Counting the cost

UK companies may be continually complaining about escalating insurance premiums but, in reality, the majority are actually over insured, writes Keith Dolby, managing director, Real Asset Management.

With less than 40 per cent of assets on the register easily identified during a physical audit and an estimated 20 per cent no longer in existence, organisations are hardly getting value for money from expensive insurance premiums. Furthermore, poor asset description typically results in claims being challenged by insurance assessors.

Most organisations acknowledge that their asset register is inaccurate, with little or no effort made to keep track of assets as they move around the company, and few companies update the register when an asset is scrapped or sold. But just how many companies realise the potential business cost?

Despite admitting poor processes and a reliance on personal knowledge to determine asset location, most organisations’ actual awareness of the quality and accuracy of asset information is woefully inadequate.

On average, physical assessment reveals only 40 per cent of assets are well described on the register and can be easily found; a further 40-50 per cent probably exist but are so poorly described they are impossible to identify, and the remaining 10-20 per cent are well described but cannot be found, indicating they no longer exist.

This means that, on average, by basing insurance requests on the asset register, organisations are over insuring by upwards of 20 per cent - a significant cost that any financial director would be keen to reclaim. Indeed, one of the UK’s leading universities has recently reduced its insurance premium by 49 per cent as a result of attaining a true picture of the value of the asset register.

The problems caused by poor asset information extend beyond the initial insurance premium. 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, creating 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.

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; after all, the asset register has a significant affect on company value.

Can UK organisations really afford not to take asset value seriously? Endemic failure to maintain accurate asset registers results in the majority of companies insuring assets they no longer own.