Reduce your insurance premiums through accurate asset management

2nd Oct 2019
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UK companies may be continually complaining about escalating insurance premiums but, in reality, the majority are actually over insured. Endemic failure to maintain accurate asset registers results in the majority of companies insuring assets they no longer own.

Most organisations are aware that the asset register is inaccurate. But just how many realise the potential business cost?

Business Value
Insurance is a standard business overhead; it increases annually and organisations work hard to negotiate better deals where possible.  The cost of insurance is, of course, based on the assets held. For asset-heavy organisations in areas such as manufacturing and distribution, insurance is a significant annual overhead.

Yet most companies openly admit the asset register, upon which the insurance premium is based, is not up to date. Information on new purchases is, of course, recorded. However, few organisations record any real detail about the asset – such as the serial number or a comprehensive description.

Indeed, in instances such as an office refurbishment, it is not unusual for an entire £500,000 investment – which incorporates furniture, telephone systems as well as decorating costs – to be bundled under one ‘office refurbishment’ entry in the asset register. 

Little or no effort is then made to keep track of assets as they move around the company, either with specific individuals or as a result of reorganisation. Nor do many companies update the register when an asset is scrapped or sold.

Challenging Claims
The problems caused by poor asset information extend beyond the initial insurance premium. What happens if a company has to make a claim? As soon as a good insurance assessor sees a ten-year old PC on the asset register, alarm bells start to ring. With minimal likelihood of such an item still being in use, the assessor will be extremely unlikely to pay out.

More critically, the assessor will then be in a position to challenge every item on the register. Suddenly the fire/flood/theft that caused the initial claim becomes ever more serious as the challenge in confirming assets’ existence and location results in long term delays in receiving a payment. This can only cause further problems to an organisation desperate to get back to business as usual.

The only way organisations can speed up the claim process is to provide a highly accurate, highly verifiable asset register. Barcoding all assets during a physical audit and storing the information in an integrated asset register alongside a detailed description and location information is the first step.

With this single record in place, it is a simple process to ensure any changes, such as scrapping or selling an asset or its relocation, are updated within the system. At any time, therefore, the organisation has an up to date record of complete asset value and critically, location – key for the smooth progress of any insurance claim.

Too Late
Unfortunately for a number of companies the accuracy - or lack of it - of the asset register is a low priority. Finance teams regard the issue as self-resolving: the majority of the assets no longer actually in use have already been depreciated down to zero, so there is no impact on corporate value.

And the impact only appears when a claim is made and then challenged by the insurance assessor due to the obvious inaccuracy of the register. In the worst case scenarios where assets have been moved en masse from one location to another – and the move not recorded in the system – the insurance company will likely refuse to pay out. While companies can perhaps cover the cost of replacing office furniture, losing payment on a network server or two would be far from ideal.

Yet in reality, the ease with which holes can be punched in the majority of asset registers should be a major concern not just to Financial Directors currently paying over the odds on insurance but also internal auditors. The asset register has a significant affect on company value, especially in industries such as manufacturing. By failing to ensure the asset register is up to date, internal auditors are not undertaking the required corporate due diligence. 

By undertaking a regular physical audit on assets and implementing sound processes for keeping the register up to date, an organisation can reduce its insurance premiums and ensure any claims are rapidly processed.  Can UK organisations really afford not to take asset value seriously?

For further information on how a specialist fixed asset register could improve cost control across your business, visit our website today.