Welcome to our summer newsletter. This month I would like to raise 2 key exposures to your business – underinsurance and your personal negligence exposure.
Underinsurance – why Inflation can have a major impact on your insurance
A not-so-well understood risk is the impact of inflation on insurance and the subsequent risk of underinsurance caused by insured values which, at the time of loss, are too low. Rising inflation is impacting prices across all sectors of the economy. As a result, replacement costs may be higher than expected, lead times longer, and labour costs higher, following a claim – leaving substantial shortfall in the event of a claim.
The cost of getting it wrong can be disastrous for businesses already stretched by hard economic conditions, increased operating costs and loss of profitability.
Things to consider:
Property
Property damage claims are being hit particularly hard as a result of international shortages in timber, steel, cement, metals and plastics. Iron ore, for example has seen an 88% price increase over the past 12 months, with timber, steel and plaster all increasing by at least 20 – 30%.
Best practice would be to consider undertaking periodic professional valuations now known as Reinstatement Cost Assessments (RCA) which are adopted by the Royal Institution of Chartered Surveyors (RICS). RICS recommends that full RCAs are carried out every 3 years. Updated RCAs should be undertaken whenever there are significant changes to buildings or investment/downsizing in the plant and machinery/contents.
Any significant increase in machinery/plant/contents reinstatement costs creates the potential for underinsurance. Being underinsured has important consequences. Insurers can and do reduce property claims settlements proportionately if it turns out that the sum insured is less than the actual cost of reinstating.
When was the last time you reviewed the cost and lead time to replace important machinery?
It is important at this time to reassess not just replacement values but also your continuity plans and Business Interruption indemnity period. This is particularly critical if your current period is only 12 months, as supply chain limitations can make it harder to reinstate from a major loss.
Review the adequacy of your business interruption indemnity period to ensure it reflects the short/medium term supply chain disruptions and potential extended lead times for key items of building materials and plant (e.g., automated platforms within fulfilment centres). Any delays in the rebuilding process will have a significant knock on effect on the length of time it takes for the business to recover and potentially leave a significant portion of costs uncovered if the indemnity period is insufficient.
Some luxury watches have more than tripled in price – even for second-hand watches – meaning that many clients are at risk in the event of a loss, due to a huge gap between the insured value and the replacement cost.
Underinsurance has long been a key problem for the insurance sector; the situation is now compounded with the on-going external challenges.
Directors’ Personal Liability Exposure – Corporate Manslaughter
I recently attended a National Vanarama League game and witnessed some distressing scenes where a player suffered a cardiac arrest. Luckily, the team onsite were well prepared and managed to resuscitate the individual and he is making a recovery. But it raised some points for all company directors to consider: how robust are your risk assessments? If this happened on your premises, would you be confident of the procedures you have in place?
Did you know?
Directors (and managers) can be sued personally for an unlimited amount for negligence or civil actions – in the case above, were adequate risk assessments undertaken, reviewed and systems (including defibrillators) in place?
Directors (and managers) can also have individual criminal prosecutions against them.
If a director (or manager) fails to take out insurance without consulting the board, or lapses the policy without consulting the board, then they could face a personal lawsuit from the entity, or other directors.
A directors & officersinsurance policy will cover you against both the legal costs and the awards if they lose a civil action (providing the action was accidental not deliberate e.g., fraud).
A key area when selecting limits of cover is not the total assets of an individual or all the directors, but the legal costs’ awards in defending – and these can be huge.
3 of our team recently completed a London to Paris charity bike ride over 3 days, raising over £5,000 for Kids Inspire, our nominated charity for 2022/23.
To continue our support in the local community, we recently became the official sponsors of Chelmsford City FC. As a thank you to you and your businesses, we would like to extend an invitation to visit the club with us on a matchday. Please find the fixture list hereand contact jo.phillibrown@ascendbroking.co.uk to arrange.
In the meantime, if any of the team can be of any assistance then please feel free to contact us.
Any questions? Please don’t hesitate to contact one of our team.
