By Daniel Dewornu, CPI expert at i4me
Theft is a universal risk for any business. In the UK, 8% of businesses experience a burglary or attempted burglary each year. Tool theft claims alone have increased by 54% in the last two years, and theft insurance claims are snowballing. Unfortunately, payouts are not. And the reason behind this might not be what you think.
Why are so many small businesses having their theft insurance claims rejected?
Buying insurance is simple. The problem is that the simplicity and familiarity of the process leaves many businesses blindsided by simple mistakes and oversights. And when this happens, businesses can find themselves exposed to unnecessary loss. This generally occurs due to three common errors.
Underinsurance
There is a caveat within the insurance industry known as ‘the average clause’. It means that if a business (or any other property) is underinsured, any future claims can be partially reduced to reflect the disparity between the actual value of your goods and the value stated in your insurance policy, or even fully rejected. And the problem is that it’s really easy to underinsure a business. Many businesses rely on rebuild values which have been index linked for a number of years on their existing policy. This means that new assets can be inadvertently overlooked. To avoid this happening, businesses can obtain desktop rebuild costs assessments ,which are normally valid for 3 years. This ensures that the business attains the correct level of insurance for their current circumstances. Reducing claim rejection significantly.
Alarm and security conditions
In the majority of business insurance policies there is a requirement for named alarm and security conditions to be met in order for the policy to be classed as valid. Unfortunately, these conditions aren’t always obvious, and you have to dig deep into policy wording to find them. This means that it’s entirely possible for a business to invalidate their theft coverage through simple oversight – perhaps the incorrect number of security cameras, the wrong type of alarm, or a lack of security lighting. Even a single missed stipulation can mean that a claim is rejected. And this becomes even more complicated when it comes to cyber protection.
Policy exclusions
In some policies certain items or types of theft are explicitly excluded from coverage. So, if those items are stolen, or a particular type of theft occurs – perhaps staff theft vs a break-in – a pay out will not be approved. This is a common feature of standard business insurance policies. If you feel that events cited within policy exclusions may be a threat to your business, it is wise to talk to your insurer and attain an alternative policy.
Looking beyond the direct impact of theft
When assessing an insurance policy, it’s common for businesses to focus only on the direct impact of theft – the value of the lost goods, and perhaps the cost of any damage. But there are other costs that can cripple a business if overlooked. The most pressing of which is business interruption.
While the loss of physical assets can be devastating to a business, if those losses impact the business’ operational abilities, the impact can be so much worse.
Imagine a restaurant suffers a break-in. They not only lose their petty cash, electronic devices, and silverware. They also suffer damage to property, reducing the number of heads they can serve, which will ultimately impact gross profit. If it typically generates £10,000 per week, with its ‘normal expenses’ being food at 40% of sales (£10,000 – £4,000 = £6,000 gross profit) less ongoing expenses of £1,000 for rent, £3,000 for wages and £1,000 for other expenses would leave a net profit of £1,000. However, if that business was to suffer a break in – or a water leak – causing significant loss or damage, which results in a 50% reduction in trade (£5,000 – £2,000 (40%) = £3,000 gross profit) less ongoing expenses of £5,000 would result in a loss of £2,000.
With adequate business interruption insurance, the client would be paid £3,000 to put them back in the position they would have been without the break in. They’re suffering inconvenience, but no major financial impact. But without the cover, they’ll experience ongoing loss until the restaurant can be put to rights. This could see the loss of thousands of pounds and potentially inflict irrevocable damage on the business. And yet many companies still overlook this integral element of their insurance. So, when something goes wrong, be it a flood or a burglary, they find themselves dealing with a nightmare situation.
What can businesses do to protect themselves against insurance claim rejection?
Insurance claim rejection is common not because insurance companies are out to deceive, but because businesses fail to pay attention to the details. So, there are several things you can do to make sure that you don’t fall foul of the clauses if you ever need to make a business insurance claim.
Get the details right
When you buy an insurance policy, the first step is always to ensure that you have the correct cover. So keep your desktop rebuild costs assessments up to date. Ensuring that all of your assets – technology, tools, stock, and other resources – are all included.
Dig into the wording
If you have policy exclusions or specific alarm and security conditions within your cover, you need to know about them so that you can properly address them. So, read the fine print. Check through the wording. Ensure that you fully understand what is and isn’t covered, and what you have to do to obtain that cover.
Don’t just focus on theft
There can be so much more to a theft event than the loss of goods. Business interruption cover can ensure that other associated losses don’t leave you out of pocket in the longer term.
Insurance policies are there to protect your business when things go wrong. But in order for them to do that, you have to play your part. You have to make sure that your coverage is correct, and that you meet the conditions set for your business. If you do that, then you have peace of mind that when you need them, your insurance company will be there to support you.
