Insuring stock, equipment and premises at the right figures

Aug 29
3 min read

Updated: 2 days ago

Introduction

A fire destroys a workshop. The business is insured, the claim is submitted, and the settlement is forty per cent lower than expected because the sums insured were set when the business was smaller and never revised.

That reduction is not an insurer being difficult. Most policies apply proportionate settlement where the declared value is below the true value, so a business insured for half what it should be receives half of any claim. Underinsurance is widespread, invisible until a claim, and entirely preventable. An hour with current replacement costs closes the whole exposure.

1. Insuring stock, equipment and premises depends on getting the figures right

The cover is rarely the problem.

Policies of this kind are broadly similar between insurers. What differs is whether the declared values reflect reality, and that is the single largest determinant of what a claim actually pays.

2. Insure buildings at rebuilding cost, not market value

The most common confusion.

What a property would cost to demolish, clear and rebuild, including professional fees, is a different figure from what it would sell for and is frequently higher. Market value is not a relevant number for this purpose at all.

3. Value equipment at replacement cost

Not what it is worth now.

Most policies replace on a new-for-old basis, which means the figure should be what it would cost to buy the equivalent today. Insuring at written-down book value produces a substantial shortfall.

4. Get stock right despite the fact that it moves

The hardest figure to set.

Stock varies through the year and peaks before a busy season. Insure against the peak rather than the average, or use a policy that accommodates seasonal variation, because a fire in November is not covered by an average annual figure.

5. Do not forget what is not obviously stock or equipment

Frequently omitted entirely.

Tools, tenant's improvements and fit-out, computer equipment, signage, stock held at a customer's site, and goods in transit. Businesses commonly insure the obvious items and discover the gaps afterwards.

6. Understand the security conditions attached

Where claims fail.

Locks of a specified type, alarm requirements, key holding arrangements and how the premises are secured when closed. These are conditions rather than suggestions, and a breach can void a claim entirely.

7. Take account of what you keep at home or in vehicles

An increasingly common gap.

Equipment stored at a home address or left in a van overnight is frequently excluded or subject to strict limits. Trades lose tools from vehicles constantly and discover the limit at that point.

8. Keep an inventory and evidence of value

The practical half of a claim.

A list with descriptions, serial numbers, purchase dates and values, plus photographs, stored somewhere off the premises. Proving what you had is the claimant's job and it is impossible after a fire without a record.

9. Revalue annually and after any change

The habit that prevents the shortfall.

Growth, new equipment, higher stock levels and inflation all move the figures, and nothing prompts a review. An annual check against current replacement costs takes an hour and protects the entire claim.

Tell the insurer about changes when they happen rather than at renewal. New premises, a significant piece of equipment, a change in what you store or a period of unoccupancy can all affect cover, and the gap between the change and the renewal date is exactly when something tends to happen.

Conclusion

Concentrate on the sums insured, because that is what determines the settlement.

Value buildings at rebuilding cost rather than market value, insure equipment at what replacement would cost today, set stock against the seasonal peak, include tools, fit-out, signage and goods in transit, comply with the security conditions attached to the policy, check the limits on equipment kept at home or in vehicles, maintain an inventory with evidence stored off-site, revalue annually against current costs, and notify changes as they happen.