Finding the right cover13th November 2013
Finding the right insurance for your business can be an expensive and time consuming process. Many insurers don’t understand our business and those policy documents can be a contractual nightmare. Help may be at hand.
Many will remember the problems in the UK a few years back when air conditioning and refrigeration contracting companies were suddenly finding their insurance premiums going through the roof or, in worst cases, finding overnight that their insurer was no longer willing to provide cover.
It was so bad that some perfectly respectable businesses found themselves trading illegally through lack of cover.
Much of the problem was caused by insurers not understanding the business and categorising the acr contractor with other dissimilar trades like plumbing. Thankfully, the situation has since improved largely due to the provision of specialist schemes but there are still a number of pitfalls to avoid.
While certain insurance like employer liability is mandatory, other insurance just makes plain common sense in order to protect your business.
“Insurance can be extremely important for contractors,” says Andy Chibeba of specialist broker First Insurance Solutions. “Large losses coupled with inadequate or poorly advised cover can cause your business to ultimately be left holding expensive rectification and damage bills. It is important to get the right advice and to take out adequate cover to protect your business from these uncertain and unpredictable events.”
The acr Industry can be susceptible to very large losses arising from escapes of refrigerant or cooling fluids, deterioration of stock following system failure and overheating of computer systems, not to mention fires started due to hot works onsite.
“The premium you are paying is influenced by lots of factors but using a specialist broker can save you considerable money on your premium,” insists Andy Chibeba. “The characteristics of plumbers and air conditioning and refrigeration engineers are inherently different.”
A specialist insurance provider should have sufficient knowledge of your industry as well as specific knowledge of the right insurance markets to allow the right policy and cover to be arranged at the best price.
“The consequences of holding inadequate cover or on an incorrect basis can be as severe as invalidating your insurance policy entirely,” Andy Chibeba continues. “It is widely perceived that Insurance companies will try to absolve themselves of liability and claims payouts where possible, and by taking out the wrong cover or on the wrong basis you, the policyholder, are just giving them greater leverage for reducing or walking away from potential claims payments. This in turn means that these expensive bills for damage caused or defence costs for litigation taken against you or your business will ultimately now be passed directly to you for payment.
“It is not uncommon for a business to be folded after a catastrophic loss due to the fact that the insurance payout was either insufficient or the delay on payment crippled the businesses cash flow, or that the damage done through loss of the contract and reputation was to great on the business.”
An insurance policy is a legal contract made up of several distinct and significant sections and can be a daunting document to the layman.
“While it is not expected that you as a layman should understand this contract it is crucial that your broker/advisor understands fully how a policy is made up, as only with this understanding combined with an understanding of your business and what you do can it be foreseen how the cover will respond in the event of a loss arising.”
According to First Insurance Solution, the key areas of a policy are:-
In essence this sets out when the policy will work – and as far as most are concerned what the policy is actually covering. A key part of this would be the trade description. For example if you are listed as an air conditioning installation engineer – this is a narrow description and will potentially not cover any work servicing an existing air conditioning system, it also will not cover any other works such as work on a refrigerator in a pub.
All policies will have exclusions such as a hazardous locations clause which will typically remove cover for work on airports, quarries, petrochemical plants, power stations, etc. Use of hot works equipment may also be listed as an exclusion on certain policies.
As well as the policy wording each policy will also have a policy schedule, and on this will be listed the covers as well as the conditions and warranties which apply to the cover. These conditions and warranties restrict the cover and a breach of them will potentially invalidate the cover.
A typical example of a condition could be a height limit “All liability is excluded if the policyholder is working at a height above 10m”.
“This type of clause would be too restrictive for most air conditioning contractors to be able to comply with,” says Andy Chibeba. “If you are undertaking the task of sourcing your insurance yourself, ie online, then you are pretty much on your own in wading through the complexities of the policy wording. In the event that a loss arises it will be policyholder v insurer.
“If you are utilising the services of an Insurance broker or advisor they have certain duties to be highlighting to you significant areas and exclusions within the cover, you also get the added protection that they should assist you in the event of a claim arising.
“It would be wise to try and use a specialist broker who understands your business and the processes you are using as well as the intricacies of the covers required and the details and specifics of the policy wordings. An independent broker will also be able to carry out a market exercise for you, to obtain the right cover at the best price.”
Andy Chibeba maintains that specialist polices are worth having as they tailor the cover to the work being undertaken rather than going for a one size fits all approach.
These specialist policies can include the following:
Damage to property being worked upon. Covers for the actual system or item being worked upon, ie damage to the actual existing air conditioning system you are servicing/maintaining
Pure financial loss cover. Cover for loss of business claims from your customers due to closure of their business arising from something you have done
Failure to perform/fulfil function. Refrigeration system fails to operate resulting in potential food poisoning and/or deterioration of stock claims
Cover to work on the right premises (domestic/commercial and industrial). Being aware of what an insurer defines as industrial (it often includes schools, hospitals etc)
Professional indemnity. Cover for rectification from errors and omissions including design and specifications drawn up by you
Certification. Liability arising from issuing commissioning and energy efficiency paperwork and certificates