Over the last few weeks many of us have had to deal with clients cancelling covers as they are currently unable to trade. While this is more typical of businesses where there are no physical assets or employees, it remains a fairly drastic action and is one we, as brokers, have a duty to help them consider the possible implications of carefully.
As you know, cancelling an insurance entirely has a number of potential pitfalls, and it is always sensible to avoid it where possible – even if that means that covers and indemnities are temporarily reduced.
What clients need to appreciate is that even though their company may no longer be trading, there are exposures and risks that still need to be considered and covered, so-called residual liabilities. By explaining this we can offer alternative solutions such as the ones listed below, ones that will help ensure they are covered while keeping your all-important client-broker relationship intact:
Sole traders such as plumbers and builders seem to be amongst the most likely to cancel covers – especially liability policies. Yet these are precisely the sort of businesses that will have exposure to residual liabilities.
Liability covers are usually placed on a ‘Claims Made’ or ‘Claims Occurring’ basis, with the former more prevalent in the financial lines’ world and the latter in general liabilities such as for builders and plumbers.
Residual liability on an ‘occurrence’ basis is important as it covers damage or injury that may happen even after the entity/sole trader has finished trading. For example, if a plumber installed a pipe on the day their policy was due to expire and then the pipe burst the following day, the date of the loss would be the date the damage happened and not the day the pipe was installed. This would, therefore, leave them without the appropriate cover.
Residual lability cover requirements are more common in the products liability environment as they have a residual run off, whereas contractors, for example, would normally move from one policy to another fairly consistently.
The current chain of events with Coronavirus probably make this a greater risk example than normal, as many people are mothballing their businesses until they are able to trade effectively again.
So, the advice to clients wherever possible – especially if they are likely to start trading again once the social restrictions are lifted – is do not cancel cover. Instead they should speak to their broker or insurer about the options available and ideally have this reflected in the premium.
Here is to a safe but swift return to normal life for all,
Group Wholesale Director