Case study: Bob (age 42) and Janet (age 37) have come to see you about their general

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Question:

Case study:

Bob (age 42) and Janet (age 37) have come to see you about their general insurance.

They have recently started an online business. They sell a range of household items, including kitchenware, cleaning products, towels, blankets, ornaments and the like.

The business grew quickly from the time they started operations in January 2020, and they are now leasing a warehouse from where they operate the business.

Having realised that the prompt supply of goods significantly improved their sales, they intend to hold a large range of stock on the warehouse premises, particularly for the more popular items, so orders can be filled as quickly as possible.

They anticipate that the value of stock on hand will be initially around $350,000, and as the business grows so will the value of stock kept in the warehouse. They also have around $50,000 of computer equipment, printers and other technology devices. They also have $80,000 worth of operational equipment such as forklifts, pallets and wrapping material to facilitate deliveries.

They are finding it difficult to keep up with the increasing workload so will hire two employees to assist with the business. The number of staff required could also increase as the business grows.

They also hope to open a shopfront at the warehouse so customers can elect to pick up orders directly rather than have them posted.

They operate the business through a discretionary family trust, and have their own private company, Homeware Galore Pty Ltd, as trustee of the family trust. The business' trading name is Homeware Galore Pty Ltd.

The warehouse is made from concrete blocks. The front of the warehouse has a large glass window, glass door with locks, and a large roller door for trucks which operates with a remote. There is no security system. There is a small kitchen area.

Their recent gross turnover was $850,000 with a net profit of $330,000. Their net profit will reduce initially because they will employ staff; however, they anticipate a growth in turnover which in turn will help increase their profit. They estimate that they will pay each staff member $85,000 p.a. inclusive of superannuation.

Customers set up an account online which stores their personal details, such as their name, date of birth, purchase history and credit card details.

Bob and Janet require your assistance to help identify the business' risks and suggest strategies to minimise those risks, which include general insurance. Question:

The 'theft' policy you have provided for Bob and Janet has an excess of $900. There is an option to reduce the excess to $400, which would result in an increase of $220 p.a. in the premium cost.

Bob and Janet have asked if they should take the higher premium cost so if in the event of a claim, they would only have a $400 excess.

Evaluate the impact of 'theft' for these clients. Provide a recommendation of whether they should retain or decrease their policy's excess. In your response, refer to the clients' circumstances that have been considered.