The importance of insurance

Sean Cleary of Clearys Claims Managers outlines the crucial need for acquiring informed and effective insurance.

Clearys Claims Managers have dealt with a number of large insurance claims in the Hardware Business over the years. The occurrence of a fire, flood or major loss of any type is a traumatic time for the business and its owners.

As we all know, the financial circumstances of a business become crystallised once a major loss has happened. What I mean by this is your financial position, HR position, banking, Revenue, and most importantly your Insurance Policy covers are fixed: i.e. you cannot change them after the event. I will highlight two issues that can cost a business dearly if not correct but are easily dealt with in advance. Both of these issues and the solutions we offer will pay for themselves over time in premium saving (and management time), but may save Major Losses in the event of a catastrophic incident.

ISSUE NO. 1 ‘How Much Cover Should I Buy?’

The premium will be based on the amount of cover. We invariably find that a policy has some cover too high and some cover too low. A policy should cover the following:

• Buildings
• Machinery
• Stock
• Computers/EPOS
• Fire Brigade charges
• Business Interruption

You do not get any benefit from being over-insured and you waste premium. You also lose heavily in the under-insured area after a loss. We regularly see what could cost literally only hundreds of euros of premium (or even nothing) ending up costing you tens of thousands or hundreds of thousands of euros after a loss. Any rebuilding project in Ireland now with a planning application requirement is going to take a minimum of 12 months to complete.

If your Business Interruption cover for example is at 50% of that required or for example covers your net profit rather than your gross profit, well, you do the math!

Solution: Clearys Claims Managers will do a Policy Health Check for Hardware Association Ireland Members for an agreed rate of €200 with certain basic information and highlighted areas to address. We can also do a full Value at Risk Report on the entire risk. This will involve a site survey review of the entire business, disclosures to insurers, activity on site (e.g. be careful if you do any cutting or fabrication – even on a small scale) and review of your financials and projections.

ISSUE NO. 2 Are the figures correct in my Stock Control System?

Many businesses in this area rely on EPOS Systems for their Stock Control, Inventory Management, Opening/Closing Stock figures for end of year, and so on.

We are seeing that this may be an inadequate method of stock control on its own. This business practice relies heavily on the quality of the original set-up of the system and the ability and understanding of the users going forward. In all, success is intrinsically linked to the accuracy of use of the system and constant checking that it is correct.

Your insurers may find significant weaknesses in this method of Stock Management and its usefulness in relation to proving a loss after an event. A claim settlement under a Stock policy will pay on an Indemnity basis (as opposed to reinstatement in machinery or computers). The stock loss calculation will also involve questions of Obsolete Stock, Rebates and Discounts from suppliers, Pilferage or other causes of stock loss that may not be accounted for in the Electronic System and can significantly affect the bottom line.

Errors in your system may be caused by:

• Incomplete set up of system
• Incorrect use of the system
• Typo & errors in figures at Data Entry
• Stocks delivered direct but input to system
• Incorrect stock identification
• Incorrect Pricing
• Pilferage/Theft
• Fraud

Solution: We and our Stock Management partners Stocktaking.ie recommend a Certified Stock Take at least once every two years. This stock take will then be updated with the EPOS System and any errors identified and highlighted to the business owner. You will also have an audited independent cross check for your Accountants, Revenue and most importantly you the business owner, which will help you manage the Stock Managers and your training requirements and the quality and accuracy of the use of the computerised systems.

For more information, contact Esther Howe of Clearys Claims Managers on 091 709706.

This Business Support article featured in the July/August 2018 edition of The Hardware Journal.