by Leighton Chenery Issue 106 - October 2015
Avoid the pitfalls of underinsurance
Wandering around IBC, marvelling at the latest technical advances and innovations and viewing the major strategic themes for the future direction of the Broadcast & Media industry, it would be easy to overlook the importance of adequately insuring new purchases and additions to your business.
Why didnt I get paid in full?
If your current equipment has been undervalued on your policy and you suffered a loss or damage the Average Clause will apply. Underinsurance is the main cause of claims not being paid in full by the insurers. Your cover, like most commercial insurances, is subject to a Condition of Average Clause. This means that, if you insure for less than the true value of your equipment, your claim would be reduced in proportion by the same percentage. Let me give you an example - your property is worth £100,000. You insure it for £50,000. You suffer a loss of £10,000. If your policy is subject to Average Clause, the maximum amount that you may recover will be £5,000.
Understand your cover
To avoid the above scenario it is crucial to fully understand the basis of your cover. Most policies will be on a Reinstatement or New For Old basis, meaning that the sum insured needs to reflect the cost of replacing your kit with brand new equipment even in circumstances where the equipment has been bought second hand. Often the original cost of the equipment, when it was first purchased, is used for the basis of your sum insured but this may have been many years previously and the cost for new versions may be much higher.
Similarly, some equipment will be insured for the value after depreciation has been deducted from the original cost, so it is easy to see how problems can arise in this situation. If you have no intention to replace certain items of equipment with brand new ones it is possible to arrange a cover for these items on an Indemnity basis. Essentially, it would allow you to insure for the second hand value and your insurance would reflect the cost of a second hand replacement.
Protect your new purchases
There are provisions within most policies to assist you with new purchases, taking into account the fast moving nature of our industry. A Capital Additions clause will be standard in most policies, allowing for an increase in the sum insured to take into account equipment that may have been acquired since your policy renewal. There will typically be an upper limit on the leeway granted, normally 10-15% of the overall sum insured, but where major items have been bought and the insurer has not been notified this may be inadequate.
Betterment is a standard clause in all policies, which means that your business will be no better or worse off than prior to any loss suffered and it essentially grants the insurer the ability to reduce your claim accordingly.
Having said that, due to the nature of the Broadcast & Media industry, an Involuntary Betterment clause can be included if replacement equipment of the same quality is not obtainable, kit which is as similar as possible and capable of performing the same function will be deemed to be a suitable replacement and not considered as Betterment. Even if it is of a higher value! This clause will also pick up the cost of purchasing and installing additional equipment, which is necessary due to incompatibility between the new and the existing undamaged kit.
An experienced Broadcast & Media industry Insurance Broker should watch your back and protect your people, property, assets and reputation. It is essential that there is an open dialogue, clearly defining the basis of cover and updating them as and when major new purchases occur.
Sutton Winson is a specialist insurance broker in the Broadcast & Media industry and is able to help you manage your business risks. To discuss your insurance requirements, please contact Leighton Chenery on leighton.chenery@swib.co.uk, call 07976 327 407 or visit www.suttonwinson.com
