ADVERTISEMENT FEATURE - Setting sums insured

Del Sharman, Underwriting Manager at Pound Gates Insurance Brokers, outlines the importance of maintaining adequate sums insured and explains how to approach this across the various areas of your nursery insurance policy.

In order for your insurance policy to operate effectively in the event of a claim it is essential to set your cover at the right level. This is important at the outset of your insurance but also regularly throughout the policy year and at each renewal. Certain events such as renovating the nursery, purchasing new equipment (including if you have received grant funding for the purchase) or an increase in occupancy levels or child numbers should also trigger a review of your sums insured.

Regularly reviewing your sums insured and insurance requirements will ensure that:

• Your business is adequately protected throughout the policy year
• A claim is less likely to be handled subject to the ‘Average’ clause (sometimes known as the under-insurance clause, this condition of your insurance cover requires that, where assets are insured for less than their full value, the insured will bear a proportion of the loss)
• You are paying the right level of premium (One of the guiding principles of insurance is to put you back in the position you were in prior to the loss. Over-insuring does not entitle you to recover more and potentially means you are paying more than you need to for your cover.)

When it comes to assessing your sum insured requirements the approach will vary between different areas of your policy cover as follows:-

Property Damage – Nursery Contents
You should establish exactly how much it would cost you to replace the entire contents of the nursery as new and insure for this amount. Do not forget to include the contents of any outbuildings (sheds, garages etc.) and any outside play equipment when setting the initial level of cover.

Property Damage – Buildings & Tenant’s Improvements
If you are responsible for insuring the building you occupy your sum insured should represent the current re-build value (not market value) and include an allowance for architects and surveyors fees, landlord’s fixtures and fittings, outbuildings, boundary walls, gates, fences, hedges, terraces, drives and footpaths. You should also make sure that you include the cost to replace any sunshades or canopies attached to the building.

Your insurance broker or insurance company will not be able to advise you on the appropriate sum insured to select for your building. Instead you should have the building valued by a quantity surveyor at least every 2-3 years to establish the appropriate rebuild cost.

If you are not responsible for insuring the building you should still consider whether you have made any improvements or additions to the property as tenant that you need to insure. These ‘Tenant’s Improvements’ would include things like kitchens, bathrooms, partition walls or outside structures (e.g. sunshades and canopies) that you have installed. These should be insured for the full cost of replacement in the event of a loss.

Business Interruption – Gross Fees
Knowing how to arrive at an adequate sum insured to protect gross fee income can be confusing.

To provide peace of mind some insurance providers, including ourselves, include a high standard umbrella limit which is more than adequate for most single site nurseries. However, even with this in-built level of protection it is still important to know how to approach calculating your annual gross to ensure your cover is adequate.

The formula below can be used to work out your anticipated gross fee income. This figure should then be adjusted to reflect for the forthcoming financial year / insurance period and to cater for things like inflation or anticipated business growth.

For example you may forecast that your business will grow by 15% during the next year. Inflation might be running at 5%. Taking into account these figures, the £390,000 Gross Fees figure shown in the example below would become an annual Gross Fees sum insured of £471,000 (rounded up).

Finally, you should adjust the annual gross fees sum insured to reflect your chosen indemnity period. The indemnity period represents the maximum period over which the business could be affected by the occurrence of loss or damage.

If you were to suffer a large claim, which interrupted or temporarily closed your business, how long would you anticipate the recovery of your business to its position just prior to the loss? Most insurance policies come with a standard indemnity period of 12 months; this means following a loss, your business would have to have completely recovered within 12 months.

The indemnity limit can normally be extended to 18 months, 24 months or even 36 months, should you require. If you select an indemnity period greater than 12 months, you will need to increase your annual gross fees sum insured to reflect this in accordance with the formula below.

Hopefully this article has given you a useful insight into approaching and reviewing your sums insured. For further guidance and advice you should contact your insurance broker or adviser.

For more information please and to talk to an expert contact our Early Years Business Support Team today on 0845 271 3262, visit www.poundgateschildcare.com or email childcare@poundgatesib.com.