Do the Recent Tariffs Affect Your Commercial Insurance Policy?
November 7, 2018
By Jeffrey Shupe, CIC
Within the manufacturing sector, business owners have strong opinions on whether the tariffs are positive or negative for business. Regardless of political affiliation, tariffs are having a significant impact on inventory costs. Talking with many of my manufacturing clients, a 25-35% increase in raw material seems to be the norm.
“So, what does that have to do with insurance?”
First, each commercial insurance policy has a limit of insurance for your business property, which typically includes stock. Suppose that before the tariffs were imposed, a manufacturer carried an inventory of $500,000. However, the $500,000 inventory is now valued at $650,000 because of the tariffs. Almost overnight, the limits of insurance are not enough, and the insured could be very disappointed in the event of a significant loss.
Second, watch out for a co-insurance clause in your policy for your business property. Co-insurance requires you to carry coverage for a certain percent of the property’s value. Penalties will be assessed by the insurance company at the time of loss if the limits of insurance are not in compliance with the co-insurance requirements. A 30% increase in inventory costs will certainly have impact if the policy has a co-insurance clause.
Finally, many manufacturers bring their customer’s material into their facility to process. Coverage for this material falls under ‘Property of Others’ in a commercial insurance policy. Those who fall into this category may consider raising the limits of ‘Property of Others’ so there won’t be any surprises in the event of a significant claim.
So, do the recent tariffs affect your insurance policy? Absolutely!
Do you still have questions about the limits of insurance found in your commercial policy? Contact us today for your complimentary consultation!