In the spirit of Insurance Awareness Day, we share some of the most misunderstood covers, phrases and clauses of the commercial insurance world, and explain what they really mean. We hope this goes some way to improving awareness around, what can be, a complex and confusing industry.
When is National Insurance Awareness Day UK?
National Insurance Awareness Day is usually marked on the 28th June each year.
- All Risks
If it sounds too good to be true, it probably is – and this is just as true in the case of ‘All Risks’. There are always exclusions in policies, and when you think about it, it’s not really a surprise. What insurer would be happy to cover something for every possible eventuality? Thus, we commonly see these words in inverted commas: “All Risks”.
All Risks actually means that any loss or damage will be covered other than what is excluded in the policy under ‘Exclusions’, which will include things such as wear and tear, moths, vermin, gradual depreciation and deliberate acts.
- Warranties
In commercial contracts, warranties are assertions. In the context of an insurance policy, a warranty is an agreement between the insured and the insurer. It is an assurance that certain conditions will be met by the policyholder and can relate to them having to do or not do something or a fact that is deemed to be true or not.
Some examples of the most common types of warranties found in commercial insurance policies are:
- Alarm warranties – these stipulate that you must have in place an alarm of an acceptable specification and the alarm must be effective when the premises are closed for business
- Heat warranties – these apply to anyone engaged in the application of heat, such as welding, and seek to ensure that risk control measures are taken during the process
- Cooking warranties – for pubs, restaurants, hotels or any company involved in the cooking of food, some insurers look to apply a warranty regarding the cleaning and maintenance of equipment, and precautions whilst working.
If you breach a warranty set out in your policy, the insurer has the right to void the cover on the basis that you, the insured, have not kept to the agreement set out when arranging your cover.
We all know it is important to read your policy documentation carefully, to ensure you know exactly what you are covered for. But it is just as important to make sure you, and anyone else they may be relevant to, are aware of any warranties and conditions present in your cover so that it is not accidentally voided.
- Average
Not a mean or median, as in mathematics. In insurance, the condition of average is a penalty applied in the event of a claim, as result of the insurer finding out that your assets have been valued less than their valuation or its true value, i.e. they have been underinsured.
For example, if you cover your buildings for £200,000 and in the event of a claim the true rebuild cost is found to be £400,000, you have effectively underinsured by 50%. If this happens, your insurer has the right to apply the condition of average and reduce any claim settlement by the same proportion. In this example, leaving you with just £100,000 in settlement.
Therefore, it is important you understand the condition of average and insure to the correct values by engaging professional assistance on rebuilding costs, and reinstatement costs for plant, machinery and other contents/equipment.
- Motor – ’Comprehensive’ or worse still, ’Fully Comprehensive’
This phrase often leads policyholders to believe that everything is covered. Sadly, this is not the case. There are many exclusions on a motor policy, even a ’comprehensive’ one.
Whilst fully comprehensive policies provide the highest level of cover when compared to the other options, i.e. third-party only and third-party, fire and theft, there are still exclusions.
Fully comprehensive cover will provide third-party, fire and theft protection but also covers you, the driver, and any damage caused to your own vehicle. These policies often also include cover for:
- Accidental damage
- Courtesy car
- Personal accident
- Motor legal protection
- Breakdown
- Personal possessions (i.e. items kept in your car)
- Windscreens, lost keys, wrong fuel
However, it is important to check with your provider exactly what cover is being offered as all insurers, and the cover provided under their policies, differ.
What isn’t covered?
It is often thought that fully comprehensive insurance covers the driver to drive any vehicle, not just their own. However, usually, Driving Other Cars (DOC) insurance is not included and as such, drivers are only covered when driving the car noted on the policy. Such cover can often be added but will usually come at a higher premium.
Cover will not be provided in the event of a lack of security, for example, forgetting to lock your car, leaving keys in the ignition and the car unattended, leaving a window open, etc. Insurance is not there to account for carelessness in security, it is there to provide cover for something out of your control, for example, if someone forces entry to your vehicle to steal it.
General wear and tear is also unlikely to be covered by your policy, as it is expected that regular maintenance of your vehicle will keep it in good working order and reduce potential further damage through continued use without repair or servicing.
In Summary…
Commercial insurance can be complex with lengthy policy wordings, complex terminology and the shared misconceptions that surround the industry. We hope this article has gone some way to provide some insight into some of the areas of insurance that can cause confusion.
How McClarrons can help with Commercial Insurance
We always welcome a conversation with anyone looking to better understand their insurance and how it works. If you have any questions or would like a complimentary review of your own commercial insurance, please contact us at commercial@mcclarroninsurance.com or on 01653 609151.
