Don't judge a pub by its cover

When it comes to insurance, it pays to be informed. Graham Ridout reports on how to get the right policy for your premises

For many, insurance is considered a necessary evil, but also something that they are prepared to take a gamble on, especially when it comes to the amount of cover that they select for their business. 'It's amazing the number of people who are willing to risk bankruptcy all for the sake of saving £300 or £400 on their insurance premium,' says Robert Cooper, manager of SP Innplan - the insurance division of property agent Sidney Phillips.

Cooper says the problem is most acute with newcomers to the trade. 'It's awful to see someone new to the trade go under because they were underprepared and underinsured. They may have paid a pubco £15,000-£20,000 to get the pub in the first place. They then have rent on top of that as well as general repairs, which means many have little spare cash. So if they have to pay out, say £10,000, because they are underinsured, it is going to make a massive hole in their business plan and could put them out of business.'

Don't risk being underinsured

Cooper says tenants and lessees are most likely to underinsure themselves for fixtures and fittings. He advises: 'You must have a new-for-old replacement policy. Too often there is a tendency to insure fixtures and fittings for the amount stated in the lease or tenancy. We always tell people to multiply that figure by two-and-a-half or three to get the real replacement value.'

Cooper suggests hosts should commission thorough building and contents valuations before taking out insurance. 'We labour the point that replacing equipment, particularly in the kitchen, can be very expensive. We lose business because we are assiduous in telling people the cover they need, but there are always those who are prepared to take the risk.' He also advises that insurance companies should be notified of anything that changes the nature of the business, such as installing a bouncy castle, or holding special events.

No insurance is a poor option

Tony Payne, chief executive of the Federation of Licensed Victuallers Associations, is another who believes many premises to be underinsured, and knows that some are not insured at all. Over recent years, Payne has learned of uninsured licensees who have been hit by claims resulting from damage to clothing from sparks from a bonfire to people suing having slipped in the toilet because the lights were either not switched on or the bulb had blown.

Even those with insurance aren't free from risk. Payne explains: 'If you have a burglar alarm, many insurance companies insist that it is serviced by an authorised people once a year, otherwise you are uninsured. Also, insurers will not pay out for 'burglaries' if there are no signs of forced entry or exit. How often do you see cleaners come in during the morning and leave the doors open? Also, you are uninsured if you haven't locked the upstairs flat or put the takings in a safe.'

Payne says the growing list of regulatory controls means licensees must carry out the proper procedures to ensure that they do not fall foul of exclusions in their insurance. He cites hygiene, health and safety issues plus the requirement that all but minor electrical work must now be carried out by a qualified person as examples of where care must be taken. 'You have to show that employees have been trained and you have carried out a risk assessment and done everything to prevent anything happening or insurers will find a way of not paying,' he adds

Brendan Whelan, who runs the Black Bull at Folkestone, in Kent, advises fellow licensees to shop around for quotes. Whelan has extended the children's play activities at the pub and initially had a quote of £600 for the bouncy castle in the garden. He managed to halve this, but warns: 'We are very careful to inform the insurers of any alterations to our children's play area and also make sure employees are properly briefed on all aspects of health and safety.'

Trapped by the clause

Consider a licensee owning a business worth £300,000 where a fire causes £180,000 of damage. The licensee specified £300,000 as insurance cover for rebuilding. However, his insurers say he is underinsured because the true reinstatement cost is £600,000. Under the 'average' clause, the £300,000 stated will cover just half the true value, so the insurer will pay just half of any valid claim. The licensee will receive just £90,000, a shortfall of £90,000 to make good on the damage.

SP Innplan says if a bank won't lend the money then selling up may be the only option.

Inclusion or exclusion policies

There are generally two types of policies available. Exclusion policies are the easiest to understand as they list items not covered. Inclusion policies list the items covered. Licensees contemplating an inclusion policy should make a list of all items they want covered and ensure that they are included.

Check carefully all of the items on an inclusion policy because some may not be necessary. This should reduce the insurance premium payable.

Before committing yourself, FLVA chief executive Tony Payne advises: 'Buy a magnifying glass and read the small print in the policy to see exactly what you are covered for.'