Deterioration of stock cover explained
We discuss when your customers might need deterioration of stock insurance, and how it can lead to cross-selling opportunities.
Many businesses use cold storage facilities to store goods including foods, flowers and pharmaceuticals. The smallest change in temperature in these facilities, for example due to a mechanical failure, can lead to a rapid deterioration of such stocks.
Standard commercial insurance policies might not cover the value of stock lost in such scenarios, which is why bespoke deterioration of stock policies exists. Here, we explain more about this often misunderstood area of cover.
What does a deterioration of stock policy cover?
Deterioration of stock insurance covers damage to goods stored in specified cold storage spaces, which occurs as a result of a change in temperature caused by a breakdown of the refrigeration equipment or accidental damage to it. A customer would also be covered in the event of a result of a failure in the public electricity supply, and as a result of the escape of refrigerant gases.
Who needs deterioration of stock cover?
This cover is designed for organisations with larger exposures. A customer that only ever keeps a few hundred pounds worth of stock in a refrigeration facility would normally be able to arrange sufficient cover under a standard commercial combined policy. Potential customers could include food wholesalers, retailers, hoteliers and catering businesses, as well as pharmaceutical companies.
Understanding the full range of exposures facing your customers
A deterioration of stock policy will only cover the value of goods lost or damaged following a cold store failure. However, this is highly unlikely to be the only loss your customers would face. Other costs could include:
- Repairing or replacing machinery
- Arranging disposal or early transfer of stock
- Increased costs of working
- Spoilage
For brokers, this represents a real cross-selling opportunity. Our Engineering Combined product offers the full range of engineering insurance covers your customers might need - seven in total - alongside inspection services, under a single policy.
Ian Hutchinson, Engineering Governance Manager, at Zurich says: "To protect your customers against the full range of exposures they might face following a cold store failure, you could arrange deterioration of stock cover for expected sale price of the damaged stock, but you could also add machinery breakdown and machinery loss of profits cover."
We really want to help brokers understand more about these engineering covers, because by expanding their knowledge, brokers can also expand their businesses - and protect their customers more effectively." Ian Hutchinson, Engineering Governance Manager, Zurich.
We have made cross-selling and up-selling even easier by providing a schedule that explains to brokers and customers exactly which risks are covered and which aren't. One broker was able to upsell an extra £15,000 of business from a single account, by placing five additional covers - deterioration of stock, machinery breakdown, machinery loss of profit, computer, and hired-in plant - for a customer who had initially only asked for an engineering inspections policy.
Supporting your customers with risk management
"Your customers are going to be under intense pressure when faced with a deterioration of stock, because they could potentially lose contracts," says Ian.
You can support your customers with risk management, such as discussing what practical measures they have in place to prevent and detect sudden temperature changes in their cold storage facilities, and how they might minimise any subsequent losses following an equipment failure.
For example, your customers could consider whether it would be possible to transfer deteriorating stock to its end destination more quickly, or to salvage some value from that stock - e.g. turning rotting fish into fertiliser.
How we're supporting brokers
We have recognised there is a lack of awareness about the protection that engineering covers can offer, and responded by arranging master classes across the country to educate brokers about our Engineering Combined product.
Ian adds: "We really want to help brokers understand more about these engineering covers, because by expanding their knowledge, brokers can also expand their businesses - and protect their customers more effectively."
To discuss any aspect of this article further, speak to your usual Zurich contact.
