When it comes to insuring your business, you want to be sure you’re fully covered while also not paying for types of cover you don’t need. This can be a difficult balance if you’re not sure what’s available to you, or the most common pit falls.

Valuations, indemnity periods, business interruption cover, policy standard limits, it can be a lot to get your head around. So, to help give you a broader understanding of business insurance, we’ve put together a list of the most useful areas, facts and expert advice to help give you better peace of mind.

Let’s help you avoid under-insurance and better protect your business, property, employees and reputation.

1. Property insurance: Calculating sums and understanding different types of policy basis

   The overall purpose of your insurance is to make sure you get back to the same financial point as where you started. You shouldn’t profit from a claim, but simply get back on your feet. There are three different ways of setting up a policy that will affect how to calculate your insurance sum:

   Policies set up on an indemnity basis – This claim considers factors such as the age and condition of your property at the time of the damage, so will result in an equivalent sum of value the day before the loss.

   Policies set up on a reinstatement basis – Sometimes called new for old, this policy provides a replacement for property that is of a similar value but not higher.

   Policies set up on an agreed value basis – Particularly popular with specialised or rare property, this policy provides a sum that has been agreed upon at the start of the policy.

2. Rebuilding cost vs market value: How much to insure

   Rebuilding costs and market value sums can be very different depending on the situation. For example, a building worth £1m on the property market (due to the land and location) could cost only £500,000 to rebuild, or the exact opposite could be the case for a building with special features.

   As a rule market value should not be used as a sum insured, and should include any driveways, garages and outbuildings too. Take into consideration:

   – Materials
   – Labour
   – Architects
   – Surveys and legal fees
   – Demolition and removal costs
   – VAT
   – Planning, public authority and rebuilding costs

   It’s also worth noting that listed buildings and buildings with specialist features could take longer to repair and rebuild. If in any doubt, speak with us directly to ensure your estimate is accurate.

3. Contents insurance: What to include

   When it comes to insuring contents such as machinery and equipment at your premises, the policies typically cover replacements at new value. Your cover should include cost of raw materials plus work in progress and finished goods too.

   Top tips for contents insurance:

   – Keep an up-to-date inventory of your contents along with their value.
   – If you have any very specialist equipment, talk to the supplier about a replacement plan and the costs that go with it.
   – Remember small items all add up, so it’s beneficial to include them all.
   – Remember to include delivery time for any replacement machinery, as all downtime can be claimed for in your policy.

4. Business interruption (BI) insurance: Assessing your needs

   According to BIBA, 40 per cent of businesses do not have enough business interruption cover to get them back on their feet.

   This kind of cover provides financial support to help your business continue trading after damage or a loss that affects your ability to continue your services. The sum of this cover should represent your gross revenue over the amount of time you estimate it will take to get your business back up and running.

   It’s important to correctly asses both the sums insured and the indemnity period, and it’s wise not to be overly optimistic about recovery time. Delays are common and two years is usually the absolute minimum recovery duration.

5. Planning for down time: Prepare for delays and covering running costs

   Extra costs to consider during down time:

   – Will any rebuilding require planning permission costs?
   – Is your stock seasonal?
   – Is it possible your existing customers will go elsewhere?
   – Will public utilities be affected?
   – Will there be additional costs to move back into the premises?
   – Will there be loss of rent costs?
   – Will future development plans now be affected?

   Consider buying a declaration-lined, non-average basis of insurance. This will provide an uplift of 33 per cent and always check the definition of ‘gross profit’ in your policy, as it is not the same as an accountancy definition of gross profit.

   If in any doubt, it’s best to seek out an insurance specialist that can help you with this – at Trust Insurance we’ll always be happy to help.

6. Cyber threats: 38 per cent of small businesses are attacked each year

   Cyber threats are a constantly growing threat to businesses in the UK, and sadly it’s becoming more of a ‘when’ than an ‘if’ that an attack will affect your company.

   It’s important to look at all areas covered by cyber insurance, including:

   – Cyber interruption loss
   – Privacy breach costs
   – Cyber extortion
   – Hacker damage
   – Media liability
   – Cyber forensic support

   Every business has different needs depending on their systems, processes and size of their IT department, so it’s essential to find a policy that covers your specific needs. Do not rely on your business interruption insurance.

Why you need to ensure that you are not under-insured

If you’ve got a building that will cost £1m to rebuild but you’re only insured for £500,000 and you suffer £400,000 of damage, you are then a victim of underinsurance and will face difficulties when returning your business back to normal.

You might think that you will be fine, because the damage is £400,000 and your cover is for £500,000, but unfortunately that isn’t how it works.  The insurer will penalise you for only covering half the value of the property, so you will only receive a settlement from them of half of your claim value.

So if you’ve got £400,000 of repairs required, as you’re only 50% insured, you’re only going to get back 50% of your £400,000 loss, which means you are £200,000 out of pocket.

You then have to find £200,000 to finish the building repairs and be able to operate your business. This could impact your Business Interruption cover and ultimately the continuation of the business.

If you have any doubt whatsoever as to whether you are correctly insured, please contact Stuart Pigram, Managing Director of the Trust Insurance Group to take advantage of a complimentary risk review.

Contact the Trust Insurance Group: StuartPigram@TheTrustGroup.co.uk or telephone 01476 434 050.

Find out more about what a risk review is and how it will benefit you at: www.thetrustgroup.co.uk/risk-review