I don’t know about you, but while I have a solid grasp on running my business, I’m the last person who would assume to know the intricacies of running your business.
Damn it Jim, I’m an Insurance Broker, not a Doctor!
You’re the go-to guy or gal, the expert at what you do and how to run your business. But you might not know everything you need to know [or even know what to know] when it comes to your business insurance.
That’s ok though, you’re about to get a crash course in understanding your business insurance in under 10 minutes;
Know your exposures
No one wants to think about all the things that can go wrong in their business, but it is the best place to start when you’re thinking about insurance.
Identifying your key exposures means you’re thinking about what might happen and how that could affect you and your business. You’re also more likely to come up with way you can stop things from happening – by maybe changing a process, implementing a new system or managing something differently – in which case you’re mitigating risk which is an important part of your risk management strategy and dovetails nicely with your insurance program.
A solid awareness of your risks is the first step to understanding your business insurance and how it’s going to protect you effectively.
Handy tip: google examples of insurance claims in your industry or your business. This is an easy way to get a feel for your exposures – it may be quite the eye-opener! – as well as how insurance responds at claim time [which lets face it, is the whole reason you’re buying it.
Know your asset values
Under insurance is no laughing matter. Whether you’re just picking a sum insured out of a hat, or you’re trying to keep premiums low, under insuring your assets will only cost you in the long run.
To avoid potentially significant out-of-pocket costs at repair or rebuild time, you need to be aware of how under insurance works and whether or not your business insurance policy contains an Average or Co-Insurance Clause.
A Co-Insurance Clause is something the insurer can include in a commercial property insurance and business interruption insurances, to penalise policyholders who don’t insure the full replacement value of their property or revenue. It can impact you where there is a total loss or even a partial loss and the effects can be significant.
A basic example where you suffer a partial loss is this;
You insure your building for $600,000.
The actual replacement cost is $800,000.
A big old storm hits and the repair bill is $100,000.
Your insurance policy has a co-insurance clause in the wording which states they will only pay 75% of the loss incurred if you are found to be underinsured. The insurer determines you are, because you insured for $600,000 but the actual replacement cost should have been $800,000. Therefore they only pay 75% or $75,000 of the cost to rebuild, leaving you with $25,000 to make up out of your own pocket.
Scary, I know!
Better to be aware of this little quirk of insurance by understanding how under insurance can negatively impact your business and recovery after a loss, and by checking your policy wording to see if an Average or Co-Insurance Clause is hiding in there.
Learn how to read your PDS
Your Product Disclosure Statement [PDS] is an important legal document that every insurer must provide on a retail general insurance product. Don’t forget your insurance policy is not only a product, but also a contract between yourself and the insurer.
In return for the premium you pay [which is determined based on the information you’ve provided in good faith to the insurer], you agree to also abide by certain terms and conditions as a party to that insurance contract.
Reading your PDS, or at least knowing where to find the important parts and reading those, is the best way to make sure you’re on the same page as the insurer, and not in for any nasty surprises down the track.
Firstly, head to;
The coverage section – the bit that tells you what you ARE and, [by way of omission usually] ARE NOT covered for.
The sub-limits of cover section – where they tell you about how much they’ll pay for certain things, like jewellery items, art work and collections for example.
The exclusions – the bit that tells you explicitly what isn’t covered. Sometimes this can be grouped with the coverage section which makes it easier, but usually it’s a separate section, and often there will be policy exclusions and general exclusions. Just do a quick Ctrl+F and search “exclusions” and you’re set.
The Duty of Disclosure section – which tells you what the insurer should (or doesn’t) need to know in order to accept your risk. The insurer can deny a claim or reduce a settlement if it’s found you’ve breached your duty of disclosure, so get to know what they need to know.
Understand the different covers available
Your business pack insurance is made up of different sections all packaged up according to which sections you need or want. It’s important to understand which sections are most applicable to you and how you want or need to be protected.
Keep in mind you might not want to bother about that glass section, but it may be in your commercial lease that you’re responsible for insuring it. So check your leases, folks!
You will find a property damage section which covers your business assets, stock, equipment and the like for insured perils and accidental damage.
There’s the all important business interruption section, protecting your revenue in the event of an interruption – think fire shutting your retail shop down for 12 months; who’s paying those bills, keeping those key staff paid, paying rent on a temporary premises, advertising to let your regular customers know you’re just around the corner? That’s right, your business interruption cover is.
There is a public liability section covering your public and products liability and goods in physical control. Often there are extensions of cover in here depending on your business and liability exposures.
You can have a theft section, to cover off burglary of your business contents and equipment, stock or tools for example.
You can also cover money, whether it’s for burglary in your business location, theft from a safe or your personal residence, or in transit when you’re doing your banking run.
If you’re a manufacturer or your business relies on machinery to operate day to day [fridges and freezers, coffee machines, cooling or heating systems, roller doors or conveyor belts etc] there is the machinery breakdown section that you might need to consider.
There are also sections for glass, tax audit cover, transit of goods or stock, and some insurers even offer professional risks like management liability or cyber liability as part of a business pack policy.
Lastly, connect the dots between your exposures and your policy
You’re almost on the home stretch!
If you’ve come this far, you’re probably all over it and have a much better understanding of your business insurance and how it relates to your business. If you’re still a little stuck, this last step is just a way to pull it all together by viewing your insurance policy through the lens of your specific exposures.
You’ve got your policy in front of you, you’ve identified your exposures and know what it is you’re trying to cover with your insurance, all you need to do is a quick two column scribble in an exercise book [or for those who want something a little fancier, why not a colour-coded spreadsheet you can update regularly or combine with your asset schedule?].
List your assets or your exposures along the left side, now list the policy section that matches down the right hand column. You may find in some cases they’re covered twice – like your stock might be in the property damage section as well as your theft and transit sections – but pop it in anyway, as it hopefully will help visualise all the connections so you understand it better.
It’s simple and a great visual tool, which will also make it much easier and quicker when it comes to reviewing your renewal each year.
Stop the timer!
Depending on how long you spent thinking about your exposures [hopefully you already had a pretty good grasp of them before you started], you should now have a deeper understanding of your business insurance policy and how it protects you.
Your insurance is an important part of your business risk management strategy. Taking a few minutes to bring it all together and get a clearer picture of how it helps keep your business afloat, is going to give you peace of mind and a platform to manage your insurance program [whether collaborating with a broker or DIYing it] more effectively and efficiently.
Leave some details in the form below and Laura will be in touch to organise your quotes asap.
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