Commercial Insurance Helps Pay For The Catastrophe Clean Up

Commercial insurance policies provide cover for buildings and property against all kinds of perils, but it is important to consider what it would cost to get your buildings reinstated following a total loss catastrophe such as a fire or major flood, and to ensure that your business insurance policy contains provisions to cover all the costs of reinstatement expenses.

If you under-estimate the total rebuilding costs of your commercial premises when initially applying for cover, then following any future claim, any payouts agreed will be subject to reductions by what is called ‘average’.

Average will reduce the claim payout proportionally by the amount of under-insurance of the declared value from the actual current rebuilding costs. For example if your premises costs 150,000 to rebuild and you have declared the sum insured at 120,000, your claim will be reduced by a fifth.

If allowances are not made for all the costs of rebuilding, including those that may not at first be apparent, when applying for a commercial property insurance quote, then it is more than likely that the premises will be under-insured.

Commercial buildings cover may or may not include cover for fees for architects, surveyors or consultant engineers that may be required before rebuilding work can be commenced. These will usually work alongside any loss adjusters appointed by the insurer to minimise costs and agree any rebuilding proposals. Insurance companies will not pay rates for fees above those set by the governing professional trade bodies.

It is important to establish whether professional fees are included in the policy cover and if not, add an amount to cover these to the declared sum insured. When doing so be aware that these professions usually charge a very high hourly rate, and inflation should be allowed for.

Another area that can often cause disagreement between an insured and an insurance company following total loss of the premises, is that of debris removal and clearance of the site in preparation to rebuild.

Most commercial policies will include a section outlining the insurance companies responsibility as regards the insured premises site clearance and debris removal. This typically includes cover for dismantling and demolishing buildings, shoring and propping up dangerous or adjacent buildings and site clearance. More often than not the amount for this is included in the sum insured, in which case this should be calculated and also added in to the rebuilding cost at proposal.

Debris clearance can be extremely expensive, especially if for example hazardous building materials such as asbestos have to be removed, or if the site was storing chemicals or dangerous machinery that have to be treated and removed by specialist clean-up teams.

Restaurant Insurance – Current Market For Commercial Insurance Favors Restaurant Owners

The insurance industry enjoyed record profits of $60 billion less than two years ago. In the wake of these prodigious returns, the commercial insurance market was flooded with hundreds of millions of dollars worth of capital. This created an increase in the amount of carriers, as well as a greater capacity to take on risk. Ultimately, the influx of capital into the insurance market has resulted in an insurance environment that is extremely soft, with prices falling quickly. For restaurant owners who approach this soft commercial insurance market correctly, some of the largest premium decreases in years are available.

To understand why such attractive premiums are out there, understand a couple points:

First, insurance pricing is cyclical. The inflated prices simply cannot be maintained in the new commercial insurance environment of 2008. A major reason for this is that most commercial insurance companies are public companies. Thus, their shareholders demand growth. In order to grow, prices must be reduced to entice new clients and retain current ones. In addition, insurance carriers must enter new areas that they have no been active in historically. These carriers are then forced to write new lines of the coverage for industry segments like foodservice, hospitality, and franchise programs.

The second point to understanding the reason for the availability of lower premiums is that in the world of commercial insurance foodservice and hospitality is a niche area. Consequently, there is a limited amount of insurance carriers competing against one another to write a restaurant insurance account when the market is stable or hard. Now consider the reality of 2007 and 2008. You may have found that the number of carriers seeking your business doubled. The impact of this insurance market on niche industry segments like foodservice and hospitality can be exponentially greater than what is happening in the standard insurance market. This large supply increase as demand stays static leads to the falling prices that restaurant owners are now finding.

Why is it that buyers are usually the last people to realize the state of the commercial insurance market? Most policies only get renewed one time each year. The can lead to an information gap because the reality is that buyers rely on their brokers to let them know this critical information about the direction in which the market is headed. With markets shifting course substantially, and quickly, insurance buyers sometimes are not made cognizant of the shift until nearly a year later.

Furthermore, select industry groups, brokerage houses, and insurance carriers themselves usually are the ones formulating reports about the insurance industry. Oftentimes, these reports can lag six months behind. Rarely do they portray a precise picture of the current environment in the market. However, consumer expectations are driven by these reports. Many large companies who settled for a 10% pricing reduction will find out later than they could have gotten reductions of 25-30% instead.

There is no doubt that this inefficiency is the Achilles’ hell of the commercial insurance industry, especially at a time when the industry seems to be cannibalizing itself. For foodservice and hospitality companies it is also a situation that should be taken advantage of, especially in light of the fact that it will eventually swing the other way.

While we are currently in a buyer’s market, do not allow yourself to become careless when it comes to risk management. You can keep your insurance expenses at levels 25-40% lower than your competition by paying close attention to details and working with an expert. Controlling the basic elements of your risk will allow you to enjoy the benefits available in the market regardless of what cycle it is in.

Here are three additional questions you should be asking that your broker might not be answering adequately, or at all:

1) What is my renewal strategy? Keep in mind that you want to work the commercial insurance cycle, not the other way around. In soft markets, it is sensible to cancel a current policy in an effort to capitalize on lower rates. However, when the market hardens, you may want to negotiate 18-month or multiyear rate terms. You have the potential to reduce your restaurant insurance costs by 20-40% over a five-year period simply by paying close to attention to insurance cycles and acting appropriately.

2) Am I overinsured? You have little to no chance of losing every building you insure in any one single event. However, some people continue to purchase coverage for that very unlikely occurrence. If you have ten $1 million buildings in a state, you do not need a $10 million insurance policy. This is wasted coverage and can be extraordinarily costly, especially in a hard market. Your broker should run a Probable Maximum Loss to determine what the appropriate loss limit should be. Depending what your locations are, you realize that you only need between a $2-$3 million policy to cover the $10 million in buildings.

3) How can I effectively manage my loss history? A good broker will assist you in this endeavor, but most do not even mention it. Understand that your insurance losses stick with you for five years, regardless of whether you have two locations or 1,000 locations. Commercial insurance companies use these past losses to help them predict what your future losses may be. This can have a tremendous effect on your insurance prices. If you are like most companies, you have limited knowledge of the details behind the insurance companies’ loss runs. In essence, you are still being charged for a claim that occurred three or four years prior. Have them audited to be sure that details and numbers are accurate.

One point that cannot be overstressed is the importance of choosing the right broker to partner with. Unfortunately, most brokers simply do not handle enough restaurant insurance claims to maintain up-to-date knowledge on the insurance market for the industry. Obviously, the firm you partner with must understand your business, but you need to also be confident that they also are competent in understanding the environment and knowing the markets.

Keep in mind that these people are your representatives. You should choose them as meticulously as you would choose your legal representation. Try not to be a firm’s lone client, but also make sure that you are not a “small fish in a big pond.” A great broker will keep you ahead of your competition, keep you safe, and ultimately add to your bottom line.

You should also make every effort to meet your insurance carriers. Have a relationship with them, in addition to your broker. The carriers need to know you and understand what expectations you have. Not to mention, being on a first name basis will be a big help if you ever need a favor; inevitably you will at some point.

Finally, make sure you are maintaining open dialogue with both consultants and internal employees regarding customer-and-employee injury issues. You have to be tough on claims; but remember that communicating proactively and listening empathetically can turn cut fingers and strained backs into loyal employees and lifetime customers.

Understanding Commercial Insurance Risks and Business Insurance Covers

If you own or manage a business, either large or small, you will require some type of insurance to protect your company against the various risks and potential multitude of claims, that your business will face.

Commercial insurance or Business insurance as it is commonly known, is a complicated area of underwriting and because all businesses are different, and face different risks depending upon the nature of the company, various packages and combined policy covers have been introduced by insurance companies and commercial broker schemes, to make the process easier.

An example of a small business insurance package which is commonly sold online is the Tradesman’s insurance package, which includes all elements of cover required by a small business or self employed trader such as basic liability covers and theft of tools.

Other small business insurance packages that are trade specific and can often be obtained online are available for shopkeepers, offices, surgeries, hotels and guest houses, restaurants, public houses and builders.

Large companies will be offered what is known as a commercial combined policy which has many different elements of cover which can be combined to make a bespoke policy for the enterprise. Most large companies will require some degree of risk assessment before the policy is underwritten, which may often include a visit to the business premises or site, and for this reason these types of larger business usually employ the services of specialist commercial insurance brokers.

Business Risks

The largest risk that a business faces is from liability to others, and the potential costs and damages a company could face if a claim was made against it.

All companies are required by law to have in place liability cover, called Employers liability insurance or EL, to protect their staff against all potential risks and accidents  while in the workplace.

Business liability insurance is usually sold as a package and will always include Public Liability, often just known as PL, which protects the company against claims from the public whilst on the business premises.

A further type of liability insurance called Product liability is also available to companies under a commercial liability policy which protects the company against claims made for design or manufacturing faults in the product.

Company directors can also protect themselves against liabilities with Directors and Officers insurance (D&O) cover.

Property Damage

Most business large and small will have premises that need protection against buildings perils such as fire and flood and commercial property insurance is available to cover all buildings insurance risks. Similarly commercial contents insurance for business premises is available which covers office and business equipment including files and data processing against the common perils. For companies that carry stock, this type of business contents insurance can be extended to cover risk such as deterioration and damage.

For the small businessman who works from home these covers are often available with strict limits of indemnity, as a bolt on to a standard home buildings and contents policy. This type of cover is often effective for self employed people with just a computer and a home office.

Business Contingency Cover

One of the largest problems faced by a business is that of how to continue in business should the worst occur, for example a fire that destroys the premises. In order to deal with this Insurance companies have devised a cover called ‘Business Interruption Insurance’. Based on your previous years annual turnover, this protection insurance covers your company against all losses caused by interruption to trading due to any of the perils mentioned on the policy and will pay out on a indemnified basis for the period of cover agreed in the policy. Most policies will also offer some type of alternative trading accommodation to enable you business to continue whilst the premises are being repaired.

Additional Commercial Risks

Because commercial insurance is designed to cover all classes of business, there are many various trade or business specific covers available which can be added to a combined policy. Examples of these covers include loss of licence to trade, glass cover, goods in transit cover, book debts, commercial vehicle insurance, hauliers cover, warehouse cover, engineering insurance and plant inspection services, and theft by employees.

Outside of most combined policies are additional risks more often sold under separate policy covers, that should be considered to protect your business against all eventualities.

Examples of these are, Commercial Legal Expenses insurance cover which protects the company against claims made by employees for unfair dismissal and allows you to bring cases against suppliers.

Various protection policies are also available for businesses including Keyman insurance which provides cover against the loss of key people within your organisation. Business mortgage protection provides a monthly payment for business premises should you suffer and accident or sickness. Group ASU policies are also available to protect your staff and employees.

Purchasing Business Cover

Purchasing commercial risks insurance can be a daunting experience for the uninitiated small business owner and unless the risks are straightforward and can be underwritten online, it is advisable for all companies to approach the services of a local or regional commercial insurance broker. Insurance Brokers will not only be able to assess the complete range of risks that your business is exposed to, and provide the correct levels of cover, they will more often than not have a unique local knowledge of the risks involved and will be able to negotiate premiums that reflect the nature of the risks. Furthermore, in the event of a claim, and as most businesses will be faced with claims at some point in their trading life-cycle, the broker will handle all the settlement negotiations with the insuring company and allow you to continue what you do best – running your business.