With insurance, the devil can be in the detail

Insurance is an increasingly specialist business. Cover should be tailored to circumstances so that everything necessary is protected, but also take into consideration what should be left out.

Getting your broker or agent to steer you through a review, rather than simply renewing, should ensure that the right information goes to the insurer.

Fire claims are more likely at poultry businesses than other farms because of the use of timber and insulating materials which are often non-fire retardant, says Tom Forster of broker Farmers & Mercantile, Northampton. Many older buildings incorporate polystyrene or foam filler insulation, which burns easily and quickly.

“Full disclosure of building construction is vital to ensure claims are not avoided by an insurer – if they don’t know about the materials, they will assume standard steel and concrete construction and so may not pay the claim. Photos of the buildings are always useful, and exact details of the insulating material should be disclosed.

“If the buildings are heated, this raises the risk. Buildings should be spread out as much as possible to avoid a complete loss. Electrical and heating installations should be regularly inspected and maintained, and you should demonstrate good practice and records in all legislative and business areas.”

Premiums can be reduced by taking on some of the risk yourself. “Consider whether storm damage cover is really necessary, because it roughly doubles the cost of buildings insurance,” says Mr Forster.

“If you reckon on having a bad storm every 10 years or so, you might be better off maintaining your buildings well rather than spending that money on premiums”.

Any buildings which are unlikely to be replaced after a loss may not need to be insured. However, putting vehicles on third party, fire and theft cover will not usually save much in premiums, nor will increased excesses, says Mr Forster. But, he advises: “Never leave out cover where the loss is unquantifiable, for example, liability cover.”

Product liability cover usually comes as standard with public liability insurance. Here too, insurers will be interested in how the business is run and how risk is reduced. While public and product liability are not legal requirements, they are strongly advised to protect the business. Motor and employer’s liability are the only compulsory cover required.

Underinsurance is a common problem and often misunderstood, says Mr Forster. Essentially, if an asset is only insured for 80% of its value, then the insurer will only pay 80% of a claim.

Policyholders often underestimate rebuilding costs, especially if they have not had construction work done for many years. Demolition and debris removal costs have increased significantly in recent years, especially where asbestos is involved.

Business protection insurance gives rise to most claims for NFU Mutual agent Matthew Price, from Ross on Wye. This is sometimes called income or revenue protection, business interruption or consequential loss cover and protects loss of income if something happens to buildings or livestock.

Common causes of claims are machinery breakdown such as feeder or drinker problems, and electrical breakdown leading to heat stress losses.

“Those who suffer a serious loss and don’t have this type of cover often cannot start up again,” says Mr Price.

“Producers also need to be aware of production contract terms. For example, it may be a requirement that they have income protection cover even if they don’t have title to the birds. Income cover can also include a customer and supplier extension so that if your feed mill or abattoir suffers an insured event, your business is covered for the consequential loss.”

When setting up income protection, think carefully about amounts and timescales, says Mr Forster. “Standard cover would usually be 12 months, but it often takes much longer to get back into production after a complete loss. Consider also whether to cover the cost of fixed working expenses such as wages so that you do not lose staff.”

It is vital to keep insurers updated through the year. While few producers would forget to insure new vehicles, they should also notify insurers about changes to production programmes, bird numbers, or other expansion, contraction or material changes, says Mr Price.

Everyone should understand the terms of cover. All insurance puts a general duty on policyholders to reduce risk. Some are more specific.

“Our policies have an electrical inspection warranty requiring an inspection at least once a year by a qualified electrician. If a policyholder fails to carry this out, there could be a problem if a claim arises. We would also expect all commercial producers to have a backup generator to cover power failures,” says Mr Price.

Salmonella is usually included under product liability cover for eggs. Cover for diseases such as avian flu and salmonella for the birds themselves is available but costly, so these risks are usually managed through good health and disease control policies.