Businesses hit by record fuel prices, fears over intermittent supply, and new red diesel regulations are increasingly storing higher quantities of fuel on site. However, this could see businesses running the risk of a gap in their insurance – a potentially costly error if they needed to make a claim. There are three main risks associated with an increase of fuel kept on business’ premises: security, underinsurance, and the risk of environmental damage from leaks and accidents.
The soaring cost of diesel – up from a pre-pandemic average of £1.30 a litre to nearly £2 – fuelled by the war in Ukraine and a weak pound, has seen many businesses buy in bulk to try to avoid the increases.
Alongside this there are the new red diesel regulations introduced on the 1st of April, which banned all but a handful of industries from using the lower-taxed fuel. Those still able to use red diesel include agriculture, marine, vehicles used on railways, and travelling fairs and circuses – but not the construction industry, a previously heavy user that now faces significantly increased costs to operate diesel-powered plant and machinery.
So, what does all this mean for commercial business insurance?
How can you avoid underinsuring your fuel stock?
Underinsuring your fuel occurs when the sum insured on your policy is lower than the actual replacement cost of the fuel – a very real risk with prices constantly fluctuating and an unknown future given the ongoing war in Ukraine.
In the event of a claim where the stock is underinsured, businesses could fall foul of the ‘average clause’, where the insurer will only pay out a percentage of the claim amount equivalent to the percentage of underinsurance.
For example, if £10,000 of fuel is stored, but the sum insured is only £7,000, all claims would be settled at a ratio of 70% of the claimed amount.
Where previously it was considered advisable for the sum insured to be reviewed on renewal, the current climate has highlighted the need for mid-term valuations to avoid the risk of underinsurance. Further, businesses who do not have fuel listed on their policy at all will have no cover for this asset if they need to make a claim.
It’s vital that businesses keep track of the replacement cost of stored fuel and contact their broker to adjust the sum insured accordingly. As your broker we are available to you to assist with these considerations and would recommend you contact us if you’re looking to review your sum insured.
Security measures to protect from theft
With the cost of fuel so high, storing increased quantities on site carries an additional risk of theft, so we’d also recommend reviewing site security and putting in additional measures if required.
Measures to keep fuel storage secure include additional lighting, alarms, and CCTV.
- Motion-activated lights can help put off thieves who like to operate under the cover of darkness.
- Protect your tank with a cage or high fence to hinder physical access, with a heavy-duty padlock on the access gate.
- Fit a perimeter alarm or tank alarm which is triggered if someone gains access to your tank out of business hours.
- Consider installing CCTV, which is likely to make thieves move on to easier targets and can provide evidence for the police if a theft does happen.
The increased risk of environmental damage
The risk of leaks and accidents, and the subsequent potential for environmental damage, also need to be carefully considered, as well as the rules and regulations for the storage of fuel.
We recommend businesses storing fuel take out Environmental Impairment Liability (EIL) insurance to protect against the cost of rectifying environmental damage. The cost of remedying pollution incidents can quickly mount up when you factor in third-party costs, legal fees, and the cost of the clean-up itself. Whether it’s a slow, barely noticeable leak that happens over a long period of time, or a sudden, larger leak, the ‘polluter pays’ principle would leave you accountable for the cost of rectifying the damage caused.
EIL insurance provides cover for clean-up costs and legal defence, and it can cover the costs of damage to neighbouring land and compensation for any loss of business as a result.
While your public liability insurance can cover damage to third party properties, pollution of the UK’s waterways would not be covered, nor does it provide cover for instances of gradual pollution.
To review your sum insured, or the possibility of extra insurance protection for fuel storage, contact us on 01603 218000.