The 10 Main Questions we will ask at Renewal Time
Most small businesses grow and change over time. They have to respond to competition, the economic environment, technological advances and other factors. As a result few companies remain exactly the same from one year to the next. As your company evolves, your insurance should change as well.
To ensure that your policies still meet your company's needs, your insurance broker will review them annually. The best time to conduct this review is a few weeks before your current policies expire. Any changes you need can be made when your policies are renewed for the subsequent term.
Here are some questions your insurance broker should be asking before your current policies expire:
1. Has the nature of your business changed in the past year?
Is your company carrying out the same activities that it was doing a year ago? You may have declared that you provided only bookkeeping services but found that you were earning income also repairing computers. This new activity is not automatically covered by insurers unless declared and agreed.
2. Has your business changed its ownership?
Has it had its name changed? Has it purchased or formed any new companies? It is essential to ensure that the individuals and/or companies listed on all insurance policies are still accurate so their insurable interest is covered and protected. In the case of liability policies, a claim made against an unlisted company on your policy may be declined.
3. Has your firm acquired any additional property within the last year?
We accumulate new equipment during the year and do not always remember to factor this into your property insurance which could leave you under-insured. This question is important for two reasons. It will help ensure that the business property you own is insured under your property (or auto physical damage) coverage. Some types of property, such as office furniture, are covered automatically under your property policy as contents. But other property, such as artwork or watercraft, may require specialised coverage or specific listing. Secondly, an assessment of the property you have acquired will help you determine whether the limits on your property policy are adequate. If the total value of your property has increased during the current policy period, the limit will need to be increased.
4. Has the value of your building or personal property changed?
Most small businesses insure their property on a replacement cost basis. If building costs have increased in your area over the last year, you may need to increase the building limits on your property policy. You need to think of this risk a year ahead so factoring in “escalation costs” such as expected inflation rate should be considered when deciding whether current limits are adequate.
5. Do you expect your turnover to increase or decrease over the next year?
Liability insurance policies are usually rated based on turnover. Moreover, liability policies are often subject to adjustment. If you underestimate your income for the coming year, insurers may require an adjustment premium which could be costly.
6. Have your internal systems changed over the last year?
Items such as the purchase of a new computer system or if you have changed the way you manage data will create newer or increased risk. If you are currently storing large amounts of data, you may be increasingly exposed to cyber liability risks. We will likely suggest you purchase cyber liability insurance or at least have a plan in place to manage the range of attacks that can occur. Also think about your accounting systems and the staff as any changes may make your company more susceptible to employee theft losses.
7. Is your company operating in any new locations?
For example, suppose your company has opened a new office in another state. Any new locations should be listed on your policies as rates vary from state to state along with government charges such as stamp duty and workers compensation laws.
8. Have you factored in changes to government regulations that may leave you exposed to Statutory Risk?
We are being increasingly regulated for all our activities with the biggest changes being in the workplace, health and safety area and the Fair Work Act along with other Australian Consumer Laws. Many of these risks can be incorporated within a Management Liability cover, which also provides protection to individual directors and officers for their personal liability. Do you have a Management Liability or Statutory Liability cover in place?
9. Is your business any more or less vulnerable to a business income or interruption loss?
If your premises are damaged by a fire or other peril, are you able to still generate a similar income as before? If not, how long will it be before you return to your normal levels of income? We always recommend including Business Interruption cover to our clients to cover the loss in gross profit, or the extra cost to keep working. These figures need to be adjusted each year to allow for future growth. Sometimes it could be a neighbouring business that is affected but as a result they cannot get to yours. Even a fire and perils loss to a major customer or supplier can affect your earnings. All make you more susceptible to a large loss in cash flow. How will your business be able to cope with this going forward?
10. Do you expect to increase or reduce your workforce?
Workers compensation premiums are based on payroll, as are some liability premiums. While we are unable to handle Workers Compensation in all states, your renewal declaration should be based on an accurate projection of your expected payroll for the next period of coverage.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Robert Cooper.