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.
North 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
Public 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
Although 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 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
North 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
We’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!
