FOR INTERMEDIARIES ONLY

 

Calculating the correct sums insured

 
It's important our SME customers have the correct sums insured so they are fully protected in the event of a loss or damage.
The individual circumstances for each customer will vary; however, our guide covers most customer needs.
The sum insured for buildings must represent the full rebuilding cost of the property and not the market value. This should include:
Cost of materials
Labour costs
Professional fees, such as surveyors and architects
Site clearance/ removal of debris costs
Buildings sums insured should also include, but not be limited to, the following if the insured has responsibility for them:
  • tenants’ improvements
  • landlord’s fixtures and fittings
  • walls, gates and fences
  • fixed glass and sanitary ware
  • small outside buildings, annexes, gangways, conveniences and other small structures
  • extensions communicating with the buildings
  • roads, car parks, yards, paved areas, pavements and footpaths
  • security cameras and lights
  • fixed fuel oil tanks and fixed diesel tanks, piping, ducting, cables
  • wires and associated control gears and accessories and extending to the public mains.

The contents sum insured (excluding stock) should reflect the total value of:

  • machinery, plant and equipment;
  • furniture
  • shelving and racking; and
  • all other contents at the insured’s premises.

Stock items are the goods or products sold by a business in order to generate revenue. The stock sum insured should represent the value of all stock and materials in trade belonging to the insured, or for which they are responsible.

The stock sum insured should reflect the cost to the insured to replace the items and not the retail price.

When setting the sum insured, consideration should be given to the maximum value at risk during seasonal or other peak trading periods.

The gross profit sum insured is the amount by which the sum of the turnover, closing stock and work in progress exceeds the sum of the opening stock, work in progress and uninsured working expenses:


Turnover
+ Closing stock*
+ Work in progress*

*at end of financial year

(MINUS)

Uninsured working expenses
+ Opening stock**
+ Work in progress**

**at start of financial year

= GROSS PROFIT

Uninsured working expenses are costs or specified expenses that vary directly with the level of trading, i.e. they will decrease in direct proportion to the turnover in the event of a business interruption. As these costs will no longer be incurred as the turnover reduces, there is no need to reimburse them, and as such they are called ‘uninsured’ working expenses.

One major uninsured working expense for SMEs is purchases (raw materials, components, goods for re-sale) and may indeed be their only uninsured cost. However, other uninsured working expenses could include packing material, carriage (if charged on a unit cost basis), commissions, discounts allowed and bad debts.

Revenue or Loss of Income sums insured should simply reflect the turnover figure (total sales or fee income) for the indemnity period selected.
Loss of Rent sums insured should reflect the anticipated rental income of the indemnity period selected and take into account any forecast increase in rent received.
When calculating business interruption sums insured on an annual basis they must be increased accordingly if an indemnity period greater than 12 months is selected. In most circumstances, a minimum indemnity period of 24 months should be considered for SMEs to take into account:
Site clearance
Design and planning applications
Rebuild time
Replacement of plant and machinery
Sourcing stock
Rebuilding the customer and supplier base
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