The most important and costly items in a business are the fixed assets. These make up the main bulk of invested capital in the business and a loan might have been taken out in order to procure them. Thus, it is even more important to have insurance in place! Fixed assets which can be covered under a business insurance policy include:
- Buildings, including anything permanently affixed to the buildings such as utilities, false ceilings etc…). Although glass may be included with buildings, it might be insured separately on an All Risks basis.
- Furniture, fittings and other general contents such as work bench, shelving and furnishings.
- Machinery and Trade equipment such as cash registers, weighing scales, refrigeration equipment and point of sales equipment. Items of an electronic nature might be insured under an Electronic Equipment or Business All Risks Policy.
- The Stock in Trade value should reflect the maximum stored on the premises at any one time and insurers may cover stock whilst stored in multiple premises on a floating basis (the insurance would cover all your stock stored in different locations without requiring to give the exact amount found in each separate location). Stock might also include elements of raw material and work in progress for some business such as woodworkers and other manufacturers.
A typical commercial insurance policy is based on risks which would be covered should these occur (called Fire, Special Perils & Theft Policy). This is very similar to the risks covered under a typical home policy. The following is a non-exhaustive list of risks typically covered by a commercial insurance policy:
- Fire, explosion and lightning
- Damage by Aircraft and other aerial devices such as space debris
- Impact with the property insured by road vehicles or animals not belonging to you
- Earthquake and volcanic eruption.
- Riot, strikes and civil commotion
- Malicious damage
- Storm, tempest and flood
- Bursting or overflowing of water tanks and pipes
- Falling trees or branches
- Theft or attempted theft involving forcible and/or violent entry and/or exit
- Hold-up by violence and/or threats of violence
The other type of cover is called All Risks which is similar to that available under a private home policy. If you purchase an All Risks policy, you should expect to be covered for all risks except for any exclusion which should be listed in your policy. Exclusions may vary between different policies. However, typical exclusions such as wear and tear, consequential loss and certain types of property can be found under all business policies. It is important to check the wording of your policy and ask your insurer if there is an exclusion which is not compatible with your business.
The premium you pay for your policy is based on the sum insured.
When calculating the sum insured you should always exclude the amount of VAT, as long as you would be able to reclaim it from the VAT department. If, on the other hand, you can’t reclaim VAT, the sums insured should include the VAT element. For buildings, the sum insured must include any services and permanent fixtures and the amount must reflect the rebuilding cost ( the amount of money required to rebuild the building including permanent fixtures and fittings such as tiling and soffit etc….)
As to the trade equipment, machinery and other contents, if your policy is on an indemnity basis you need to calculate the sum insured of the item considering wear and tear. If the policy is on a reinstatement basis, the sum insured needs to be calculated on the replacement cost at the time of loss.
For stock, the sum insured needs to be the replacement at cost price and should amount to the maximum value at any one time.
Remember that it is your duty to keep the sums insured up to date. In addition, make sure you inform your insurer if there are any changes in your business.
Following serious damage to the premises or contents, the subsequent interruption of the business may result in lost production and sales on top of unsatisfied customers. Insurers have devised a cover (often referred to as Business Interruption Insurance or Consequential Loss) which can be included under your business insurance portfolio so that if the loss causing the damage is covered under the property damage section (that section covering your buildings and contents against fire, storm etc…) this policy will cover any subsequent loss in profits of the business.
For this policy to operate, you will need to select the period during which the damaged caused is repaired and business is back to normal. This period, usually called indemnity period, might be anything starting from usually one month to the most common 12 months. Insures may accept longer period subject to underwriting. It is ideal to establish the total loss and the time you would require to get permits, rebuild, get machinery, stock, employ people and get the business back on track.
What would be paid out in the event of a claim would be the profit for the period during which the business was not operating; therefore the premium is based on the gross profit of the preceding year. It is a condition of the policy to always have audited accounts available and which are required in the event of a claim. Such a policy would also cover increased costs meant to prevent or minimize a greater loss of profit such as renting alternative/temporary premises.
Normally, you will be required to have a policy covering your buildings (to make sure there are funds available to reconstruct and obtain funds to replace any damaged machinery and equipment) in order to take out a Business Interruption policy.
What would be my position if a third party is injured or his/her property damaged following an accident caused through my business?
Either as a sole trader or as a registered company you are legally liable at law for third party bodily injury or property damages arising from your business premises. A Public Liability policy will cover you in the event that one of your customers is injured on your premises or any nearby premises are damaged as a result of an accident that is caused through your negligence or omission.
Such an event must be caused through your negligence or omission (by accident) and liability together with the amount of compensation might be determined by a court of law. Any legal fees would also be covered under the policy subject to confirmation of the insurer. The amount an insurer will pay under such policy is subject to a limit which is chosen at inception and may be increased should this not be adequate for your business needs.
If you are a restaurant, bar or a business which provide food or beverages, cover may be extended toward liability arising from such products. The same policy may be extended to cover liability arising from trades such as hairdressers.
Delivering goods to your client’s premises or working away from your premises may be part of your business for which liability cover may also be required. Always ask your insurer for any available extensions specific to your business needs.
As an employer, you bear certain responsibilities to provide a safe working environment to your employees. Such obligations arise under the Occupational Health and Safety Authority Act and any regulations issued thereunder. If you fail such obligations you may, as an employer, be liable at law for the effects of an illness or injury suffered by your employees.
Although not compulsory, an Employers’ Liability policy is very important for a business since injury or death claims may run into thousands of euro and could have a potentially negative effect on your business.
This type of policy would pay claims should you (the employer) be found responsible of injury sustained by any of your employees through an accident in the course of their duty.
The injury has to be a result of a negligent act or omission from your end.
The estimated annual payroll and estimated number of employees for the subsequent year will be required in order to purchase this policy. Since the premium would be calculated on estimates, the insurer will require that at renewal, the actual figures are provided and a return or additional premium may be due. Similar to a Public Liability Policy, this cover is subject to a limit which is chosen at inception but may be amended any time during the policy’s lifetime.
Employers’ Liability policies may also be extended to cover statutory liabilities to pay injury leave benefit under a so called EIRA (Employment and Industrial relations Act) extension.
Money, which includes cash, cheques, stamps and other similar items (always check with your insurer for definition) is best covered separately under an appropriate Money Policy. This type of policy would usually cover money held:
- in the business premises of the insured during or after business hours in the cash till or in safe;
- in transit (to the bank or private residence);
- in bank night safes until removed by a bank official;
- in the private residences of the Insured or any authorized employee of the insured
Different limits will apply to the different situations mentioned above. You need to provide proof of actual loss of money, e.g. by means of Z-readings from your cash register.
A common extension under a Money Policy is the personal accident assault cover which would cover an individual for a fixed amount if he/she is injured or killed during a holdup.
Motor insurance offers no cover for your business stock if the vehicle is involved in a road traffic accident. If, as part of your business, you deliver items between premises or to your customer’s premises, a Goods in Transit policy is required to cover such and other contingencies.
This type of policy would cover you against destruction or damage to property whilst in transit in any vehicle anywhere in Malta until delivery at its final destination including loading and unloading from any vehicle.
A Deterioration of Stock policy would cover stock kept in freezers and refrigerators against destruction or damage caused by a change in temperature as a result of a number of causes.
Although cover may vary between insurers, it usually includes: breakdown of the plant, accidental failure of the public electricity supply and accidental damage to plant. Insurers might not grant cover if plant used is old, usually over ten years.
This policy might require that a Machinery Breakdown Policy is in force at all times and that all equipment is serviced by a professional technician at least once a year. Insurers may also ask for an inspection certificate at renewal.
In addition to the cover provided under business contents policies, a specialised Machinery Breakdown policy offers cover against the breakdown of a number of different types of machinery and plant. Cover applies for when the machines are in use, switched off or whilst being dismantled for the purpose of cleaning or overhauling.
Cover under this type of policy is very wide and is defined as sudden and unforeseen loss or damage. Exclusions for this cover include wear and tear, damage covered by warranty and any damage which is caused through manufacturer’s error. Like the deterioration of stock cover, this policy may require that a yearly inspection is carried out by a qualified professional.
Is there a more specific cover if I want to cover glass separately (from the standard buildings cover)?
Due to its particular nature, glass might be at a high risk of breakage and might be quite expensive to replace especially if the business is a showroom or most of the building is made of glass. For buildings, cover on a named perils basis might be sufficient but might not be adequate for glass.
Glass might include display windows including frames, shops signs and sanitary wear and under such policy would be covered on an all risks basis. Cover under a Glass Policy also includes damage to door or window frames and the cost of shoring and propping damaged areas. Scratching, denting, cracking, wear and tear or other deterioration are the major exclusions under this type of policy.
No business can nowadays do without electronic equipment and the business might even stop functioning should any of this equipment be out of order! Although such equipment can be normally covered under the contents policy, insurers have developed a specialized type of cover often referred to as an Electronic Equipment Insurance (EEI) which would include:
- Accidental damage including breakdown and losses due to lightning and electrical power fluctuations or surges,
- Loss of data stored on computers,
- additional expenses incurred following damage to the property insured, and
- Portable equipment may also be covered whilst away from the premises and even when abroad
Items which may be included under this type of policy include computers, printers, servers, photocopiers, laptops, point of sale systems, PABX systems and any other business equipment which is used in the business. A similar policy is the Business All Risks, which however might not cover loss of data and expenses incurred as a result of the damage.
Do the policies mentioned above need to be taken all or is there a policy which includes everything in one document?
No, you can choose only that cover which you deem necessary for your business. You may mix and match accordingly, subject to underwriting conditions (i.e. your insurer would need to agree on the mix of policies you select).
For example, insurers may require that, if you would like to have a policy which covers you for Deterioration of Stock, a Machinery Breakdown is also in force to ensure that there are the funds available to pay for the damaged machinery. The same applies for a business interruption policy which requires the buildings and other property to be covered under a property policy either on a perils or All Risks basis.
For the convenience of small and medium enterprises, insurers have devised “package policies” which would basically include all the cover mentioned above under one policy. Excess, terms and conditions would apply to each individual section and would allow you to have one policy document and renewal date. These package policies may be marketed under various names.
Other classes of insurance offer cover which are particular to businesses. These might include:
- Commercial Motor Insurancepolicies are designed to suit the needs of the business customers and would include certain extensions particular to the risk involved.
- If you employ other people in your business you might include a Group Health policy as a benefit to your employees. The policy would offer the same individual health cover but at a rate reflecting the loss of your group.
- A Group Personal Accident, similar to the individual personal accident policy, provides benefit should you or any of your employees be injured, or die, either whilst working, or during all day (depending on the cover). The amounts paid may either be based on the wages or a fixed benefit.