Preventing a nightmare before Christmas

Ah, Christmas. The stockings hanging over the mantelpiece, the beautifully lit Christmas tree, the presents arranged lovingly at its base, ready to be unwrapped by children whose faces are filled with wonder.

But wait, says the knowing claims manager in you, hold it right there. This is a recipe for disaster not seen since one of the passengers lit up a Rothmans on a voyage of the Hindenburg.

For surely these scenarios represent major risks to the average household? The stocking and tree might look good, but think of the fire risk. And as for the presents, well you might as well just be asking any passing burglars to come in and help themselves.

This might be a bit overblown, but there is a great deal of truth behind such worries. For all the jolliness around at this time of year, it is also one of the most worrying in terms of increased insurance risks.

Cornhill Direct spokesman Simon Coughlin points out that official recorded crime statistics reveal an increase in domestic burglaries ‘ ‘ during the coldest and darkest months of the year. He says: “Householders should be even more security conscious than usual, keeping presents hidden away right up until Christmas Day.”

Indeed the prospect of increased claims for household insurers is something of a headache for claims managers, given that each person spends an average of £385 on presents at Christmas – a massive £18.3bn in total, according to insurer Direct Line.

Direct Line head of home insurance Andrew Lowe says the predictable increase in expensive goods is a strong lure for thieves, and home insurance should be increased to counter the potential threat from burglars.

He advises homeowners to reappraise their home insurance to make sure that all the goods in the house are adequately covered by the policy currently in force.

Insurer NFU suggests concealing gifts in the loft rather than cupboards, making them more difficult to find for both potential burglars and children.

Electronic items

And it’s not only hiding presents that people should concern themselves with. More fundamentally, and especially given the value of many presents these days – with electronic items standing out in particular – it’s important to ensure that home and contents insurance can cover every eventuality, particularly the dreadful prospect of a burglary over the holidays ­ and after.

Lowe says that after Christmas and New Year some may find that the value of their household contents has significantly increased in value, so it is worth reassessing home insurance policies to make sure you are not underinsured.

Still, the insurer is putting its money where its mouth is in this instance, as from 1 December

to 15 January, Direct Line increases its home contents insurance by £5,000 or 10% of the sum insured (whichever is greater) to cover Christmas gifts.

Christmas lights, unsurprisingly, pose an equally alarming risk in terms of possible fires. According to Direct Line, some eight million households have Christmas light displays at an annual cost of £800m, despite the fact one in three Britons considers outdoor Christmas light displays to be tacky and distasteful.

Homeowners need to make sure they’re covered for any festive decorations, apart from the need to take appropriate safety precautions to ensure that any lights that are put up do not constitute a fire risk.

Financial perspective

Outside of the domestic environment, however, the risks are just as bad, perhaps even greater if considered from a purely financial perspective.

For, as any self-respecting office worker will inform you, this is the season when Brits do what they are best at: bad dancing, heavy drinking, and inappropriate use of the photocopier.

Yes, Christmas is also the season of the office party, and with this annual festival of booze and embarrassment comes the opportunity for some quite serious claims, according to Chris Lennon, claims manager at underwriting agency Dual Corporate Risks.

He says that the main category of insurers which should be concerned are liability insurers, and in particular those offering a relatively new type of insurance as far as the UK market is concerned – employment practices liability insurance (EPL).

EPL policies differ between underwriters, but this form of insurance essentially provides financial protection to cover costs incurred during employment disputes as a result of official investigations and inquiries.

Over the festive season, these inquiries are often related to a tacky attempted fumble that can lead to a claim. Lennon explains: “EPL is a little understood type of insurance which covers disputes arising from various causes. One of the most fertile times for claims is at Christmas, whether as a result of a sexual harassment charge stemming from the office party, or the failure to pay bonuses at this time of year,” he says.

“They are a category of claims that need to be handled carefully, as EPL claims are proportionately very expensive and can be difficult to deal with because of the emotional factors that come into play,” he continues.

“Just think of a sexual harassment charge resulting from a fumble behind a photocopier at the office Christmas party, and you get a feel for what sort of claims can arise.

“It’s not just a matter of difficulty for the individuals concerned; one of the issues is whether the company in question really wants the publicity.”

He says that the standard wording that is offered is a directors’ & officers’ (D&O) policy with EPL as the standard extension.

But D&O covers only directors personally, not the company. While it’s not unknown for individuals to be named in EPL claims, it’s much more usual for the company to be sued.

Lennon adds that his company offers a comprehensive form of cover to deal with these risks known as entity cover, which is essentially EPL cover that is written to ensure that the company itself is protected

He says: “These claims are very common. We have quite a number, considering the size of our book, they are something like 20% of active D&O claims”.

So enjoy Christmas, but make sure adequate liability cover is in place – just in case.