Using the Difference Method, the insurable Gross Profit is determined by deducting from total sales revenue, those expenses that are fixed and semi-variable to sales.

Using the Difference Method to arrive at the Sum Insured or Declared Value for insurable Gross Profit, the more expenses that are deducted from total sales revenue, the lower the insurable Gross Profit and therefore the lower the insurance premium.

The total cost of risk (known as TCOR) for an organisation is the sum of all the premiums paid by that organisation for insurance.

A saving in premium is not a saving in the total cost of risk if the premium saving comes at the expense of insurance coverage that is needed by an organisation at the time of a claim.

All organisations that claim their staff are their most important asset, insure Wages fully.

As a generalisation, the workforce of most companies in the 21st Century is, in the main, more highly trained and uses greater skills than the workforce of the same type of company in the middle of the 20th Century.

While the cost of recruiting in the 21st Century may be more expensive than in earlier times, this is offset to some degree by the fact that the population generally is better educated, therefore requiring less ‘on the job’ and external training.

An organisation’s investment in their staff is higher today than at any time in the past.

The move from labour to capital has reduced the likelihood of fires.

A business often does not need their staff after even a small loss, such as where one machine is damaged. As such, they can ‘stand down’ or otherwise reduce their payroll expense until such time as the machine is brought back online.

When a loss occurs and management is confronted with all the issues of business recovery, a past decision not to insure Wages adequately is often regretted.

Where a non-owner of the business is responsible for insurance, it is prudent that they keep in mind that the job they may be protecting by insuring Wages, is their own.

Which of the following expenses is typically not included in the definition of Payroll?

Under an ISR policy, if Payroll is to be fully insured, it is best practice to show Payroll as an Uninsured Working Expense and to insure separately under Item No. 3 – Payroll.

The benefit of insuring Payroll fully is that in the event of a loss, one of the biggest ongoing expenses to the business is fully insured. It allows management to use labour to reduce the period of disruption, and eliminates the time spent in re-recruiting and training.

Indirect factory labour should be insured in the vast majority of cases, even when a percentage of wages is to be insured.

Which of the following should be considered when deciding on those categories of labour that should be insured?

When determining the percentage of staff wages that needs to be insured, you should measure the percentage by head count. That is, the number of staff that the owners, managers, family members and key/essential staff represents to the total number of staff.

In practice, with Dual Wages a safe rule of thumb is to cover Payroll for 100% for an Initial Period of 4 weeks and then 10% or 15% thereafter.

Severance pay is a very useful cover as it provides protection to the Insured for the accrued benefit payable to an employee, such as holiday pay, sick pay, long service etc.