Public Liability Insurance does the size really matter?
By the end of this article you will be able to see your public liability insurance from a completely new and most likely different prospective. The examples below are for informational purposes only. Public Liability Insurance does the size really matter? I think it does and let me proof it to you.
Amount of Public Liability – starting point
Imagine you have your Public liability insurance for a few years. As the matter of fact the guy who had helped you to organise it, has retired long time ago. Or you simply got your policy from a direct insurer over the phone. You have not reviewed your policy for a few years and there are only two things you do with your Public liability insurance:
- You pay premiums
- You (hopefully) complete an annual declaration and submit it back to the insurer.
Boom. You had a
First things first, your insurer will check what they know about your business operations is exactly what you actually do. You would be surprised how many business owners make this mistake when business activity described in their public liability policy is different to what the business is actually doing.
Example here: A builder who due to current changes in New Zealand economy gradually moved from residential buildings to commercial buildings, leaving Public liability description unchanged…
You get the drift, right? Would you agree that a risk of a costly mistake in a small residential house is not the same to compare to a huge multi-level apartment block. I mean the difference here can be two or even three additional zeros… think of a claim with $300,000 liability or a claim with $3,000,000 against your name… think your mortgage, the new boat, the missus’ car… and so on … all of it is under the threat of being lost(!) only due to the fact that you have it.
Oh, yes, I can almost hear someone says “No, mate this is why I have Public Liability insurance”. You certainly do, as well as you have personal guarantees and other security in place to protect your suppliers and your clients from something unexpected. By all means don’t be a fool – any insurer has got bigger pockets to compare to yours when it comes to pay lawyers bills.
Next time, when your mates get together around your shiny BBQ to enjoy that perfect juicy scotch-file steak, only you can cook for them, listen what they say about their Public Liability insurances. Most likely the only thing everyone is capable of discussing with very smart face expressions is the amount of premiums each pays.
New Zealand is a DIY country and lots of folks here think that they know it all. When you have to see a doctor majority of your friends know nothing about your problem and yet you know that you have to discuss your problem with a specialist.
The same story is here; the only difference is with your Public Liability is that – the pill is provided before the problem appeared. Think about it as a vaccination or a simple prevention mechanism when if used right it would help you to keep the mortgage, the boat and the misses’ car.
The moral here is: discuss your Public liability with a professional. Treat it right if you do not want to have problems later on.
Light commercial / rural
Industrial / heavy commercial
Keep in mind, premiums for Public liability insurance are based on the description of your business activity, location, experience and most importantly turnover of your business.
Let’s start with location. “Location” in your public liability insurance describes where your business performs business activities.
Think this – if your public liability application and subsequent declarations state that you perform your business activity in Auckland, New Zealand it means that you cannot use this policy to provide your services in Fiji. Tip here is: If you need to do something over there (example Fiji) you must notify your insurer, ask to include an additional geographical location and pay additional premiums.
Experience, “huh boy this is simple” you remember when you had your first driving practice? That was exactly what you were told… same story here – the more experienced you are – better (cheaper) premiums for your Public Liability insurance you can get from underwriters. Always state your experience. In some circumstances you can even provide your CV to your insurance company (if you have one). The point here is to make sure that your insurance company knows everything about you…. And yes it helps to pay less- agree?
Turnover… sweet… this is like muscles of your body. Turnover is simple proof of what you as a business owner is capable of doing. Think superpowers… during that BBQ discussion with your mates about Public liability insurance think about:
Think about it one more time: Public Liability Insurance does the size really matter?
It sure does, due to the fact that it reflects the size of your business. More you “cash-ing” more you pay for your Public liability insurance. (let’s face it – the size of the turnover matters … even… well you know :-)
The moral here is: never, listen (!) never compare yours policy with someone else’s insurance. Everyone is different.
Never listen to anyone who says that he pays less – it is not material. He pays for his and you pay for yours if you know what I mean :-)
Every year your insurance company asks you to declare your turnover – this is why your insurer needs to know it. Example here is: a young contractor, clocks 40 hours per week, works under supervision – would always pay less to compare to someone who contracts six builders, been in the trade for twenty years. Reason is simple – turnover (!) the first man’s turnover is (assume) $60,000 and the second is $800,000 – you see the difference?
Yes, examples of builders only due to the fact that it is easier to explain – think about a big building and a small house – easy to imagine right? This is why I am using builders here. However if your business is different think about your circumstances.
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More on turnover. Turnover your company has (for instance) building residential buildings and turnover building commercial projects- these two categories can also be looked at from a different point of view. Example here is: let’s say your company builds 80 houses during one year. Let’s say you are building 6 houses simultaneously you would want to check how would a claim situation look like in the event of three simultaneous claims.
Simultaneous claims definition: claims happening at the same time in the same or in different locations under the same public liability insurance.
Think that would never happen to you? Think about Christchurch – so many people (even insurance companies) were thinking that it would never happen.
An insurer in the nutshell: Do you insure your business with a reputable insurance company in New Zealand? Would your insurer have enough money to pay your claim?
I hope you remember that two companies gone into huge financial problems straight after Christchurch earthquake: one was bankrupted and the second was rescued by the government (being too big to fail). Read this article to get the prospective of a problem when your insurer is having a problem.
You want to know that: if something hits the fan you have enough money against your name in the insurer’s pocket to cover all potential problems and possible court fees. This is why it is important to have suitable sum of indemnity in your policy.
Public Liability insurance sum insured is like woman’s skirt. It should be long enough to cover the essentials, but short enough to keep it affordable.
I hope by now you have all ammunition you need to make a wise decision. As we have agreed my role was to provide you with helpful information about Public Liability Insurance does the size really matter?
Think about how much public liability cover your business needs.
Check existing contracts you have with your contracting companies. More often than not you would be required to have a specific public liability amount to get the job. Example here is: when tenders are announced about big and profitable projects you would have to proof that your company has in place a specific amount of public liability insurance.
Interesting point here is: what do you think would that big company care about your insurance company? Sure it would and the reason for it is simple – everyone wants avoid headaches and New Zealand based insurer would make problems to go away a lot sooner. This is why one gets contracts and the other does not… who would you rather be?
If you occasionally participate in tenders when hunting for a job think about your public liability insurance as a bread winner which in fact simply and quietly illuminates your competitors.
We have discussed a few simple steps you can take to make your Public Liability insurance cheaper and if you need real help to organise your public liability insurance do not hesitate to get in touch with me.
P.S. If you have an existing public liability insurance think about this:
Is it with a direct insurer or through a broker?
The point here is to highlight importance of your broker – think about a claim scenario – with a direct insurer you are going to be on your own and if you use an intermediate channel (you got your PL from a broker) that broker is going to bend over for you and help you with your claim.
Direct insurance companies often seen as a cheap alternative – this is a huge mistake. Think about a free lunch- if any and why would you be provided with one? Exactly, most of the time “free” or “cheap” is at your own expense.
Cheap is never good especially when we are talking about liability bills for a few millions.
It is not the insurance premiums you should be afraid of it is luck of knowledge of that person from a call centre somewhere in India.
If you think that this discussion was helpful to you and want to share your wisdom with others- please share this article on your social media profile. I would really appreciate your help. Thank you and good luck with your business.
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