How does commercial insurance work?

[diy_fun_uk]

Years ago, whether factual or part of a film/tv drama, you'd hear people say 'they torched the place for the insurance money.'

Let's say you have a physical business (e.g. a shop) and it's insured. The business is ruined because of an incident e.g. fire or flood. You claim on the insurance. The insurance company investigate and conclude the claim is legitimate. For discussions sake, let's say they agree to pay out to the value of £200k. Is that £200k payment made to the claimant on the proviso it's exclusively used to rebuild the business (with proof expected e.g. invoices/receipts) or is the claimant essentially free to do what they want with the £200k? Or, does the claimant never actually receive any money as such i.e. does everything get routed via the insurance company in terms of invoices for works carried out?

No, I don't have or know someone who has a business and is thinking of doing this! Locally, we've just found out a business has been destroyed by fire and it instigated a discussion between me and a mate on the above. I'm wondering if folk still do this to get their hands on the cash, or if insurance companies now have mechanisms in place to ensure it can never happen?

 

[motorbiking]

These claims tend to occur where:
1. The value of the business is less than the assets.
2. The insurance covers loss of profits
3. the neighbours are in on the scheme and also claim.

 

[Mottie]

I thought they would pay directly to the builder for the repairs to be done. Maybe they would offer a one-off final payment to the building owner? The business owner may be paid out for loss of stock, earnings, wages etc. until it is back in the position it was before the fire.

 

[kingandy2nd]

Generally speaking a loss adjustor will assess the loss, and the insurer will pay the loss of the property damage element. That can be to employed contractors of the insurer for repairs to to the building, but more usually the assessed cost of the rebuild, and reinstatement of machinery and stock is then settled with the insured as a cash settlement (not actual paper money though). The insured can then arrange the repairs and replacement machinery and stock

Business interruption is calculated in a similar way and may involve forensic accountants to work out the loss of profits and the period of interruption, which would be settled in cash for the loss of income.

The claim will only reinstate the business to where it was before the loss, so for example if you had a 10 year old piece of equipment you'd only get the value of a 10 yo piece of equipment, it's not a new for old policy like you see with home insurance. Similarly, you'd only get the profit paid that you would have made if you had been in business and trading.

Therefore there isn't a massive gain to be had by torching an asset rather than selling it..and of course you run the risk of getting nothing if your claim is identified as fraudulent or exaggerated.

If you did decide to take the money and not restart, you'd likely be left with a derelict (devalued) building you own, or an obligation (I.e. lawsuit) from the landlord to reinstate their property to it's pre-fire state.

 

[motorbiking]

There was a scam running a few years ago where expensive boats were stolen to order with the cooperation of the owner. Owner gets an insurance payout, thief re-registers the boat overseas. Boat is then sold and profit split.

 

[Deleted member 18243]

These claims tend to occur where:
1. The value of the business is less than the assets.
2. The insurance covers loss of profits
3. the neighbours are in on the scheme and also claim.

4. The area is vibrant and multicultural.

 

[Notch7]

Years ago, whether factual or part of a film/tv drama, you'd hear people say 'they torched the place for the insurance money.'

Let's say you have a physical business (e.g. a shop) and it's insured. The business is ruined because of an incident e.g. fire or flood. You claim on the insurance. The insurance company investigate and conclude the claim is legitimate. For discussions sake, let's say they agree to pay out to the value of £200k. Is that £200k payment made to the claimant on the proviso it's exclusively used to rebuild the business (with proof expected e.g. invoices/receipts) or is the claimant essentially free to do what they want with the £200k? Or, does the claimant never actually receive any money as such i.e. does everything get routed via the insurance company in terms of invoices for works carried out?

No, I don't have or know someone who has a business and is thinking of doing this! Locally, we've just found out a business has been destroyed by fire and it instigated a discussion between me and a mate on the above. I'm wondering if folk still do this to get their hands on the cash, or if insurance companies now have mechanisms in place to ensure it can never happen?

many years ago Biffa the skip company reversed their roll on roll off skip into some shutter doors. Biffa sent around a loss adjuster and they settled the claim which was about £5k - and was paid direct to my business. As it happened, the shutter door was in 2 sections and the damaged section we never ever used, the landlord never noticed and TBH I never got around to getting it done


more recently I made and fitted 32 windows for a customer. 4 years later he got decorators in to repaint the outside, the muppets managed to scratch the glass on nearly every window. I quoted £17k to deal with it. The customer did get paid that by the decorators insurers (I know because the insurer called me). The customer never got the work done.

On another job, I did a quote for some flood damage (plumbing) the insurer paid me for it. The customer got a tiny bit of work done, then wanted the balance paid back. I had done a lot of work in preparing the quotes so being pizzed off I phoned the insurer - and they weren’t interested, I ended up sending the balance to the client.

 

[^woody^]

By all accounts, you would not torch a viable business.

You may want to torch an unviable business, or one that will be going down soon for other reasons, and you would hide the fact and ensure the accounts look rosy because they are the first things checked while the ashes are still smouldering.

Apparently.

Rebuild costs would be staged, and either to the insured on provision of invoices or to the appointed builder if he is instructed by the insurer. Other costs - stock, wages, alternate premised etc, and associated costs (if actually covered by the policy) are paid to the insured. It can get messy if landlords are involved and lease terms - the landlord tends to want something better and the lease may actually say so, but the insured may just be insured for like-for-like.