The challenge is that different assets respond differently to economic conditions. A building may become more expensive to replace, while the market value of a car could fall even as repair costs rise.
Jacques Pienaar, head of commercial underwriting at King Price Insurance, says the time for businesses to reassess whether their cover still reflects their circumstances, is now.
Here are the five areas he would address first:
1. Review replacement costs, not just market values: Buildings, plant and machinery, electronic equipment, and high-tech assets should be insured for their current replacement cost. An older machine may have limited resale value, for example, but replacing it with a new one after a loss could cost considerably more.
The same principle applies to buildings, where construction costs and the price of materials can change significantly over time, leading to a significant gap between the cost of a re-build and the market value attached to the sale of a building.
2. Keep vehicles covered correctly and accessory values up to date: A business’s vehicles must be insured correctly, whether this is for private, business, or trade use, or according to who drives the vehicles the most.
It’s equally important to account for accessories and modifications that are integral to the way a business operates. For example, canopies, tow bars, and load bin rubberising that aren’t standard or factory-fitted, must be specified separately to ensure they’re covered.
3. Reassess business interruption cover: Physical assets are only part of the financial exposure following a loss. If an insured incident prevents a business from operating, lost income combined with continuing expenses can create a substantial financial burden.
Business-interruption cover should therefore be reviewed alongside a business’s financial performance, fixed and variable expenses, profit, and anticipated growth, with inflation factored into the calculation.
As Pienaar explains, this calculation needs to reflect where a business is going, not simply where it’s been.
4. Check the detail, not just the headline cover: A review should consider more than just insured values. For businesses operating with increased overheads and tighter margins, excess amounts payable at claim stage, which would previously have been manageable, might now be unrealistic.
5. Get expert perspective: Partnering with a broker who understands the business is critical. With a deep understanding of how insurance works, brokers are ideally positioned to match risk exposure to the appropriate cover.
Specialist assessments should also form part of the broader review. A valuator can establish the replacement cost of a building, while an accountant can help determine an appropriate business-interruption calculation.
“Insurance is an essential part of a business’s risk-management plan, and this plan needs to account for the effect of changing costs,” says Pienaar.
“As inflation alters the cost of repairing and replacing assets, and ongoing operations, adjusting the cover ensures that the protection continues to reflect a business’s financial realities.”
