To Insure or Not to Insure - That is the Question!

The credit crunch is in full swing, people and firms do not have the confidence to spend, banks will not lend - it's a scary old world out there.

Everyone is looking to save money and insurance premiums are an area where costs need to be contained as far as possible.  It is also unfortunately true that premiums can tend to rise in a recession.  The reasons for this are several but mainly revolve around the increased theft and fire claims that occur during recessions, and interest rates being so low that insurers' investment returns on premiums have virtually disappeared.

Commercial insurance premiums have also been on a general downward trend for several years and in the end this will stop as claims costs continue to mount and premiums are no longer sufficient to cover them.

A good insurance broker is there to help, especially in difficult times.  Getting the right cover at a competitive cost is what brokers should always be doing.

But what about cutting cover to save on premium?  Again, a good broker should be helping you make judgements about this.  For example, you may take a view that you should insure only some of your assets because not everything will burn down if an incident occurs.

So if you had buildings worth £1,000,000 on a rebuilding cost basis and these consisted of three separate units of identical size and construction, you might insure them for just £333,333 on the grounds that only one would burn down if an incident occurs.

This would save two thirds of the building insurance spend - possibly £3,000.

Unfortunately a vehicle owner desperate to destroy evidence on a vehicle in your SOCO bay, targets your buildings.  He targets the wrong unit, realises his mistake and destroys the next unit as well.

You are faced with a total loss of £666,666.  The insurer settling the claim will see that the buildings should have been insured for £1,000,000 but cover was arranged for just £333,333.

The insurer will apply the condition of "average" and reduce the payout in line with the degree of underinsurance.  Cover arranged as a percentage of the risk was just 33.33% so the claim is reduced similarly to just £222,222.

You are left over £440,000 to find to cover the loss, making the original premium saving look paltry.

I've been in the insurance business for more years than I care to remember and horror stories not unlike the aforementioned are more common than you may think.  It's not pleasant trying to deal with the consequences.

We at Bollington will always work with AVRO members to keep costs down.  We will also warn against false economies and make sure that your business assets i.e. your lifeblood, are properly covered.

We will work with you in good times and bad to protect your interests.

If you wish to discuss your own circumstances on a confidential and no obligation basis please give me a ring on 07850-297274.

Doug Smith - AVRO Direct Insurance

25.8.09