A fire is a beautiful thing, it brings warmth, comfort, relaxation and can be used to provide nourishment when properly controlled. When a fire gets out of control it can become damaging and can result is millions of dollars in damage and even death. Today, a block on Queen Street West went up in flames – luckily there were no injuries or deaths. The owner of Duke’s Cycle, Gary Duke was interviewed on the air discussing the loss and how he wasn’t certain how his insurance would compensate him for his loss – saying he would have to mortgage his home. If properly insured, he would have nothing to worry about.
On my website I have a short article listing the basics about a business insurance policy (Business insurance 1-2-3). Building on this, let’s look at some aspects of a business insurance policy for a retail store that would react in this scenario.
Issue 1: Fire Damage
The building and stock is damaged by a hostile fire. A hostile fire is a fire that has escaped its normal habitat – i.e. the flame leaps from the fireplace and sets the couch ablaze. It’s normal habitat is the fireplace.
The main issue that will arise for Duke’s Cycle will be the co-insurance clause. Did his broker ensure that the building limits were adequately insured for (usually the companies require him to have insurance for at least 90% of value)?
Did his broker ensure that the stock levels were adequate for the time of year (Many policies has a peak season increase in stock values – about 25% – that helps with the co-insurance during those periods where stock values are higher).
Did the company accept the advice of the broker to ensure for the proper levels of stock?
Issue 2: Loss of Business
Mr. Duke mentioned concern about loss of business when he was interviewed on the air. It is true that he will lose business in the short term but his insurance policy (if properly structured) would react to this as well.
Business Interruption insurance comes in many forms. In the case of a retail store like Duke’s, the appropriate form of business interruption would be the Profits form. This form of business interruption will assist the company in 2 key ways:
- Financial support until the doors open again
- Financial support for a period of 12 months after (some may be 24 months) the doors open.
A useful tool – it will enable the business to stay afloat during this period of upheaval and maintain their customer base.
While there are many more aspects of the insurance policy that will be working for a business owner who suffer this kind of loss, if the coverage is put in place, the insurance will work for you.
The value of your insurance policy will be ultimately reflected on how well it is put together, the insurance company you and your broker choose and ultimately it begins with the broker that you choose.
Look around and see that fires happen, product recalls happen – Don’t be the one who loses their business because you wanted to save a bit of money by cutting out a key coverage – because we all know that “it will never happen to me”.