Property Coverage for Businesses with Changing Needs
Some businesses have very stable property insurance needs as the value of their non-building assets, equipment and inventory doesn't vary much during the year.
Other types of business experience wide variations in the value of their property. Florists tend to carry more stock around Valentine's Day and Mothers' Day than they do on most days of the year. Many retailers earn most of their profits during the holiday shopping season, so they keep larger amounts of stock on hand during that period.
Warehouses and manufacturers may have variable amounts of product on their premises with vastly different values. Depending on the flow of orders, the value of their stock may change greatly from month to month, or even more frequently.
A traditional property insurance policy will not meet the needs of businesses like these. To secure enough coverage, they would have to buy an amount large enough to cover those times when values are at their peak. But, for much of the year that would leave them paying for more insurance than they need.
Businesses in this situation may want to consider two coverage options:
Peak season coverage - This coverage is appropriate for firms that can predict those periods when their values will increase. Examples are florists, toy, electronics and clothing retailers during the holiday season, school supply stores in late summer, and costume shops in October.
The coverage form states the location and type of the property, the amount of additional insurance, and the period during which the higher amount applies. For example, it might show that insurance on goods for sale will increase by $100,000 from Oct. 1 to Jan. 1. This gives the business plenty of coverage for the busy time, but saves it from having to pay for all that coverage the rest of the year.
Value-reporting coverage - This coverage is for those firms with asset and inventory values that fluctuate all year long. It requires the business to buy an amount of insurance large enough to take care of the peak periods.
But, the insurance company will charge a lower initial premium than that amount would ordinarily require. The firm then must make periodic reports of its values to the insurer. Depending on the option chosen, this will mean sending reports monthly, quarterly or once per year.
Again, depending on the chosen option, the reports can show values as of the end of each business day, week, month, quarter or year. After the firm has submitted all of its reports for the policy period, the insurance company determines the business's average values and calculates the final premium.
Firms that choose value-reporting coverage must take care to submit the required reports on time and accurately. The form gives the insurance company the right to reduce claim payments for losses to the property when reports are late.
The insurer can also reduce a loss payment if it finds that the policyholder underreported its values. The limit of insurance does not automatically increase if the reports show values higher than the limit; the firm must request an increase in coverage.
The takeaway
Any company with variable property values would be wise to consider purchasing one of these types of coverage. With some careful planning, a business can limit its insurance costs while still getting the coverage it needs. Call us if you have questions about this type of coverage or to discuss whether it's appropriate for your operations.
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