Checking Your Insurance Policies?
Here Are Some Explanations That May Help
This covers damage caused by your own accidental self! Accidentally thrown coffee on the photocopier? That’s accidental damage. Many policies are likely to provide it automatically without charge.
Introduced by brokers dissatisfied with commission earnings. If we can avoid paying them, we do.
An alternative to a list of covered perils such as fire or storm. Its intention is to cover ‘all risks’ unless the policy specifically excludes them. However, the name is a little misleading as it can lead to confusion. Policyholders may believe all risks are covered, whilst insurers would assume industry standard exclusions are taken as read.
It also leaves new perils in limbo – such as was seen with Covid 19. Better to consider it as the widest standard cover available, but have discussions about what it excludes.
If the sum you insured for isn’t high enough when you make your claim, your claim settlement will reduce proportionately in line with any shortfall. This shortfall is known as ‘the average’.
For example your £100,000 insured building suffers £80,000 damage. However the buildings rebuild value is in fact £200,000. So you were underinsured by 50%. So your claim payment will be reduced by 50%. This leaves you with £40,000 to fix £80,000 worth of damage.
Book Debts Insurance
Covers losses incurred when your account ledgers have been destroyed and you don’t know who owes you money. If your accounts are electronic, make sure you’re not paying for it.
How your business will continue after suffering a serious loss. This involves considering various scenarios that would affect the business. It minimises the risk of occurrence and lays plans in case the worse happens.
This insurance should not be looked at in isolation, but as part of your risk management and a tailored insurance portfolio.
There are no premium discounts for commercial systems. But they will make you more attractive to insurers if they are fitted and maintained by recognised bodies and ring at a control centre where response is guaranteed. Always obtain underwriter’s approval before committing to any system.
A modern term for Consequential Loss.
Not all policies are the same and this is where you find out the difference. The right policy for you should have all the small print checked. It should be tailored to fit your activities, suppliers, customers, contracts and needs.
Are you still on a policy requiring you to take manual backups daily and remove them from site overnight? Is it your data or your computers you are more worried about protecting? Should you be moving to the realms of cyber risks instead?
As we become increasingly computer dependent and use Cloud storage, these policies can be a little out of step with your business. On the other hand, a separate computer policy can be less expensive than covering your computers on the main business insurance.
What happens to your business after the fire, flood or other disaster? You will need to estimate gross profit or fees into next year for adequate cover. Be careful as the insurance definition of gross profit is unlikely to be the same as yours.
You also need to consider damage further down your supply chain. Do you want to protect the ability to keep working even if uneconomic, to protect income or profit? It isn’t one size fits all.
Cyber insurance continually changes so wordings need re-evaluating every year. Generally, it falls into two categories:
risks to your own systems and funds
risks to those of third parties.
Introduced by the insurance market in the 1970s to combat raging inflation up to 25%. At such a high level a property could become underinsured between the time of the fire and the time a rebuild was completed.
The last time we had double figure inflation was in 1981. Yet many policies still give you protection up to 30% and even 50%. Don’t pay for unrealistically high levels.
Directors and Officers Indemnity (D&O)
Protects management from claims arising from mismanagement, and investigations from authorities.
Companies, mainly in the personal insurance sector, who don’t deal through brokers. They include insurers such as Aviva and Direct Line.
In the UK, this isn’t something we worry too much about. But there were claims in Folkestone after the earthquake of April 2007. Needs to be noted as a peril under a commercial policy.
A statutory insurance requirement for all but the smallest employers. By law you need to insure for a minimum of £5 million. Insurers will usually provide £10 million cover automatically. Certificates need no longer be displayed but can be made available electronically for easy access by staff.
The Employers Liability Tracing Office (ELTO) [open link in new window to https://www.elto.org.uk/home/] maintains a database of all such policies. This helps claimants track down an historic insurer.
Something that appears on a policy schedule to be read in conjunction with the policy wording. It personalises cover to you, adds or removes cover from you, or somehow applies a responsibility on you.
Elements that are not insured. Some are industry standard such as Covid 19, or may be more particular to your trading circumstances.
Intended to protect a firm from losses suffered as a result of dishonest employees.
Financial Conduct Authority (FCA)
Our industry regulators.
Fire Risk Assessment
To be undertaken by a ‘responsible’ person and, in writing, if five or more people are involved – at the location not in the assessment. Regular reviews and updates are required.
Refers to company vehicle fleets. You can earn extra discounts for good fleet management, driver training and accident reporting systems.
Increased premiums and excesses are now applied in some areas. Cover may be unavailable to others. Every insurer has their own flood mapping technology, so the answers may not always be the same.
Hot Work Permit
Sets out the rules and regulations required for ‘hot work’ such as welding, on a premises – even your own. Requires good risk management and prevention of fire.
Insurance Act 2015
An update to the previous guiding legislation of the Marine Insurance Act of 1906. Shifts the onus onto the customer to ensure they give a clear and complete picture of what they do and how they do it, to insurers.
An assessment of the current cover you have in place, and how it matches with, or doesn’t match with your activities. Designed to highlight gaps, overlapping covers, and covers not needed that you are currently paying for.
A professional who should identify the most appropriate insurance programme and insurers. But without being influenced by commission rates and arrangements with partner insurers. Should also be technically competent and be prepared to fight your corner in the event of a claim.
The organisations who collect premiums and pay out on claims.
Insurance Premium Tax (IPT)
A tax by government on all insurance premiums – personal and commercial.
These set out who does what to whom when you move into a building owned by someone else. Always check whether the building’s policy arranged by the landlord meets your needs. Any shortfall will affect the ability of your own business to carry on trading.
Covers the costs of defending employment-related disputes, which is worth the premium alone. May also include the cost of tax and revenue investigations. Strongly recommended for all businesses. Premiums geared to size of firm.
Loss Adjuster - Insurers
Theoretically impartial adviser appointed by your insurance company to ‘adjust’ your claim. However, their Chartered Institute has actually removed the word ‘impartial’ from the definition. Clearly they are paid by insurers and work for the insurers, and their job is to make sure a claim is not ‘overpaid’.
Loss Adjuster – Clients
Since Loss adjusters no longer call themselves impartial, it is important to have one on your team, fighting your claim against the insurers. When working for you, they use the insurers tricks against them. They can also help you mitigate your losses, by getting help in quickly and can bring expertise such as forensic accountancy in as necessary.
We recommend a before the event arrangement here to minimise costs. This is much like a legal expenses policy is far less costly than a solicitor’s bill.
Historically, an equivalent of a Loss adjuster, but employed by the client to work to prevent the insurers adjuster, adjusting the claim value downwards. However, no qualifications are required to call yourself a loss assessor and we do not recommend using one.
Relevant to clients in the care sector or where the administration of care in its widest sense is an integral part of your business activity.
Anything “material” that might affect the views of an underwriter as to whether to write your policy or how they price it.
Minimum Security Requirements
Now fairly common on any policy covering material risks. The requirements are prescriptive and assume all premises are protected by modern door and window locks.
The key phrase is ‘or as approved by insurers’. So it is important to supply protection details to your broker to argue your case before the event, not after.
Motor Insurance Database
A register of who owns what car. Insurers keep this up to date for private car owners. Businesses must do this themselves and risk a fine if they don’t.
New For Old
The accepted basis of settlement on material damage claims. This is not what you can expect to get if your claim is against a third party where common law applies and therefore settled on an indemnity basis – value at the time of loss.
No Claims Bonus
Applies mostly to personal policies such as home and motor. Reflects a discount given to reward not making claims in previous years. When you reach the maximum discount level, you can pay an additional premium to preserve the discount even if you have a claim. It’s generally a cost worth paying.
Will cater for most clerical professions and cover all material and liability risks in a single package.
Common in the construction industry. Do the job on time and still be in business at the end of the contract. But take out one of these just in case.
The extra covers, such as storm or flood, which normally go with fire insurance. However, if it’s not listed, then it’s not covered. And ‘all risks’ does not actually mean any incident is covered. It usually just extends cover to full theft and accidental damage.
Often includes sickness insurance. Ideal for sole traders dependent on their ability to make a living to survive. Less of a need with larger workforces where dependency on individual staff is less.
It should only be arranged for the benefit of staff where it is a contractual requirement, or you are trying to attract staff in a competitive market. You can cover the business for the loss of important members of staff through other insurance means.
Provided by people such as Premium Credit and Close Brothers who pay your premiums to insurers and then collect it back from you over six or 10 months. Interest rates vary, depending on the amount ‘borrowed’ and earnings added by brokers for arranging the deal.
Usually insured with public liability to cover any injury or damage your ‘product’ causes. This will include any accompanying labelling, instructions and packaging. Strongly recommended.
Sometimes called ‘errors and omissions’, which is, probably, a more accurate title and describes exactly what this cover is for. Appropriate for any firm giving advice or producing plans or designs.
Provides protection for claims made against you for injury or damage to third parties or their property arising from your negligence or alleged negligence. No business should be without it, especially as the cover includes the costs of defending any action brought against it.
Not just from a health and safety perspective but the assessment of all the risks faced by a business, recording them and taking the necessary action.
The continuing control and reassessment of risks faced by a business. Insurance should be considered a safety net in any such programme rather than the first line of defence.
Often added to a Personal Accident policy and similarly applicable to sole traders, partnerships, or smaller Ltd companies. More costly than accident cover alone, because people are more likely to be sick than have an accident. Subject to a minimum seven or 14 day qualification period. Will always incorporate a limit on benefits, for example, 75% of usual wage.
Usually good value and will cover most of the risks faced by retailers. Newer policies often have fairly high set limits. Difficult to make any changes to the set cover provided should this be necessary.
Statement of Fact
Intended to replace a proposal form but still intended to form the basis of the insurance contract.
A way of paying premium on the average stock held during the year rather than the maximum at any one time. You also only pay an initial deposit premium on 75% of the sum insured. Ideal where stock values fluctuate during the year.
Refers to damage caused by strong winds and some associated damage. Water coming in as a result of age or wear and tear, heavy rain or through a flat roof doesn’t qualify.
May be classed as Bone Fide. This is when you check they have their own insurance in place, and they work for other organisations as well as yours. They work under their own guidance. The sub contracting firm can usually choose who they send to do the work.
May be classed as Labour Only Sub Contractors (LOSC) where they do not have their own insurance in place, and are reliant on your team telling them what they are doing when they come to work.
Also known as ‘subjectivities. These are extra conditions upon which the insurer is accepting the risk. Often of no real relevance to the risk itself but triggered by the type of insurance being underwritten.
For example ‘Subject to survey’ is very common. This will involve a visit from the insurers surveyor to look for potential improvements in risk management. Overall, often contain good guidance and best practice, but can result in some costly surprises of improvements they require you to make.
Subsidence and Heave
Cover now required by most lenders to protect their investment. Clay soils make cover in certain areas difficult to obtain. This means a higher premium or an increased excess above the market norm.
The extras you add to a leased unit which are not included in the policy effected by the landlord for the buildings.
We recommend insuring these as separate items from your contents, as they command a lower premium rate as the theft risk is considered low.
Underwritten mainly by Pool Re, a government backed fund shared by all insurers to meet this risk. Premium rates are dictated centrally, but insurers can put their own costs on to administer it, creating some variety in premiums.
Often better cover and costs are available from a separate Lloyds based terrorism policy. This is because Pool Re policy wordings tend to get “left behind” as others improve, due to the fact that any changes have to be made through an Act of Parliament. However, back in the days of high frequency terrorist attacks, it was the only way cover could be obtained at an affordable rate.
Businesses have to prove forced entry for this cover. Discounts are available for location and security factors that reduce your risk.
Third Party Liability
Same as public liability.
A very strict type of policy condition. If you don’t comply, then your insurance could be made void in the event of a claim – even though it may be unrelated to the claim.
The 2015 Insurance Act modified the impact slightly in that now, cover is only suspended until the breach of warranty is corrected. Nonetheless, not complying with policy warranties is a significant risk.
Working at Height Regulations
The regulations cover anything above ground level, even to the extent of standing on a stool to do the filing. All such activity needs to be risk assessed, recorded and addressed.
Literally work away from your premises. It could be client premises, or hazardous locations such as docks or airports. There will be conditions that apply to where the work can be, and what it is. For example if it involves heatwork, height and depth limits.
Always tell your broker what the work entails, split the turnover / wages by the proportion associated with these activities.
Working from Home
Now recognised by the few insurers who have produced excellent insurance packages at very low cost. Ideal way of obtaining liability insurance. Just be careful there is no conflict or duplication with your house insurance, and watch out for having customers calling at the house or carrying out non-clerical activities.
We’re not surprised! Insurance and risk terms really are like another language. But we’re here to translate it for you.