07 Sep Preventing underinsurance in your business
Small business owners are always busy juggling the many different parts of a business and facing many challenges to success such as extreme weather events, injuries to staff, theft, cyber crime and now the impacts of the pandemic.
Due to this, many businesses don’t take the time to make sure they have the right level of insurance cover for their business if something unfortunate happens. Not having the right insurance and levels of cover could mean a business will expose themselves to being underinsured if they must make a claim. Underinsurance can lead to financial difficulties and even closure of a business.
In a recent study by the Insurance Council of Australia, they found 12.8 per cent of small business do not have appropriate insurance cover and 10 per cent are underinsured for their assets.
Business insurance can be complicated due to the variety of risks needing cover. With the constant changes businesses are experiencing now and the impacts from the pandemic, its important insurance policies are regularly reviewed.
Unfortunately, with some of the extreme weather events and floods across the country we have seen so far this year, small businesses are finding themselves underinsured.
Understanding underinsurance risks
Often with both business insurance and personal insurance many people typically set and forget and don’t take into account situations or emerging risks that would require an insurance policy review.
With the increased cost and volume held of cold chain prescriptions and products, in recent storm claims, many pharmacy businesses had underinsured their fridge stock. A significant risk should the loss not have been due to an insurable event. It’s not uncommon to have a pharmacy with $20,000 of fridge stock now stored in a $8,000 fit for purpose fridge. If a pharmacy needed to lodge a claim for stock spoilage, for example, against their insurance cover they may not have the right levels of insurance cover for the increase in stock value should the loss have not been due to an insurable event.
In another example reported in insurance news, a rise in construction costs as a result of the pandemic has put homeowners building homes at risk of underinsurance due to material and trade shortages. Average construction programs on sites have increased by as much as 16 weeks. Insurance news reported, “Cost increases will worsen an existing underinsurance problem that may have seen more than 80% of property investors underinsured before the pandemic.” This could be a serious problem for homeowners should something go wrong. There is an urgent call for homeowners to review and update their property insurance value regularly or at least once a year.
Here are some other situations that should trigger a review of your business insurance policies:
- Stock Levels – as shown in the above pharmacy business example with stock values, you should ensure your policy covers the current value of your stock on hand.
- Staff – if you have either increased or reduced the size of your team, this may affect the types and levels of cover you need.
- Equipment and other business assets – your current policy may not cover new business assets you have purchased recently. If you have sold assets, you may be able to decrease your sum insured to reduce your premium.
- New risks to your business – this could be from changes to the way you operate. For example, increased cyber risks from working in different environments.
- Changes to turnover – increased or reduced turnover can impact your business interruption policy.
- New products or services you have launched and changes to sales channels, distributors or trade partners should trigger a review of your insurance.
- Any newly created entities that may have affected your operations or have interests in assets and any changes to directorship or ownership structures.
Preventing underinsurance in business
There are some critical steps a business can take to try and avoid underinsurance, with the first step to map out all risks to the business.
It’s important to think about all the risks the business faces when operating are covered and your business and assets are all correctly valued.
The insurance policy needs to be assessed regularly and a business should put in place a risk assessment process that is continually reviewed and updated every quarter to make sure you are across the changing risk environment.
How an insurance broker helps
Engaging an experienced insurance broker will help you and your team to identify the specific risks your business faces, building an insurance package that integrates different types of cover. That way, you can be confident you have the protection you need – and aren’t paying for anything you don’t.
Regular insurance reviews can lead to a better result for your business by saving you money with the correct levels and types of insurance in place so you are paying the right premium and reviewing your funding options to help with cashflow.
In a world that is constantly changing, it’s important for businesses to monitor changes to their business to avoid underinsurance.
The Carollo Horton team has substantial industry knowledge and expertise to be able to provide your business with comprehensive advice and appropriate risk management and insurance solutions no matter where you’re located.
If you have any concerns regarding your insurance or would like a review of your insurances, contact us today.