Inventory & stock insurance: seasonality, fluctuating values, and avoiding underinsurance

Introduction

Inventory and stock insurance is rarely seen as a management tool. For many SMEs, it remains a technical expense, renewed year after year. Yet, as soon as stock levels fluctuate seasonally or their value changes, the risk of underinsurance becomes very real. In the event of a claim, the difference between the actual value and the insured amount can severely impact cash flow and business continuity.

The objective of this article is simple: to enable executives, CFOs and HR managers to understand the key mechanisms, to structure useful documentation and to make insurance decisions consistent with operational reality.

1. Inventory & stock insurance: scope and challenges

Inventory insurance covers the company's movable property used in its operations. This includes merchandise, raw materials, semi-finished products, and finished products stored on-site. In Switzerland, this coverage is generally integrated into business property insurance, with modules that can be tailored to the specific business activity.

The main issue is not only the nature of the risks covered, such as fire, water damage, or theft, but also the alignment between the declared insured value and the actual value of the inventory at the time of the loss. This alignment is rarely stable over time.

2. Seasonality of inventories: a structuring factor

Many SMEs experience marked stock cycles. Retail, food industry, distribution, logistics or e-commerce, stock volumes fluctuate significantly depending on the period.

The problem arises when the insured amount is based on an annual average or a snapshot taken at an unrepresentative time. When a claim occurs during a peak period, the company discovers that the coverage does not reflect reality.

Mini case study

A small or medium-sized enterprise (SME) operating in seasonal distribution builds up the bulk of its stock in a short period before the peak season. Inventory insurance is calculated based on an inventory taken during the off-season. A loss occurs during the peak storage period. Compensation is reduced proportionally, as the insured value only covers a portion of the actual stock present.

3. Fluctuating values and valuation methods

Beyond volume, inventory value can fluctuate depending on purchase prices, production costs, or market conditions. These fluctuations are common in sectors dependent on raw materials or international supply chains.

An often underestimated point concerns the valuation method used. Whether it's purchase cost, cost price, market value, or another accounting method, the insurance contract must be consistent with the company's internal logic. Without clarity, complex disputes can arise in the event of a claim.

4. Underinsurance: mechanism and consequences

Underinsurance occurs when the insured sum is less than the actual value of the insured property. In Switzerland, property insurance generally applies the proportional rule. The compensation is then reduced in the same proportion as the difference between the insured sum and the actual value.

This mechanism is not a penalty. It stems from the principle of contractual balance. For the company, however, the consequences are very real. Part of the damage remains its responsibility, even if the loss is covered.

5. Manage inventory assurance as a process

A management approach is based on three pillars: document, arbitrate, monitor.

Documenting means having a clear view of inventory, its seasonal evolution, and its valuation. Arbitrating involves deciding on the acceptable level of coverage based on the risk and the company's financial capacity. Monitoring involves updating the data and sharing it with the insurer or broker.

Box: What needs to be documented

Detailed periodic inventories

Methods for inventory valuation

Historical seasonal variations

Logistics flows and storage locations

Prevention and safety measures

6. Common mistakes and how to avoid them

A common mistake: to consider inventory insurance as a fixed contract.

How to avoid it: plan an annual review aligned with the business cycle.

Common mistake: declaring an approximate value due to a lack of consolidated data.

How to avoid it: rely on accounting and operational inventories.

Common mistake: not informing the insurer of a temporary increase in stock.

How to avoid it: anticipate peaks and discuss contractual adjustments.

7. Questions to ask your insurer or broker

1. What inventory valuation basis is used in the contract?

2. How are seasonal variations taken into account?

3. Are there any tolerance margins in case of temporary overruns?

4. Does the proportional rule apply systematically?

5. What exclusions apply to stocks?

6. Are goods in transit covered?

7. What documentation obligations are required in the event of a claim?

8. Do preventive measures influence coverage?

9. How often do you recommend an update?

10. What options exist to secure peak activity periods?

Conclusion

Inventory and stock insurance is more than just a contractual obligation. It reflects a company's ability to manage its physical risks in a structured way. By factoring in seasonality, fluctuating values, and rigorous documentation, managers can significantly reduce the risk of underinsurance.

The next step is to integrate these elements into a comprehensive review of the insurance portfolio and to formalize the trade-offs with a contact person capable of documenting and monitoring them over time.