A huge number of business types spanning all industries rely on trading goods and products to make money. For many companies, their stock is their biggest investment, with many storing hundreds of thousands of pounds worth on-site at any one time. If a disaster were to strike, few businesses would have the cash flow capability to replace all the stock on their business premises if it were lost, damaged or stolen, which could put the company at risk of folding.
A stock insurance policy can cover the costs of replacing your business stock, should any or all of it be lost, damaged or stolen. It’s designed to protect you financially by securing your stock, ensuring you could continue to trade if any, or all, of your unsold goods were wiped out. Some insurance suppliers offer stock insurance as a standalone policy, but more often than not, it appears as an extension to a business contents policy.
Your business stock can include any goods, products or merchandise you sell as part of your business model. Many insurers require you to keep accurate, up-to-date stock checks so that you know how much stock you have on your premises at any one time. In the event of you losing it all, they will use the stock checks to accurately estimate how much was lost in an incident, and how much to subsequently pay out.
Scope of Cover
Stock insurance can cover any goods, materials or products that your company sells. It can pay out for the cost of replacing them if they’re stolen, damaged, lost or destroyed. Some stock policies also include tools and business equipment, while others exclusively insure your stock – that’s to say, the goods you sell.
Many policies are generous with how they define stock. It can include anything that will eventually be sold to customers, including products that are in the process of production. It may also include goods for which you’ve received payment from customers, but that you are yet to deliver, known as goods in trust. Raw materials to be used to make goods can also come under stock, such as wood and fabric stored by a furniture manufacturer, waiting to be made into sellable items. Typical policies cover damage/loss of stock against:
- fire
- lightning
- explosion (boiler or gas)
- riot
- earthquake
- storm damage
- flooding
- escape of water from pipes or tanks
- heating oil leaks
- sprinkler leakage
- theft or attempted theft
- subsidence or landslip
- accidental damage.
The exact events insured by a policy tends to vary between insurance suppliers. Typically, however, most providers cover the cost of replacing stock due to a wide range of causes, so long as the loss didn’t occur as a result of company negligence. Some examples of claims that a stock insurance policy may cover, include:
- Tools lost or accidentally damaged
- Overnight theft of equipment from unattended vehicles
- Trade samples or promotional merchandise stolen from a trade show
- Computer equipment stolen in a break-in
- Damage caused by employees.
Common Exclusions
Not all types of product have cover under a stock insurance policy. The crucial thing is to declare all the stock you have when you take out the insurance and continue to report any changes to this stock through the life of the policy.
This goes for other details, too, such as where you store the goods or where you sell. Policies may stipulate that you keep your products in a specific location or comply with minimum security measures and may only provide cover for a specified amount. If the amount of stock you store increases, you expand the type of goods you sell, or you change the location where the stock is either stored or distributed, you must inform your provider, or you risk invalidating your policy. Ideally, you should check with your insurer before these changes occur, in case any of your plans could exclude your stock from the policy you have in place.
Additionally, not all stock insurance covers your goods while they’re in transit. Goods in transit cover is sometimes available as an optional extra, but you may have to specify this when you take out a policy. Other typical exclusions are:
- damage due to wear and tear
- damage due to moths, insects or vermin
- damage caused by damp
- any loss or damage of stock that occurred while your premises was not secured in the way you specified when you took out the policy
- some policies exclude certain products after a certain amount, such as wines, spirits and tobacco products above a specified threshold, such as £1,000.
A final exclusion to bear in mind is particularly relevant to those in the food industry. Most business stock insurance policies tend to include frozen goods. The wording of many policies exclude losses from a change in temperature or losses incurred from a mechanical, technical or electrical breakdown. This means if your freezers were to stop working, or somebody accidentally turned them off, you would be unlikely to be able to make a claim for the frozen stock you lose as a result. Frozen goods tend to require specialist cover, either under deterioration of stock cover or specific cover designed for frozen foods.
Relevant for Heavily-Stocked Businesses
Any business which holds a high amount of stock, whether that’s to wholesalers or directly to consumers, should consider stock insurance. The following types of business typically take out a stock insurance policy:
- manufacturers
- traders
- pubs, restaurants and takeaways
- cafes and coffee shops
- hairdressers and beauty salons.
A good way to work out whether you need business stock insurance is to calculate the value of the maximum amount of stock you store on-premises at any one time. Then, consider whether you could absorb this figure as an expense if it were to all vanish. For many companies, this figure vastly exceeds any amount they could afford following an unforeseen catastrophe. In this case, a business stock insurance policy might be worth considering.
Policy Coverage Required
The crucial thing when it comes to taking out a stock insurance policy is ensuring that you provide the right estimation of its value. If you fail to do this, you could leave yourself underinsured, which means you may have to cover the costs of the remaining amount yourself. You may even invalidate your entire policy if you provide an underestimation, leaving you liable for the full loss.
When you’re working out the value of your stock, you must establish with your insurer whether your stock insurance policy covers only the goods and products you sell, or whether it also covers your tools and equipment. It’s essential that you get this clear so as not to over or underinsure yourself. It is possible to get an independent valuation of your stock from a third party, which can prevent you from accidentally over or undervaluing the worth of your on-site capital.
Additionally, most policies only cover you for the price you paid for the stock in the first place or its RRP. If the stock has increased in value, many policies will only provide cover up to the amount that you paid for the stock, or its value at the time your company purchased it.
A final thing to bear in mind is whether you already have cover for your stock from any of your other active insurance policies. Not only is having double insurance a waste of money but covering items that already have insurance may invalidate both policies, leaving you at greater risk.
Accounting for Seasonal Fluctuations
Many policies tailored to shops and retail businesses include an automatic seasonal adjustment for common busy periods, such as Christmas or Easter. During these periods, some insurers can adjust your sums insured amount to account for up to 25-30% more stock than usual, as standard. If your business has particular periods of increased stock, you should speak to insurance providers before you take out a policy, to see if they can cover you. This might be the case for a school uniform supplier, for example, which has more stock in August and September.
If insurers are unable to cater to the seasonal fluctuations specific to your business, you can opt for insurance that works on a ‘maximum amount at risk’ basis. This type of cover uses the insured sum of the maximum amount of stock you expect to have, without it being an issue if this is more than the value of your inventory at other points in the year.
Goods in Transit Cover
Goods in transit cover, sometimes known as stock in transit insurance, is a common extension to business contents cover or general stock insurance. It’s designed to cover your stock when it’s in on the move. This could be to and from your business premises or during delivery to customers. Some goods in transit cover can cover your products for transit in your own vehicles, or during transportation by a third party, such as a haulage company, couriers or in the post.
Calculating Cost
How much you pay for your stock insurance policy will depend largely on the amount of stock you want to insure, and the value of the items you sell. Particularly high-risk stock, such as expensive jewellery or cars, tend to come with higher premiums, as there’s a greater risk of theft and a higher cost of repair or replacement.
For high-risk stock, insurers may include several conditions on where you store these items and the level of security you have in place before they insure you. Typical factors affecting price include:
- the value of your stock
- the type of stock you hold
- the location of your business
- your business premises (e.g. an industrial unit, a shop inside a shopping centre, an office in a block)
- what your building is made of
- how much of your roof is a flat roof
- the level of security you have at the property
- any history of flooding, subsidence, landslip or heave
- how much cash you keep on the premises at night
- your claims history.
Insurers use your answers to these questions to ascertain the risk to your stock. If your business displays a riskier profile, your premiums are likely to be higher. Generally, there are some tips you can follow to bring down the price of your insurance. Some providers may also advise you on measures you can take that may result in them offering you a lower-priced policy. Typical steps you can take to reduce your prices include:
- putting up security cameras on the building where the stock is kept
- fitting the building with burglar alarms
- installing security lighting around the property to discourage thieves
- choosing a storage place for your stock in an area with a low risk of flooding.
Final Thoughts & FAQs
Even businesses that take the utmost precaution when it comes to securing their property and their stock can find themselves the victim of a natural disaster, a robbery or another unexpected catastrophe. But these events don’t have to break the bank or threaten your cash flow. Business stock insurance can ensure that, whatever happens, you can afford to replace the very items you need to make money.
