Have you been joining many other UK businesses in stockpiling imported goods ahead of a hard or uncertain Brexit? If so, or if you are currently considering it, aside from the practicalities, financial impact and logistics you’ll need to navigate, there is something else of vital importance that you must consider: the issue of insurance.
Stockpiling is a major undertaking for any business of any size. As well as the demands placed on capital both stock and storage wise, it alters the financial risks of the company. With so much working capital tied up in stock, there is the potential to lose competitive edge. Should demand fall, cashflow could suffer significantly. If the additional outlay cannot be recouped, this could have disastrous consequences.
There is however an even greater risk to any business engaging in stockpiling, and that is that the strategy itself may invalidate part of or even all of its insurance cover.
The Importance of Checking Sums Insured
Companies considering a stockpiling strategy need to make sure that the increase in stock value falls in line with their sums insured, as well as with the conditions set out in their insurance policy. Exceeding set limits or warranty conditions could lead to policies being partially or completely invalidated.
Any business unintentionally wandering into an underinsured or non-insured loss could find itself in a very precarious position.
Understand the Average Condition
The application of the ‘average condition’ is another important factor. Most companies will understand that if their sum insured is not high enough, then they will not be awarded more than that amount in the event of a total loss. However, the crucial thing to appreciate is that the application of the average condition will mean that, if the sum insured is less than the value at risk at the time of the loss, then the claim will be reduced in the same proportion, even for partial losses.
For smaller claims the issue may not be so much of a problem. However, when there is a larger loss, the outcome could be serious enough to bring a business to its knees. Say for example your business insures its assets for £100,000, but the true value at risk is £200,000, then in the event of a claim for £50,000 the insurers will not pay more than £25,000, leaving you £25,000 out of pocket.
Whilst some policies include seasonal flexibility to cater for those times when stock held is naturally higher, these are usually limited to holiday periods or set times dictated by the individual trading records of the business. It should not be assumed that such flexibility will automatically apply to stockpiling for any other reason, including Brexit.
Safety and Security Considerations
A further potential insurance related problem around stockpiling is physical risk. Where will the additional stock be stored? Any blocking of fire escapes or sprinklers, or the creation of an unsafe working environment with boxes piled high, is likely to result in problems should a claim situation arise.
Additional security measures to meet the increased stock value may also be a cover requirement. Fresh risk assessments for health and safety, fire and security are a must in these situations.
A Simple Solution
The simple solution to ensure you do not find yourself faced with the prospect of being under or uninsured when engaging in stockpiling is to speak to your insurance broker. Check with them to make sure that stock values tally with your sums insured, and that the terms and conditions of your policies are not being breached.
If you are considering stockpiling during these times of political uncertainty, please be sure to talk to your personal contact here at Robert Gerrard for reassurance that you have adequate insurance cover. If you are seeking commercial cover of any kind, you are also most welcome to contact us for a tailored quotation.