Do you need help setting your Sums Insured?
In order for your insurance policy to operate effectively in the event of a loss it is essential that you set your cover at the right level. We cannot advise you on the appropriate sums insured to select for your business, but we can offer the following guidance.
You must establish exactly how much it would cost you to replace the entire contents of your business as new and insure for this amount.
If you’re not sure what would be included as contents, as a general rule of thumb, it would be everything you would take with you if you were to move to another premises, including (but not limited to) furniture, shelving and racking, computer and other office equipment, toys and books, any other equipment.
Don’t forget to include the contents of any outbuildings and any play equipment you may keep outside, including fixed play equipment.
On the subject of outbuildings, if you are storing any equipment in an outbuilding which is not constructed of brick/stone with a pitched slate or tile roof please let us know as this will not be automatically covered by your policy.
Perhaps the easiest way to keep track of your nursery contents is to set up an asset register. This is a simple spreadsheet where you would record details of the item, when you bought it, what you paid for it and what the cost would be to replace it today. Whenever you buy a new item, or dispose of an item, update the spreadsheet. Once a year, ahead of your insurance renewal, undertake a quick exercise to check and update the replacement values on the spreadsheet. The total value can then be used as your contents sum insured for the year ahead.
If you don’t own the building your business operates from and you have made some fixed improvements to it, it’s important to understand that those improvements may not be covered by your landlord’s buildings insurance.
Typically, when leasing a property, the landlord will take responsibility for insuring the building (unless they have made you responsible for insuring the building under the lease agreement), but any fixed improvements you have made to the building will be your responsibility. In the event of a claim, the landlord’s insurers would only reinstate the building back to its original state. Therefore any fixed improvements you have made to the building to make it work for you should be insured by you as Tenant’s Improvements.
Examples of Tenant’s Improvements
The improvements you make to the premises will vary depending on your business needs and what was already in place at the premises when you took it on, but common examples of Tenant’s Improvements would include the installation by you of: –
- partition walls;
- fixed flooring;
- fixed air-conditioning systems;
- child-friendly bathrooms, toilets and sinks;
- CCTV entry systems and alarm systems.
In terms of arriving at a suitable sum insured you should establish exactly how much you have spent on the fixed improvements, including the cost of labour to fit them. You should then give consideration to whether these costs might increase in the coming year before arriving at your chosen sum insured which should represent the full new replacement cost.
As a general rule, when considering what to include as Tenant’s Improvements think about anything fixed to the premises that you have added and that you wouldn’t take with you if you moved. Also, when setting your sum insured, give consideration to how the availability of labour might impact the replacement cost. For example, in times when labour is in short supply it will undoubtedly cost you more to complete the same job.
If you own the building you operate from, or the terms of your lease with your landlord make you responsible for insuring the building, cover can be added to your nursery policy.
When considering the sum insured to select to protect the building please note that this should be based on the current re-build cost of the building and not the market value. The re-build value should include an allowance for a range of things, including (but not limited to):
- Cost of materials;
- Labour costs;
- Professional fees, such as architects’ and surveyors’;
- Demolition, and clearing away of the damaged structure (debris removal costs);
- Landlord’s fixtures and fittings;
- Walls, gates and fences;
- Any extensions communicating with the building;
- Car parks, yards, paved areas, pavements and footpaths;
- Security cameras and lighting;
- Fixed fuel oil tanks and the like;
- Wires and associated control gears and accessories extending to the public mains.
As stated above we cannot advise you on the appropriate sum insured to select, but we do recommend that you have the building professionally valued for insurance purposes regularly.
The frequency of such valuations will be influenced by market conditions, but in times of high inflation and rising costs we would suggest this should be done at least annually. In times of low/stable inflation you could probably do this every 2-3 years.
How long do you think it would take for your business to fully recover from a total loss, i.e. back to pre-loss trading conditions?
This is the first question to consider when calculating an adequate sum insured to protect your business against an insured loss of income.
Your chosen sum insured should reflect your anticipated turnover (total fee income) for the year ahead, adjusted for the indemnity period you have selected (see more on indemnity periods below).
When considering your anticipated turnover figure make sure to include provision for things like anticipated business growth/expansion and the impact of inflation on your pricing.
Finally, and as mentioned above, you should adjust your anticipated turnover to reflect your chosen indemnity period.
The indemnity period is the maximum length of time (usually 12, 24 or 36 months) that the policy will support the business, starting from the date of the insured event causing interruption to the business.
When choosing your indemnity period it is important to consider the maximum amount of time it would realistically take for your business to be able to trade again independently and return to a pre-loss trading position. You should take into account such factors as how long it would take to: –
- rebuild/repair the damaged buildings;
- replace lost/damaged equipment;
- regain lost staff (who may have moved on whilst your business was closed) and train them;
- regain lost parents/children (who are likely to have moved to other providers whilst your business was closed).
Of course, you will only be able to make an informed estimation of the likely time your business will take to recover so it is arguably best to have an over-generous indemnity period, rather than one that may fall short. Remember that your insurers will stop supporting the business at the end of your chosen indemnity period even if the business has not fully recovered.
Our policy provides a standard indemnity period of 12 months, but this can easily be increased to 18, 24 or 36 months at your request and upon payment of an additional premium.
Use the simple formula below to help calculate your projected turnover (total fee income) and to adjust your chosen sum insured for the indemnity period you would like.
Anticipated AVERAGE* income per child, per week
Anticipated average number of children at any one time (occupancy level)
Number of weeks you are open per year
(*the average income should take into account the different age range you cater for and the anticipated mix of full-time and part-time places).
For example: if the anticipated AVERAGE* cost per child, per week was £200, you were expecting an average of 60 children per week and you are open for 50 weeks of the year, the calculation would look something like this/
= £600,000 turnover
You should then consider adjusting this figure for any anticipated business growth/expansion and/or expected inflation during the year which might impact your pricing.
To then adjust your anticipated annual turnover (total fee income) sum insured for your chosen indemnity period:
No adjustment needed
1.5 x anticipated annual turnover
2 x anticipated annual turnover
3 x anticipated annual turnover
Under insurance – why it is important to get your sums insured right
In simple terms insurance policies contain a provision (either referred to as the ‘Under-insurance provision’ or the ‘Average condition’) which allow insurers to adjust the value of property damage or business interruption claims if the sum insured at the time of the loss was not adequate to reflect the true value at risk. In essence a claim may be reduced by the proportion representing the difference between the sum insured and the actual value at risk.
As a basic example, if a building was insured for £100,000 but the true re-building cost was £200,000 then the building will have been under-insured by 50%. Insurers will then be entitled to reduce the value of a claim by the same proportion. So if a claim was presented for £20,000 the insurer would be within their rights to only pay £10,000.
This is why it is so important to spend the time getting your sums insured as accurate as possible at the start of the policy, at each subsequent renewal and to adjust them as necessary during each policy period. Remember, your chosen sums insured must be adequate at the time of the loss/damage, not just at the start of the policy period.
If you require further assistance in setting your sums insured we can provide you with details of a valuation service provided by QuestGates. For a fee (payable separately to QuestGates) they will visit your premises and provide you with accurate insurance valuations for your buildings, tenant’s improvements, contents and loss of income. If you would like further information on the QuestGates service and costs get in touch with a member of the team or visit https://www.questgates.co.uk/what-we-do/valuations/.
What our clients have to say
Claremont Day Nursery
Lilac Frog Nursery
Banana Moon Day Nursery
Little Gems Day Nursery
"Thank you for all your hard work and help in sorting our insurance. The customer service has been excellent and it is the reason I chose Pound Gates to arrange our insurance cover. Shirley has been very helpful in sorting queries and always followed up any emails/telephone calls and has been a pleasure to talk with."
The Ark Association
“Sian Drennhaus, who I dealt with, was wonderful, she was knowledgeable, quick at coming back to me and always makes an effort to compete and gain the business. I look forward to booking more cases on cover.”
Connect Insurance Brokers Ltd
Tree Tots Day Nursery
Edelweiss Day Care Nursery
Little Monsters Childcare