Commercial insurance for stock and inventory property should be considered as part of your risk management portfolio. This property insurance coverage can be inherently complicated to insure. The contents usually start out in the form of raw materials. Those raw materials can also be further broken down into mini component parts that might be scattered throughout the insured property or other locations. Insuring the raw materials at their origin and then as they are transported can raise a host of property coverage issues and concerns along the way.
Regardless of who owns the raw materials, a loss of income exposure is a real possibility if the raw materials are somehow damaged or delayed. Each step of the way as the raw materials are processed in enhancing the manufacturing process adds value to that raw material. Depending on the type of stock, at the varying steps of the manufacturing process the raw materials value may fluctuate tremendously.
Seasonal fluctuations in the manufacturing process with regards to environmental and marketing concerns can also affect huge price swings in the value of the raw materials becoming finished goods and stock. Climate restraints, political restrains and the like all play a part into the fluctuating values.
The finish goods that become the stock of inventory can have coverage concerns depending on the turnover of the stock. Stock that turns over rapidly is usually more readily valued accurately because the current cost and pricing is built in to the stock. Stock that sits in inventory for long periods of time might’ve incurred cost that overtime is increasing or decreasing in the marketplace. As an example, stock items that maybe cost $1,000 to produce in overhead costs that sits for year might cost twice that a year from now. Therefore, insuring that inventory at the original cost when the value has changed significantly there can be a substantial loss of profit if the values are not adjusted. There are commercial property endorsements and enhancements that can be added to your policy to deal with market fluctuations, increased cost, et cetera. In addition to these fluctuations in this global economy in which most manufacturers purchase raw materials from foreign sources, monetary fluctuations globally of inflation and deflation can adversely affect the value of the stock that is in inventory. This can create financial hardship for the insured. Stock and inventory for commercial property losses have unique exposures that must be identified and analyzed for the proper risk management technique to be employed.
Because of the complexity directly and indirectly of valuating stock and inventory, it is beneficial to have commercial insurance coverages in place that are flexible and expansive enough to cover these fluctuations. Your typical property insurance policy does not have the appropriate coverages for fluctuating stock and inventory. You need to have the proper endorsements on your property insurance policy.