policy check that the liability limits of indemnity, business interruption indemnity periods and other standard policy limits are sufficient as well as the basis on which the sum insured is to be calculated.”
Graeme Trudgill, BIBA’s Executive Director, said: “Insurance brokers have long raised the issue of under-insurance with us and we all want to ensure that claims are paid quickly and in full to help businesses recover when disaster strikes. A simple way to ensure this is to make sure that the correct levels of insurance are in place at the beginning or at renewal, along with considering any increased expenses to import goods from the EU that might impact the cost of a claim. It is important for businesses to review their cover regularly with their broker who can help. We hope that our new guide will help businesses address the under-insurance issue that the Financial Conduct Authority found.”
The guide has been supported by a number of companies and organisations including the Federation of Small Businesses (FSB). FSB National Chairman, Mike Cherry, said: “It is vital small businesses aren’t left in the lurch when the worst happens. We would encourage all small firms to make sure their current insurance arrangements offer suitable protection, to mitigate the risks of business failure or constricted cash flow resulting from unexpected costs. This guide will be a helpful tool, especially for all those businesses who are currently under-insured.”
Insurance brokers are able to provide advice on how to assess sums insured and can help to buy insurance cover that meets their needs. They will help businesses to understand the basis of their insurances and how sums insured can be calculated to ensure that you are properly covered if you have a partial or a total loss.