Or, your contents
Machinery Plant, Fixtures & Fittings, essentially this is the contents of your business without the obvious such as portable hand tools which come under their own section.
Working it out
The chances are you have’nt really thought about the replacement costs of your Machinery & Plant Insurance recently, you’re not on your own, it usually arises at renewal time, and even then the same old question arises “has anything changed, has anything been added” this is of course the dangerous bit – you don’t really know and base your response on a guess!
Chances are you have given it no thought at all, you possibly don’t exactly understand how to get to the figure? So lets change that so you give a well thought out answer that won’t leave you under-insured in the event of a loss.
Average Clause – a very quick lesson.
We have all heard about under-insurance at some point, well this is where what is known as the “average clause” comes into play. The following example can be applied to almost everything within your business, such as the machinery plant, fixtures and fittings, it will also apply to the buildings as well. (It doesn’t apply to things like your turnover though on liability)
Very briefly – you insure your garage for £100,000, storm damage to roof costs £2,000 to repair – however when visited by the loss adjuster (the person who agrees or disagrees with your loss) you are informed that the true rebuild cost of the property is £200,000. In this case therefore you are under-insured by 50% and therefore the claim will be settled on 50% of the loss less any excess applicable, in this case therefore the amount agreed by insurers would be £1,000 less your excess, say £250, leaving you therefore with a somewhat large shortfall.
This, we hasten to add is a very simple way of understanding under-insurance, it is somewhat more complex than this with other factors having to be taken into account such as the policy wording and conditions. Most (not all) insurers will generally allow some flexibility but only upto around 15% so make sure its right from day one.
Machinery Plant Insurance – where to start.
The following is only an example but should give you an idea on where to start, every circumstance is different.
Lets start with the Plant items and remember we have to look at these on a replacement as new basis!!!
Large plant first, we will take an MOT Testing and Service & Repair business as an example. Your MOT test bay, how long has this been installed, lets assume that you were still writing out MOT certificates, so the Bradbury four poster, brake tester and the associated items cost you £10,000 when purchased, if you think like your accountant this is now worth about £2,000.
This is the first mistake, DO NOT think like your accountant by taking into account depreciation, this is exactly the wrong way to do it.
Know your equipment!
You should have a very good idea of the “Replacement” value of all your machinery, if you don’t you need to do a bit of homework. Do a quick tour of your premises and write down everything you have. This will include:
Okay, so you now have the list, a couple of areas that you need to be aware of –
3Phase, include the cost of the 3Phase to your machines or lifts.
Unused items, this could be a multiple of items but may include old tuners, jet washes, lifts that just hang around – these will be discussed further down.
Back to the list of items, we are not going to state the obvious here but if you don’t know the “as new” value then you need to find it.
The internet is usually the weapon of choice here but also consider your machinery / tool supplier. BUT, don’t forget you are looking for the cost on a like for like basis, if its a budget 2 Post then thats what you need, if its a 4 Post Bradbury for instance then thats the figure you need.
Unused items – these items could actually cause you a bit of a problem in the event of a loss, the chances are thay you have aportioned no value to them BUT they are still there.
Lets explain, your policy in most instances will assume that the sum insured you have provided is for ALL your plant and machinery on a Reinstatement basis, ie as NEW. See the problem? You have not taken these older items into account or at best, you have put a value on them as they stand there, the value of course is only a fraction of the “as new” value.
Getting it right.
You have the inventory to hand of all your machinery and plant, the items you have ignored you need to have something done with them. The obvious is to remove them from the premises completely, don’t want to do this? Okay, then the best thing to do is specifically exclude the items, if you do this they cannot be taken into account in the event of a loss, l;et your broker know what these are and that they need excluding.
But some of them have a value, there is another option here BUT it comes with a word of caution. You really need to understand the market for a used item of equipment, can you actually replace the item “used” for the value you have put on it? If you are happy with this basis of settelent then you need to specify the items in question. This alternative is called Indemnity, this is an alternative to reinstatement.
Lets look at an example – this time we will use a spray booth. The repalcement cost of the spray booth is £35,000, however you know that you can replace the spray booth quite easily for £2,000, in which case the item is specifically noted on your schedule.
Machinery Plant Fixtures and Fittings Insurance is not difficult
A small amount of your time at at the front end can save you time and avoid possible under insurance in the event of a loss.
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