Insuring Warehouse Stock: Questions to Ask Your Specialist

Stock is exposed to fire, water, theft and handling accidents, and insurance is the usual response. Policy terms vary widely between insurers and between countries, so this article is not insurance advice. It is a list of questions that makes your conversation with a licensed insurance adviser more productive, and it shows where your stock records decide how smoothly a claim goes.

What to ask about the cover

Take these questions to your adviser before you sign anything:

• Which events are covered, such as fire, flood and theft, and which are excluded?
• Is the cover tied to one address, or does it follow the goods to any warehouse?
• Are goods held by a third party covered, and who pays the premium for them?
• What security or storage conditions does the policy require, such as an alarm, a guard, a limit on stacking height or a temperature range?
• What is the deductible, the amount you bear yourself in every claim?
• What happens if the stock is damaged by a gradual cause, such as a slow leak, rather than a sudden event?

Ask also who the insured party is: the owner of the goods, the operator, or both. When goods stand in a partner's warehouse, a gap between two policies can leave the goods covered by neither.

Keep the answers in writing. A verbal assurance from a salesperson is of no help at the moment of a claim.

The sum insured against the real value

The sum insured is the figure on the policy. The real value of the stock is what is on the shelves, priced as the policy defines it, on the day of the loss. These two numbers often drift apart. Stock grows before a season, prices change, and a new shipment arrives, while the policy stays as it was signed.

Some policies reduce the payout in proportion when the sum insured is lower than the real value. Imagine a sum insured of 800,000 dollars and real stock of 1,000,000 dollars on the day of a loss. If the policy applies a proportional reduction, you would receive 80 percent of the damage. A loss of 100,000 dollars would then be paid at 80,000. Whether your policy contains such a clause, and how it works, is a question for your adviser; the example is only there to show why the figure matters. A simple routine helps: every quarter, compare the sum insured with the value shown by the latest count, and ask the adviser to adjust the policy when the gap grows beyond a margin you have agreed.

Records decide the claim

After a loss you must show what was in the warehouse and what it was worth. That means a recent stock list, purchase invoices, photographs and count sheets. A recent independent count with dated photographs is strong evidence. Without one, the claim is slower, the insurer asks more questions, and the risk of a dispute is higher.

It also helps to keep dated photographs of the premises as a whole: the racking, the fire equipment, and the condition of the roof and floor. An insurer may ask what the building looked like before the loss, and a recent photograph answers that best.

Practical steps

1. Count before you insure, so that the sum insured rests on a real number and not on an estimate carried over from last year.
2. Review the sum at seasonal peaks, when stock is at its highest.
3. Keep a copy of the stock records outside the warehouse. A fire can destroy the paper along with the goods.
4. Photograph the fire and security equipment, and keep the dates of its inspections.
5. Read the third-party storage contract. It may place the duty to insure on you, on the operator or on neither.

What this does not replace

A count shows what exists and in what condition. It does not tell you whether you are adequately insured, which insurer to choose, or whether a particular loss is covered. Those decisions belong to you and your licensed adviser, and to the insurer under the terms of the policy. Keep the adviser informed of large changes, such as a new warehouse or a change of operator, because each can alter what the policy should say.

In short

Insurance works best when the numbers behind it are real. WarehouseDepo does not sell insurance and does not give insurance advice. What it provides is an independent count with dated photographs, which gives owners accurate records of their stock to take to their adviser and, if a loss ever happens, to support their claim.