This is a bit of a long subject, so I apologise for that. But this is really, REALLY important at the moment.
(Whilst I am aiming this at my Freelance Media clients, it can equally apply to anyone who is insuring equipment or assets that they own).
INDEMNITY INSURANCE – VS – NEW FOR OLD POLICIES
You can still get policies that provide ‘Indemnity’ cover. These policies put you back in the same financial position as you were immediately before the loss or damage to your kit occurred. In essence, these pay you back what the item was worth at the time of the loss, taking into account what you paid for it, its age, condition, depreciation and wear and tear.
Most comprehensive insurance policies are now written on a “New for Old” basis, as is MediaRoo’s Freelancer policy.
This is a good thing. It means that if your camera, sound recorder, or other piece of kit, is stolen or damaged beyond repair, then your insurance policy will pay for the cost to replace that item with a brand-new one, so you should be all good to go. If your particular model is no longer available new, then our Freelancer policy will usually replace it with the nearest equivalent model.
When you apply for, or renew, your business insurance policy with any insurer, there are some duties that are imposed on you in addition to the overriding duty to disclose Material Facts (facts that could influence an underwriter in accepting or rating your policy):
- Firstly, you should be insuring everything you own, without exception. That’s everything that has gone through your business books, whether you are a limited company or a sole trader, and whether you still use the kit, only use it sometimes, or not at all (see my comments and link to a further article on this below)
- Secondly, you should be insuring these items for the cost to replace them AS NEW, AT TODAY’S PRICES.
And there’s the problem:
Dark forces are at play at the moment, which could leave you in a vulnerable position, should something happen to your kit (okay, maybe not dark, but certainly gloomy). I’ve headlined these below.
You probably first arrived at a sum insured for your kit when you took your insurance out, and just update it periodically when you buy something, or when you dispose of an old item. Whilst this may have been ‘okay’ in the past, there are a number of factors converging at the moment, all of which could leave you shocked at the actual amount it would now take to replace your kit, and potentially leave you out of pocket.
When I started writing this, the inflation rate in the UK was 10.4%, up from the long-term average of 2.73% since 1989. This means that (solely based on inflation) we can expect goods that cost £100 last year to cost £110.40 this year. Thankfully, inflation has since reduced to 8.7% (as of June 2023), but this is still well in excess of where it was a year ago and still means that prices are increasing, just slightly slower than they were last month.
BREXIT, SILICON CHIP SHORTAGES AND SUPPLY-CHAIN ISSUES:
Chip shortages mean that demand is outstripping supply. This pushes prices up.
There are also now significant difficulties in manufacturers obtaining component parts from their usual suppliers, which places additional costs importing some goods, and Brexit has resulted in more lengthy import processes, all of which adds cost to the process, and therefore the end product.
Some firms are having to enter into new supply-chain contracts, at an increased cost, just to maintain their output.
ENERGY BILLS AND THE COST-OF-LIVING CRISIS:
It’s not just us as individuals that have seen our household bills increase. Many of the manufacturing firms, component suppliers, resellers, and suppliers are themselves facing many of the financial strains that consumers are experiencing; their energy bills are higher, meaning that the cost to produce an item has risen. In addition, many lost staff during the covid pandemic, and either need to recruit new staff (which comes at a cost), increase wages to retain existing staff or pay overtime to keep on top of the order book and to deal with the supply-chain delays.
WHAT DOES THIS MEAN TO ME?
You need to review your sums insured as a matter of urgency, as this is the perfect storm for finding yourself with inadequate insurance coverage.
One of my clients recently increased their equipment sum insured by £8,000 to cater for a new recorder they had purchased. Six months later, their policy fell due for renewal, and on reviewing their sums insured, they were staggered to find that exactly the same recorder, from the same supplier, would now cost £12,000 to replace. That’s an increase of 50% in just six months!
Unfortunately, I have found this is not an isolated example (I spoke to another client on the morning I started writing this article, who found they had nearly a 50% jump in their replacement costs). Prices are increasing, so please review your sums insured to make sure that they remain adequate.
WHY IS HAVING THE CORRECT SUM INSURED IMPORTANT?
I sometimes speak to people that say they want “£50,000 of insurance cover”, and it transpires that they own £100,000 worth of kit, but they “don’t use all of the kit on a job, and would only ever need £50k of cover”.
Unfortunately, insurance doesn’t work on the basis that you can pick a sum insured and ‘float’ it over only the kit that is damaged or stolen – your sum insured must cater for everything as there are times when all of the kit is at risk.
For example, if their house burned down with everything inside, or if they had a flood where all the kit was stored (unfortunately, I’ve had both of these happen to my clients) they would have a £50,000 hole in their coffers if they didn’t have the correct sum insured.
IF I DON’T HAVE THE CORRECT, UP-TO-DATE SUM INSURED, WILL INSURERS STILL PAY MY CLAIM?
Maybe, but not all of it…
You do have a legal duty under The Insurance Act 2015 to make a ‘Fair Presentation of Risk’ to insurers. Part of this includes you making a “Reasonable Search” of your business to uncover facts that could influence an underwriter in accepting or rating your policy and your sum insured should form part of this. This means that If your insurer believes that the difference in your sum insured was deliberately or recklessly misleading, they could avoid all or part of your claim.
If not, then the impact of not having the correct sum insured is that in the event of a claim, most policies out there have an Average Clause, which means that insurers can reduce (Average) the amount you receive in settlement by the same percentage you are under-insured by. If you had £100k of kit, but were only insuring £50k, and something worth £25k got damaged, then your £25k claim would be reduced by the same 50% you are under-insured by and you would only receive a £12,500 payout. Ouch.
MediaRoo’s Freelancer Policy does not have an Average Clause.
This gives you the added protection that, even if you are inadvertently under-insured, any claim under your sum insured (we call this a limit of liability) will not be proportionately reduced. However, you could still run into difficulty if you have a total loss of your kit (as you’d run out of cover), or if you have failed in your duty to make a Fair Presentation of Risk as required by The Insurance Act, so accuracy is still the key here.
I HAVE A RECEIPT SHOWING THAT I PAID £10,000 FOR SOME KIT, BUT NOW IT COSTS £15,000 TO REPLACE IT. INSURERS WILL SEE THE PURCHASE RECEIPT WHEN I CLAIM – WILL THEY ONLY PAY ME WHAT I PAID FOR IT?
No, they shouldn’t if you have a New for Old policy.
Purchase receipts are usually used to evidence that you owned the item (and as a starting point on the value of the item). Whilst it will show what you originally paid for it, MediaRoo’s Freelancer policy is New for Old and provides cover for a new replacement. As long as you have adjusted your sum insured to cater for the item now costing £15,000, then you should receive the £15,000 in settlement, less your deductible (excess). The same is true for second-hand kit.
DO I HAVE TO INSURE MY SECOND-HAND KIT ON A NEW-FOR-OLD BASIS?
No, but it is usually advantageous to do so.
You can, in fact, also opt not to insure everything you own, as long as your insurer is aware of what they are on for, and what they are not – they just need to be clear on what you are doing (it’s that Fair Presentation of Risk again!), but there are pros and cons to this, and you should really read my other blog before deciding to go down this path – https://mediaroo-insurance.co.uk/how-to-save-money-on-your-equipment-insurance-and-why-you-might-not-want-to/
HOW DO I KNOW IF I HAVE A NEW FOR OLD POLICY, OR AN INDEMNITY ONE?
If you have a Freelancer Policy with MediaRoo, then you have a New for Old policy.
For other insurers, you will need to review your policy wording for terms such as “basis of settlement”, “Cover basis”, “How much we will pay”, or similar terms (you could search for ‘indemnity’ or ‘new for old’ and see what comes up). You can also speak to your existing broker.
ANYTHING ELSE I SHOULD BE AWARE OF?
Some policies have a maximum Single Article Limit – they may only cover any one item up to a maximum value of, say, £25,000. Price increases could mean that you inadvertently breach this Single Article Limit, so again, check with your broker, or see if you can specify expensive pieces of kit (or better still, come and speak to MediaRoo, as we don’t have a Single Article Limit).
Above all, remember that your items of kit are your tools of trade. Without them, or without the finances from your insurer to replace them, you could lose work, money, or both. Insurance is meant to give you the peace of mind that you can continue to work should the worse happen. Reviewing your sums insured periodically (and also remembering to add new equipment when you get it, and not several months later!) gives you the best chance of a successful outcome in the event of a claim.
If you have any questions or need more information on this subject, or if you’d like a quote, please contact Andrew at MediaRoo on 07983 741101 where I will be happy to help.