The link between fixed asset management and insurance premiums
An organization’s insurance policy is derived from the value of its asset base. For example, manufacturing and distribution companies are typically asset-heavy, so insurance is a considerable overhead in that industry. With that in mind, many companies will still admit that their asset registers are not actually up to date. When a new fixed asset is purchased it’s usually recorded into the asset register, but then little effort is made to track the asset as it floats around the office from one department or building to another. Fixed assets are eventually sold or disposed of, even at that point, some companies don’t bother to update the asset register. What’s the end result? Companies end up insuring assets they no longer own.
The issue of poor asset management extends far beyond insurance premiums. What happens when a company has to file an insurance claim? Without an accurate asset register, it’s nearly impossible to estimate the value of what’s been lost in a disaster recovery or theft situation. When the assessor comes across a 20-year-old PC on the fixed asset register, they’ll be quick to scrutinize every other item. What’s the end result? Worst-case scenario, the insurance company will refuse to pay the claim.
The asset register has a tremendous affect on a company’s value. Failure to ensure proper fixed asset management means finance directors and internal auditors are not adhering to corporate due diligence.
For further information surrounding this issue click here.
This entry was posted on Monday, February 4th, 2008 at 2:15 pm and is filed under Thought Leadership. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Hi, I’m the Finance Director of a large organization, What kind of savings can I expect to make? Do you have an ROI document that I can review? Are there any white papers published on this topic? Many thanks, Nick.
Hi Nick. An accurate asset register usually ensures that companies don’t under-insure or over-insure their fixed assets. If you’re over-insured, your insurance premium is higher than it needs to be because you’re insuring more than the actual value of your assets. If you’re under-insured, you run the risk of a financial loss in the event that your company has to place an insurance claim. Either way, this is how companies can end up saving a significant amount of cash as a result of proper fixed asset management.
Yes, we have a document with some sample client data that you may find useful. Certain audits have shown that missing assets, not reflected on the asset register, represent as much as 10-20% of a company’s asset base! See the document attached here for ROI details.
Click here to view a Research Article on this topic titled Counting the Costs.
My organization first went through the exercise of updating the asset register a few years back. We were certainly over insured at the time. It’s not just a one time thing though; we are now in the habit of updating the asset register on a regular basis when any event relating to our fixed asset base occurs.