When it comes to insuring business profits, there are many ways to do it via a whole catalogue of seemingly identical insurance policies all with very different names.

You will most readily come across the following terms:

• Business Interruption
• Increased Cost of Working
• Consequential Loss
• Loss of Profits
• Loss of Income
• Loss of Revenue

The exact definition of the above policies will differ from insurer to insurer though some are just older historical names that have now been replaced.

It is a bit strange however that in today’s insurance markets generally every term used has to be defined clearly and here we have several terms that appear to mean the same thing.

Where possible then I’ve tried to break down some of these…

Business Interruption

This would normally cover loss of Gross Profit following a reduction in Turnover resulting from, and occurring after, damage to an Insured property.

The Gross Profit indemnity enables a business to pay its fixed standing charges including payroll and recover its net profit during the Indemnity Period.

The Indemnity Period is selected by the policyholder and represents the period that it is believed will be required to return the business profit to normal following a loss.

These periods are normally 12, 18, 24 and 36 months.

Increased Cost of Working

Business Interruption policies also cover Increased Cost of Working: this may involve something like renting alternative premises whilst repairs are undertaken on the insured premises. This extension would be limited so that the costs incurred did not exceed the amount of loss that they were avoiding.

Extensions are also available to provide protection in the event of damage to customers or suppliers premises.

Consequential Loss

It would seem that this is the term that was used prior to Business Interruption becoming common place and has real no definition of its own.

This therefore leaves Loss of Profits, Loss of Income and Loss of Revenue which when researched all seem to offer the same cover as the other 3 but just have different titles.

So, I am now thinking that these must also be prior versions of Business Interruption.

Their titles would suggest that they all provide the same basic cover, possibly just with different terminology.

It seems that these duplicates are not uncommon in insurance but it would be very interesting to know how some of these evolved and when they were replaced with different names.

Do you know or have experience of these types of insurance?  Get in touch via the comments!

In the UK some types of insurance are legally compulsory for everyone.  Read on to learn more about what is required and what is not.

When do I need Insurance?

The purpose of taking out any insurance policy is to compensate you in the event of a loss so that you are in the same position financially after the loss as you were before it.   Insurance is not intended to make you better off in any way.

• You MUST have insurance where it is required by law;
• You SHOULD have insurance if an event might occur that would create a loss that you could not afford to fund yourself.
• In all other cases, happy days!

But some insurance is compulsory?

Yes.  There are currently 2 types of insurance cover that are required by law in the UK.

1. Motor Insurance

All drivers are required by law (under the Road Traffic Act of 1930) to have in force an insurance policy to cover their liability for bodily injury to or damage to third party property which arises from the use of a motor vehicle.

The cover does not have to be anything other than Third Party only although many policies are now arranged on a Third Party Fire and Theft and Fully Comprehensive basis.

2. Employers’ Liability

Employers Liability Insurance is required by law (under the Compulsory Insurance Act 1969) if you run a business to provide cover in the event that one of your employees is injured or becomes ill as a result of working for you.

Are there others?

No.  Many people believe that there are other types of legally mandatory insurance since they are often heavily encouraged to take out additional covers – but it is not the case.

• Banks will often sell Payment Protection Insurance to cover a loan that you take out with them.
• Credit card companies will often insist that card protection in case of fraud is essential, even though consumers are already heavily indemnified by card providers and banks already.
• Mortgage lenders will often insist on buildings insurance, life assurance and even critical illness payment protection.
• Landlords frequently request home contents cover insurance before a new rental agreement is signed.

Although less scrupulous organisations may imply or even say outright that certain insurances are legally required it is rarely the case.  This is a very topical discussion point at the moment in the UK with awards now being given to account holders who were mis-sold this type of cover in the belief that they had to have it.

Let us know if you have experienced this yourself in the comments!

Well why not?

It is the Diamond Jubilee after all;  it doesn’t happen every year!

On Tuesday 5 June 2012, The Queen will travel from Westminster Hall, the Palace of Westminster and then of course onto Buckingham Palace for tea and biscuits (?) as part of The Diamond Jubilee official procession.

We can expect parties will burst forth all over the UK (I know I’ve received plenty of invites already) and no doubt there will be raucous celebration of all types and variations.

But what about the risk I hear you splutter?  Are we at RiskHeads not concerned about such unbridled abandon?!  What if someone were hurt?

Of course we’re concerned!  …which is why we are inviting all insurers and fellow risk-heads to create a policy that caters for just such events.  No doubt some of you will already have something waiting in the wings, and here at RH we make it our job to know about it the moment it hits the streets.

So far we’ve seen a few liability policies very broadly casting their net over general events but nothing we’d like to call Her Majesty the Queen of England’s Official Diamond Jubilee Party Insurance Policy.  So, it’s time to clear this up.  Get cracking, send us your ideas and bullet proof cover for all types of royal fun situation, jubilee frolic-making and general diamond party goodness.

We might even make a list!

In this article we will be exploring the various types of Liability Insurance available.

Unlike most other insurances Liability cover does not cover a physical object such as a car or a house.

These types of insurance are arranged to protect the Insured from claims being made against them for injury to persons (employees or third parties) or damage to property.

It is very important to remember that the cover is on a ‘legal liability’ basis and that claims will only be paid if it is established that the Insured has been negligent and is therefore legally liable.

Employers Liability Insurance

This covers the Insured’s legal liability for bodily injury or disease to employees if caused during the period of insurance.

The policy also covers any legal costs and expenses.

Cover does not apply for injury or disease caused outside the UK except for UK based employees.

The normal Indemnity Limit (limit of cover) is £10,000,000 for any one occurrence and unlimited during the period of Insurance.

Premiums are normally based on Wage Roll with different rates applying depending on the type of work carried out by the employee.

Theis cover is required by law under the Employers Liability (Compulsory Insurance) Act 1969 for a minimum Indemnity Limit of £5,000,000

Public Liability Insurance

This covers the Insured’s legal liability for third party injury and damage to third part property arising from the business.

The policy also covers any legal costs and expenses.

Indemnity Limits are normally arranged for £2,000,000 £5,000,000 and £10,000,000 although higher limits are available.

The Indemnity Limit applies to any one occurrence and unlimited during the period of insurance.

Premiums can either be based on Wage Roll or more frequently the Turnover of the business with higher rates applying to more hazardous work.

Products Liability

This covers the Insured’s legal liability for accidental injury or damage to third part property caused by products supplied by the Insured.

The policy also covers any legal costs and expenses.

Indemnity Limits normally follow the Public Liability cover but it is important to note that this limit whilst applying to any one accident also applies in the aggregate meaning that this is the policies overall cover limit – it is not unlimited in the period of insurance as with Employers and Public Liability Insurance

Premiums can either be based on Wage Roll or more frequently the Turnover of the business with higher rates applying to more hazardous work.

Geographical Limits also normally apply depending on where products are exported to with much higher rates applying to the USA element in view of very high court awards that can be made under their legislation.

Excess Liability

This type of cover is only available for Public and Products Liability.

These policies will provide very high Indemnity Limits such as £20,000,000 and will only make any payment when the cover under the main insurance(often called the primary layer) has been exhausted.

An individual Insurer may not wish to cover such a high Indemnity Limit under a single policy so this enables the much bigger risks to be shared between several Insurers.

The exact definition of GWP “Gross Written Premium” is often shrouded in mystery.

Recently I needed to use a projected Premium Income figure and after many Google searches I failed to find the same definition across many sites; this is clearly a bit of a grey area, which I thought over at RiskHeads we could do some work to clear up.

It would be great to hear from any Brokers or Insurers regarding the definitions that they currently use as this does seem to vary depending on where you sit in the selling chain.

My initial thoughts were that we were looking for a figure that fully reflected the Income of an Insurer or Broker.

Gross Premium including Policy Fees and IPT?

On this basis I thought that Gross Premium including Policy Fees and IPT would be a good base point as it represents the Total Premium that the policyholder actually pays for the insurance.

It was fairly quickly pointed out that neither Brokers or Insurers would ever include IPT in this calculation as they only collect the tax and pass this on to the government – it is not income as far as either are concerned.

This seems to make sense but I wonder how a Broker then values his book of business?

In some ways Premium including IPT and Policy Fee would be a true reflection of the companies Turnover as it’s the income derived from their activities.

I am tending to think now that IPT is clearly not an item that should be included simply because it is not retained by either party.

Gross Premium including Policy Fees but excluding IPT?

This then raises the issue of whether Policy Fees should be included in the calculation.

These are direct income to the Broker but not to the Insurer so are we now looking at the definition being different for a Broker and an Insurer?

My feelings on this are that any Policy Fees are actual income which is kept and from a Brokers perspective they should be included.

This would then suggest that the value of the same contract is more to the Broker than the Insurer as they will not be ware what Policy Fees are being charged.

I have had some feedback that Policy Fees should also be excluded.

Having thought this through I wondered what would happen then if a Broker was rebating all of their Commission and was working for a higher fee than normal to the Client.

Surely this could not be excluded as the Policy Fee being collected is part of the payment, all of which is retained?

If it were excluded would this then not mean that the value of the contact was understated and where would the Policy Fees ever be represented in Turnover?

Conclusions – Agree?

At present I think my conclusion is that a correct definition for a Broker is Total Premium after any underwriting discounts, including Policy Fees but excluding IPT.

For an Insurer even though they were looking at the same contract their definition would be different and would be Total Premium after any underwriting discounts, excluding Policy Fees and IPT so that they can accurately assess loss ratios of Premium versus Claims.

I am sure there are many different opinions available and I would very much like to receive these and to create a general discussion on this rather cloudy issue.

Commercial Insurance policyholders may at some point face an Insurer survey of their premises so I thought I would explain why these are necessary and how the procedure works.

Why have Insurers requested a survey of my premises ?

These are normally requested when taking out a new policy with an Insurer if you have high sums insured or the premises are situated in a high risk flood or crime area.

They may also be requested due to the construction of the premises or if there have been a number of recent claims.

Most facilities that Brokers have available to them will have automatic Survey trigger points based on the cover requested, history etc so its important to remember that you are not being selected specifically or targeted for closer inspection.

Insurers maintain the right to Survey any premises at any time during the period of the policy.

How is the Survey arranged ?

If your policy is arranged via a Broker they will ask you for a contact that the Insurers Surveyor can use, this may be the site Manager or owner of the premises.

These details are then passed on to the Surveyor who will make contact with you to arrange an appointment to visit the premises.

What happens during the Survey ?

The Surveyor will carry out a full inspection the premises and consider many aspects such as type of construction, security (both physical and alarm systems), look at storage procedures of hazardous goods, consider Health and Safety issues and will also ask you to provide details of Electrical Testing and Portable Appliance Testing that has been carried out in accordance with statutory regulations.

Some surveyors will invite you to join them during the survey so that they can discuss any issues with you on site.

What happens after the Survey ?

The Surveyor will draw up a full report including photographs and forward this to the main Insurers office.

This will be reviewed by the Insurer and any additional comments added. This is then despatched to your Broker.

Your Broker will then write to you with details of the report and highlight any areas of concern.

The report may contain Recommendations (do not have to be done) and Requirements (must be done) that need to be implemented.

Recommendations are exactly that, e.g. possibly upgrading locks, alarm signalling or arranging Health and Safety Inspections.

Requirements may be of many types, such as compulsory upgrades to alarm systems if existing systems are felt inadequate, maintenance of the building such as roof repairs, improved storage required for hazardous goods and any issues that have arisen which might effect Health and safety issues such as slip and trip risk areas.

Each Requirement will have a completion date associated with it – the required work or upgrade must be made within this period.

These can range from immediate, to 7 days although 30 days is probably the most common.

What will happen if I do not complete the requirements ?

If evidence can be provided that the work is underway but has not been completed as you are awaiting trades people to attend then extensions will often be granted.

Insurers have a number of options open to them if continued non-compliance occurs such as increasing policy excesses, restricting cover, applying Co Insurance Clauses and ultimately cancellation of the policy.

Cancellation would be rare, the important thing is to contact your Broker if there are issues in meeting the requirements rather than ignoring them.

I am sure that many of us have seen reference to this in the news lately thanks in the most part to the efforts of the Home Secretary Jack Straw to get this practice outlawed.

So what is the ‘Dirty Secret’ ?

This is making reference to a practice which has been around for a number of years whereby, without the prior agreement of policyholders, insurers sell details of your data to Third Party Recovery Solicitors and other similar types of organisations.

These details are sold for anything from £200 to £1,000 per case.

It is currently estimated that this growing industry is worth at least £175 million.

These companies then use this data to contact the individuals to try to convince them to make a claim, normally for bodily injury that they may not have previously considered.

Why would Insurers do this ?

The only conclusion to this seems to be to generate short term profit based on increased investment income.

Will this practice ultimately increase our premiums ?

Yes beyond any doubt it will.

Additional claims, especially on motor insurance, will always equal increased premiums.

So, by actively encouraging more claims to be pursued, more will be paid out and ultimately premiums will rise.

To an extent then Insurers cannot lose in this practice, they generate additional income by selling the data and cover any increased claims they incur by increasing premiums.

How much difference has this made to the amount of claims being paid ?

Jack Straw quoted that the cost of personal injury claims had doubled to £14 billion in just 10 years.

‘This is Money’ has reported that the UK is now the whiplash capital of Europe and premiums have risen by as much as 40% in just one year.

How do these Third Parties make contact with us ?

Normally by continuous phone calls although texting has becoming increasingly common.

I personally have had experience of this following an accident that I was involved in a couple of years ago.

The call came long after the claim had been settled as non fault on my part so I had no idea who these people were.

They asked if I had considered making a claim for personal injury and that they could take the case on for me on a no win no fee basis.

They were a bit surprised when I told them that I was not actually in the car at the time as it was hit whilst parked !

Clearly this same data is sold to multiple companies as I have since have other call from companies offering the same service, it seems there is no way to find out who your details have been sold to.

Are there any plans to do anything about this ?

The Home Secretary is trying to push for firmer regulation in this area but at present most Insurers are continuing the practice.

This move also has the support of the Association of British Insurers so we can but hope that this comes to an end sooner rather than later.

“The punters here like to get fifties near the end of the day. They go straight from the shop to the casino when we close.”
Claire H., Betting Shop Cashier

It’s funny how many bankers go straight from the bank to bars and casinos straight after work; how many of them are addicted to the rush or the booze, just as Claire’s customers at the betting shop can’t escape the constant sprint of the horses or spin of the wheel. We’re going to use a simple story to uncover the startling similarities between many banking activities and gambling and the even more shocking way that insurance firms tilt the wheel in their favour. It’s not the flaws of the individual that are to blame, but that of the system.

Blaming Individuals Overlooks The System

“I was 25 years old. I should have turned round and asked for advice, but I didn’t. It was the most embarrassing period of my life and the only person who did anything criminal was me.”
Nick Leeson – Former Rogue Trader

Superstar rogue traders such as Nick often gain great media coverage and attention. It’s easy to blame an individual, to believe that it’s not the Bank that’s rotten but that one person. To do so overlooks the vast opportunity to gamble and be corrupt that exists within the banking system. Much of it is only possible because the public is willing to overlook these flaws.

Imagine your family believe you have vast knowledge of horse racing and a system guaranteed to win – indefinitely and no matter how much risk you take with their money. Not only will you gamble their money but you will borrow additional funds to gamble on these races. Imagine you believe in your system and truly think it will return huge amounts so the more money you can borrow or achieve through investment from your family the more wealth you will accumulate both for you and them.

Now let’s imagine all the loans you took out to fund this system were secured from the employers of your family. They have made so much from your system that they are now hugely over-extended in lending and investing in you. Then, unexpectedly, you have a run of losing horses. The system has always worked, you’ve always won, there’s enough money left to follow it one more day (and risk having nothing left and huge loan balances as well as busting your investors and creditors) or you can just quit now and be down a lot anyway. If the system is right, however, everyone will be rich and nobody will know. Can you turn down taking one more spin? That’s the dilemma of the star trader who’s gambling system has been turned against by the markets it once crushed.

How About The Bail Out

Now it seems irrational that faced with these reckless gamblers who have torn down the economy and left us facing joblessness that we would agree to bail them out. However think of the day when your employer writes to you and admits that because of the huge lending to this once invincible scheme that you would need to assist this bail out funded by 5% pay cuts (think what the government is doing now with cuts to fund the bail out) or simply the firm will fail and you’ll be out of a job. Can you turn down that choice or do you go along with the cuts and save your job?

Now the bankers can gamble, borrow and know that if it all goes wrong they won’t be the ones paying it back – they’re too big to fail after all. Does it worry you that the money used in the bail out is going back into the same system that has already failed you?

The Insurers Are The Casino, We Are the Punters

“Yes. Ask your doctor, and ask him for more drugs. That should keep you pretty doped up until it’s time to retire. D-did I say retire?”
Michael Moore – Sicko

The problem with insurance is that the firms involved have the same huge incentives to gamble and borrow in our names. The same possibilities for corruption. Insurance is simply a bet between two parties. You bet each month that you will need some hospital care soon, the health insurer bets a lot of money that you don’t. This continues each month until you either need some care or the bet ends (the end of the term or if you cancel the policy). We’re using health insurance as an example but the same could apply from anything to life insurance to Mazda Bongo insurance.

This is all fine until we understand that those who assess the winners and losers in this bet are the insurers themselves. When looking at extremely complicated terms and conditions these insurers employ specialist Doctors who get huge bonuses for helping the insurers in not paying out claims. It’s like the old ‘snatch’ dealers of the gangster era of Las Vegas – robbing punters blind while they thought they were having a fair game of cards. Sadly this outcome results in deaths not simply a loss of money as innocent people are declined their medical claims on a technicality – like a punter who watches their horse win only to be told the jockey has been disqualified for being a fraction under-weight.

To make it even more interesting, insurance companies invest (gamble) with any money they take in premiums to try to make even more money. When they lose there can be disastrous consequences to policy holders.
Of course, having a mentality or personality which is naturally inclined to gamble and seek risks doesn’t mean you are a bad person. In fact, anyone can be afflicted by the same feelings and make the same choices, just in a different context. This is by no means trivialising how serious the actions of some professionals can be but it’s important to note that plenty of people are making similar choices on a daily basis in different environments.

Change Is Essential

Wherever greed is strong and the power of money over the system is absolute as it is in banking and insurance there is huge pressure for the whole system to become corrupt. A belief in itself unjustified by performance and where every bet is rigged so the real risk falls on the public is not one that is fair or should be supported.

I decided to research and write about this subject as a friend of mine has recently had an accident on his motorcycle; fortunately nothing major but not nice all the same.

I was surprised to hear a few days ago that he is now in a terrible position as his bike is being written off by Insurers and the suggested settlement figure he has been offered will not clear the outstanding finance he originally took out to purchase the bike.

This got me to thinking that this must happen quite a lot and is there insurance out there somewhere that will protect the shortfall. …It turns out this is called GAP Insurance!

So, let’s break it down like this…

1. What does GAP stand for?
2. When should I consider taking out GAP Insurance?
3. What types of GAP insurance are available?

What does GAP stand for?

GAP stands for Guaranteed Asset Protection.

When should I consider taking out GAP Insurance?

If you have purchased your vehicle using a personal loan, lease the vehicle or purchased it with cash you should seriously consider taking out some additional protection as you will almost certainly be in a negative equity situation until you have paid off a substantial amount of the agreement.

Vehicle values depreciate at an alarming rate, starting from the very moment you drive off of a forecourt.

A new vehicle is likely to be worth only around 40% of its original list price within 3 years of ownership.

Insurance companies are writing off more cars than ever due to the high cost of repairs and modern materials used.

When a write-off occurs you are responsible for any financial shortfall, not your motor insurer.

What types of GAP insurance are available?

There are two main types of protection available:

1. Lease or Finance GAP
In the event of your vehicle being declared a write-off by your motor insurers because of theft or an accident, there may be a shortfall between the vehicle’s current market value and the value required by the lease/finance company to settle the lease/finance agreement.

There could be a significant shortfall depending on the rate at which your vehicle has depreciated and the period that is remaining on the lease or finance agreement.

You will be held responsible for this shortfall by the companies involved.

GAP insurance would cover this shortfall for you as shown in the following example.

A vehicle is purchased for £18,335. 15 months later the vehicle is written off. The motor insurer settles £11,250 but the customer still owes the Lease or Finance company £13,175.

The GAP policy will pay the £1,925 shortfall direct to the Lease or Finance Company so that the agreement can be closed.

2. Protection if you purchase a new vehicle for cash
In the event of a write off Vehicle Replacement Insurance will cover the difference between your motor insurance payout and the cost of replacing your vehicle to the exact specification, even if the price of the new replacement car has increased. This is not available for used cars or any on contract hire or finance lease.

This type of GAP insurance is also known as Return to Invoice.

In this scenario if you purchased a vehicle for £15,000 and paid cash and the vehicle was later written off with a settlement figure of £12,750 from your motor insurers the policy would reimburse the shortfall amount of £2,250 to allow you to replace the vehicle with the same specification as the original.

I imagine our initial thoughts to all of this are that this will not happen to me, but you may want to consider the following alarming facts before dismissing this type of protection:

• Over 200,000 cars are stolen every year and only 60% are recovered.
• Around 500,000 vehicles are involved in serious accidents every year.
• UK vehicle crime is now one third of all crime.
• Your insurers will value your vehicle at the time of a claim, the offer they make will always be less than the price you paid.
• Vehicles depreciate from the moment you purchase them.
• A 3 year old vehicle may have lost as much as 60% of its value.

Do you have Gap Insurance? What are your impressions of this type of cover? Are you a GAP insurer? Let us know, we’d like to hear from you! Add a comment below!

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