Finance Focus: Are you properly insured?

One in five businesses suffer a major disruption every year. A fire, flood, burglary or other major event will have a catastrophic impact - especially if your insurance claim is not met completely. Many businesses fail within 18 months of a major loss because they have not been correctly insured.

Your business could face financial ruin and you could run in to serious problems, all because you are under-insured.

Most policies have an 'under-insurance clause' which means that if you insure your trade contents for £30,000 when the replacement as new cost should have been £60,000 and part of your premises burns down, you will be deemed to have been under-insured by 50 per cent and the final settlement of your claim could be reduced by half.

Why does under-insurance occur? A natural

reaction is for the proprietor of a business to use purchase cost (book value) as a basis for setting the sum insured. If you have purchased used items - fixtures, fittings and equipment from the previous owners of the pub, for example - the replacement 'as new' value will be considerably higher than the price paid. You should therefore carry out a full inventory.

Another potential time for things to go wrong may be at the renewal stage when the sums insured are not checked to make sure they are adequate. What about any new equipment purchased during the year? All of this should be taken into account when proceeding with a renewal.

The effect damage can have on your business can be traumatic enough, but without the correct level of cover the losses you could face can make the difference between a swift resumption of trade and permanent closure.

Once you have assessed the correct sum insured to replace the trade contents or the rebuilding costs you will need to look at what options are available.

A tailored package will normally include:

• Business interruption. Loss of income can have a serious effect on your pub's survival
• Glass replacement
• Employer's liability up to £10m. If an employee is accidentally injured during the course of your business activities and negligence is proved, this protection is a legal requirement. An employer's liability certificate must be kept on display by law or heavy fines will result
• Public and products liability up to £5m. Given the nature of the business, and the number of people visiting, you need to be aware that they might suffer injury while they are in your pub and bring claims against you or the business
• Health and safety at work costs
• Loss of licence
• Legal expenses up to £100,000, including tax and VAT disputes
• Refrigerated stock.

You should also check that your policy contains a round-the-clock claims helpline service, including 24-hour glass replacement in case emergency repairs need to be undertaken.

Ross Edgar is sales manager of insurance broker Morgan Richardson, which devised the 100% Proof insurance package and insures thousands of businesses across the UK​