The Public Liability Insurance Blog

Insuring North Pole Industries

We were contacted earlier this month by an independent business owner with a rather unusual operation that covered several areas. the business owner was kind enough to let us share the details of his operation for educational purposes as we thought it would make a good case study to demonstrate the several different elements of insurance that a single company can benefit from.

flying across the moonNorth Pole Industries is run by Mr. S Claus and probably has the most bizarre business model we have every encountered. For the vast majority of the year, Claus conducts market research into the world’s children, aggregates a large behaviour-based database and then employs a large workforce to manufacture gifts based on that research. These gifts are then distributed in a frantic delivery run across the world in just 24 hours conducted by the company’s single-vehicle fleet. This means the vast majority of work actually takes place on a single day which is apparently enough to sustain the business for the rest of the year.

Our agent dealing with the call was initially sceptical about how the business actually made any money, as a gross annual turnover is integral to establishing risk and premiums for any business insurance policy. We contacted North Pole Industries for comment to clear up the confusion. “It’s all about brand licensing,” says Claus. “The company started as a retirement hobby for me. I used to make simple toys and give them away when they started cluttering up my living room. That just became a thing and it all grew word-of-mouth from there.”

A licensing deal with Coca-Cola was the company’s first major break and allowed Claus to scale his hobby up into a full time venture. “After some of the marketing and PR guys from Coke did a bit of an image refresh and gave me a new red suit, other licensing deals just started rolling in. The manufacture and distribution of toys became a major annual event that has always remained core to our brand building and without it, the business would just self implode.”

The company has been established for a very long time and has apparently got a very strong global footprint, but has up until now remained uninsured. “If I’m honest, it’s all got a bit out of hand,” adds Claus. “I realised I’d been putting off insuring my business since day one and that leaving it any longer was just too irresponsible.”

We managed to pull in quotes for the following elements of Claus’ multi-faceted business.

Employers’ liability insurance

Claus employs hundreds of elven workers in his factories to manufacture the toys that he designs. Due to the general high risk nature of the factory environment, having a policy in place to protect workers from injury would be crucial, as well as the fact that having employers’ liability in place if you employ anyone that is not a direct family member is a legal requirement.

Claus argued that his arrangement with his elf workers (short and pointy-hatted as opposed to tall and pointy-eared apparently) is such that they are there on a volunteer basis. However, even though his workers are unpaid, they still need to be covered by an employers’ liability insurance policy.

Public liability insurance

Claus on the roofPublic liability insurance is not a compulsory form of cover and protects you against lawsuits brought against you by members of the public and third parties. Claus was initially insistent that he would not need this cover as his premises are incredibly remote and he never has visitors that are not directly employed by him.

However, on further questioning, it transpired that Claus visits a lot of properties owned by third parties, which would also be covered by public liability insurance. He quickly changed is mind and explained that his delivery operation requires landing a flying machine powered by reindeers on the roofs of houses, which is allegedly very difficult if he is delivering to an individual flat.

He also mentioned that he occasionally has to modify or install chimneys to facilitate deliveries – a business activity which he has been expecting will eventually land him in court for years now. We assured him that public liability insurance can indeed protect against damage done to the property of third parties.

Professional Indemnity Cover

Claus office workAlthough there is a large amount of manual labour performed by North Pole Industries, Claus also engages in a huge amount of research around the rest of the year into the behaviour of the world’s children.

With a database of approximately 2 billion children, Claus has to perform a complex judgement analysis on whether they have adhered to an undeclared set of behavioural criteria with the results going on to determine the type and quality of toy that they qualify for. Allegedly, he makes sure that this list is checked twice and recompiled each year, but with volumes of this size, it would be easy for him to make a mistake.

In jobs where you trade on your professional opinion, professional indemnity cover will protect you in cases where someone takes you to court accusing you of negligence. Claus was very interested in taking up this cover as he has seen an increasing number of aggressive communications sent his way. “It used to be you leave a kid a piece of coal and they got the message, straightened up their act and that was the end of it. These days, if it’s a Samsung Galaxy Tab instead of an iPad then you can expect stroppy letters,” said Claus. “It’s only a matter of time before one of the little brats sues me for negligence. I blame an increasingly litigious culture personally.”

Product liability cover

Claus dropping presentsClaus shared several concerns about the toys his elves produce in his factories. He stated that although he has never had to issue a product recall, he dreads the day that something serious slips through the net and the logistics and expense of implementing such a widespread recall.

“We had a bit of a close call with a batch of Furbies a few years ago. One of the elves in sector 7G found one that spontaneously burst into flames whilst reciting Harry Potter and the Philosopher's Stone in Latin, but it seemed to be an isolated incident,” reflected Claus. “It’s really only a matter of time before something serious happens. I mean, elven labour is ‘cheap’ at the best of times, but the work load has become insurmountable and there’s only so much testing that we can perform before December.”

As he runs a factory and is the actual manufacturer of the products he delivers, Claus would have needed to take out full product liability, which can be a very expensive standalone policy as it covers a much higher risk compared to other forms of business insurance.

Claus mentioned he was considering outsourcing his manufacturing to a third party, but even if he was just distributing products and not manufacturing them himself, he would still benefit from product liability insurance as an add-on to his public liability insurance as he could still be taken to court for just supplying faulty goods.

Plant cover, buildings cover and stock cover

Claus warehouseNorth Pole Industries’ factories are apparently rather substantial in size and the equipment contained within is incredibly specialised and expensive. We recommended that he cover this with plant cover as an add-on to his policy.

Repairing and rebuilding the company’s property is also something that would take a great deal of money so buildings cover was another obvious choice to offer Claus.

Finally, the toys made by the elves are also stored on site and due to the amount that accumulates over the year, the cost of that stock is much more than Claus originally assumed. “It’s so easy to forget just how much it would cost to replace these things. Somehow because I buy the parts cheap and get the labour for cheap, I’d assumed that replacing the final product if anything happened to it would be inexpensive as well, but that’s crazy when you think about it!” Admitted Claus.

Business interruption

Although Claus states the company doesn’t really have a problem with snowstorms disrupting his delivery operation any more after he installed a light-emitting-reindeer to his delivery vehicle, he did reflect that a serious accident or fire at the factory could set them back for a very long time.

Our expert team recommended at least 24 months of business interruption due to the difficulty the company would face in getting replacement equipment and building materials to the premises owing to its remote location. Although much more extreme, it’s the same problem faced by many business located in the middle of busy town centres or anywhere where transporting building materials is a challenge.

Conclusion

Claus dashing through the snowWe’re not sure who Claus ended up taking insurance out with in the end. If his headquarters were registered in the UK, we would have been able to source a policy for him through the open markets and help him further, but as it wasn’t, we recommended that he had to go through a broker local to the North Pole.

“I can’t believe I’ve been putting this off for as long as I have. It’s become enough to stop me from sleeping now!” said Claus. “If I could go back and talk to myself when I was starting up, I would definitely order myself to get my business insurance sorted out as soon as I could!”

Claus gave us permission to write about his business and wished us a Merry Christmas. We would like to officially wish him the same and thank him for letting us write about his truly unusual business.

Written by David Hing for YOUR Insurance, a broker specialising in small business insurance, public liability insurance and landlord insurance. Happy Christmas!