Many Guernsey businesses risk their livelihoods by being underinsured

Many Guernsey businesses might be at risk by not taking an active interest in protecting their assets and liabilities fully, according to Heritage Insurance.

Heritage Insurance director, Stuart Butler, said that too many businesses allowed their insurance cover to roll over from one year to the next without considering whether the cover remained appropriate to reflect their current risks.

“It is a common issue that, once the insurance is in place, businesses don’t consider changes in circumstances, expansion and acquisition of equipment and/or increases in turnove, amongst other things,” he said.

“A recent example speaks volumes. A local company had insured its business interruption insurance for a sum of £450,000 over a two-year indemnity period.

“This sum just happened to be the automatic limit under the insurance policy that insurers provide as standard. Obviously no consideration had been given as to whether it was adequate for this specific business.

“The sum should have been tailored to the business and should have been a sum of £3,600,000 to cover any potential loss of revenue. The company was only insured for 12.50% of what they should have insured for so in the event of the business suffering a major fire, flood or storm and, not being able to trade for a year, the insurers would have only paid £28,125 instead of the actual loss of £1,800,000.
“The business would, therefore, have suffered a devastating financial loss of £1,771,875 due to their underinsurance and insurers applying the average and reducing the amount paid.”

Mr Butler said that often businesses’ insurance was also arranged at the outset on the wrong basis.

“For a number of reasons insurance is frequently arranged on the wrong basis with gaps in cover or terms and conditions of which the business is unaware or unable to comply with,” he said.

Mr Butler said it was vital that businesses take a more active interest in their insurance and considered it annually as a minimum and also whenever any changes occurred during the year.

“Obviously the businesses being insured have their day job to do and cannot expect to be experts and then rely on their insurance company to understand their needs,” he said.

Mr Butler urged businesses to conduct an insurance audit to review all insurances including those they did not currently have but should consider such as directors and officers, cyber liability and fraud insurance.

“An audit will flag any issues of which businesses may not be aware. Audits we have conducted recently have shown up a range of issues including gaps in cover and failure to comply with warranties as well as underinsurance.

“Insurers are sometimes accused of using so called "small print" for declining claims or not paying them in full. The reality is the many businesses don’t have the correct cover and/or are under-insured and if the business was appropriately insured there would have been full payment covering any losses incurred.”