Shaping your insurance programme at this difficult time – and the pitfalls to avoid

The UK is in shutdown and the whole world is in turmoil. Most businesses have either stopped doing business or have reduced their trading activity so significantly as to threaten their survival, but for the Government intervention. Even those few sectors that are thriving probably have supply chain or staffing issues.

So, it makes sense to look at costs and expenses and look for ways to make savings. Insurance costs are no exception but beware the dangers of doing so! Here is a guide of some of the key areas to think about.

Property

If you insure buildings, plant or machinery, there is likely to be no change during this period and we would urge against cancelling or reducing cover here. Certainly, banks would want to make sure all assets continued to be protected.

However, you might want to revisit stock sums insured. Manufacturing businesses may have less raw materials and work in progress and as demand reduces for most goods, you may naturally be holding less stock.

The potential pitfall?

In most cases, this won’t save a huge amount and it is important to remember to adjust your insurance again as and when trading conditions get back to normal.

Business Interruption

In most cases this covers Gross Profit, Gross Revenue and increased costs following a fire or other physical damage. Loss of Profit insurance at a time when profits are reduced, negligible or nil seems a luxury, and certainly this is an area which needs sculpturing to suit the business’ new situation.
On declaration policies, the saving will come at the end of the insurance year when actual profit is declared but it is worth speaking to your insurance adviser to see if your insurer will allow a corrected, reduced estimate to be provided.

The potential pitfalls?

1. Remember that cover is for the loss of future profit, often 12, 24 or 36 months after the date of damage; so, have an eye of what you think the future holds, not just on what today feels like.
2. Business Interruption almost always has extensions beyond loss of profit following damage. Before you think of cancelling cover, consider the other extensions given such as Suppliers and Customers Extensions which may affect your business long after we come through the current crisis.

Employers’ Liability

If your wages are reduced, on an adjustable policy you will likely receive a rebate at the end of the policy year, although it is worth speaking to your insurance adviser about reducing the estimates now.

The potential pitfalls?

1. Don’t think about cancelling: if you employ people, this cover is a statutory requirement.
2. Be careful excluding furloughed workers; speak to your broker for advice.
3. Minimum and Deposit policies – see in ‘Some other areas for consideration’ section.

Public/Products Liability

Normally rated on turnover, if this has reduced, as with Employers’ Liability, on an adjustable policy you should receive a rebate at the end of the policy year, although it is worth speaking to your insurance adviser about reducing the estimates now.

The potential pitfalls?

1. Those who are no longer trading may think about cancelling cover altogether. This seems to currently apply, especially to Sole Tradesmen. Beware though because the work you did or the product you supplied may inflict damage or cause injury long after you carried it out or sold it.
2. Minimum and Deposit policies – see in ‘Some other areas for consideration’ section.

Motor

If you have vehicles off the road temporarily, you might want to reduce cover from Comprehensive to what is known as “Laid-Up Fire and Theft” only. There should be a significant saving for this; after all, if a vehicle is not on the road, it can’t be in an accident.

The potential pitfalls?

1. If someone vandalises your vehicle, this will not be covered under Fire and Theft only cover. Remember to ensure that in addition to Fire and Theft, cover includes “Accidental Damage”.
2. For Fleet policies issued on an annual or quarterly declaration basis, you may not get a pro-rata refund for the period of reduced cover.

Directors’ & Officers’ / Management Liability, Professional Indemnity, Medical Malpractice & Crime

A strange list of policy types to group together but they all have one thing in common. They are issued on a “Claims Made” (as opposed to a “Claims Occurring”) basis. This means the policy which responds is the one in place when the claim manifests itself, not when the advice was given, the service provided or the treatment administered. This is very different to Employers’ Liability and Public/Products Liability referenced above.
For this reason, cover normally has a “Retroactive” date – the date from which cover is being provided, often years or decades previously so beware of cancelling these types of cover!

Turnover is the most likely rating factor so adaptive insurers may allow for adjustment or you may receive a rebate on a declaration-type policy at the end of the policy year.

The potential pitfalls?

1. If you cancel cover, you won’t just have no cover while you are not operating, you won’t have cover for anything you have done previously.
Note: If you will never trade again, it is possible to buy “run-off” insurance to cover past acts or there may be an extended notification period allowing for claims still to be paid after cover ceases. But, please take advice on this before cancelling cover altogether.
2. Minimum and Deposit policies – see in section below.

Some other areas for consideration

1. Before you cancel…

We do not know what the insurance market will look like at the end of this difficult period. If you cancel cover altogether, it may not be as simple as just reinstating again after it is all over. Some insurers may not have the same appetite for risk and even if they do, they may be inundated with similar people clamouring for cover.

2. “Minimum and Deposit” Policies

On these types of policy, even if the turnover, wages (or other figure on which the policy premium is rated) reduces, the premium will not. Many insurers are being flexible on this and allowing the policy to be amended but will not necessarily give a rebate mid-term; speak to your broker for advice.

3. Declaration Policies

As already stated above, on these types of policy, you may not get a saving now for a reduced estimate but there may be a rebate at the end of the policy year. But it might be worth a try – if you don’t ask, you don’t get!

4. Just to temper expectation…

Insurers also have staff working at home and are currently inundated with enquiries so please be aware that getting changes made may just take a little longer. 

Summary

Think very carefully before pressing the button on any changes to your insurance programme and seek guidance from your broker. Also, remember to readjust your insurance programme again when (or just before) things get back to normal. Whatever normal is!
If you need to speak to us, you can contact your Account Executive directly – you can find their contact details by scrolling through our team page. Alternatively, you can email us at enquiries@mcclarroninsurance.com.

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