Some Australian businesses could be underinsured, giving them a false sense of security and exposing them to potential risks in case of an incident, according to leading insurance broking network, Austbrokers.
Nigel Thomas, divisional chief executive, Austbrokers Network, AUB Group, said, “Many companies become complacent because they don’t seek professional advice. They simply choose policies, often online, then pay their insurance premiums every month and assume they’re covered. Too often, they don’t find out until it’s too late that their insurance policy doesn’t cover them for the event they’ve just experienced, or their insured amount is far less than they actually need to get the business back on its feet.”
Insurance is a key part of a risk mitigation framework so businesses could benefit from seeking professional advice from an insurance broker that specialises in risk management.
Thomas said, “The cost of commercial property insurance has gone down over the past few years, yet Australian businesses are taking out less insurance, not more. This could reflect the fact that many businesses are still looking to do more with less, balancing the risk of not having enough insurance against the cost of premiums.”
The Vero SME Index 2018 stated that, while business risk and machinery/equipment breakdown were the most prevalent insurable concerns of SMEs, about 80 per cent of businesses didn’t have insurance cover to address those concerns.
There are three key ways businesses could be underinsured:
1. Events not covered. The insurance policy may not include cover for events that are likely to happen. For example, in Brisbane many insurance policies won’t cover businesses for damage due to floodwaters.
2. Insufficient value or sum insured. The submitted value of the property may be significantly lower than the replacement value. This can be due to renovations or improvements that happened after the initial policy was taken out, or it can be a deliberate ploy to reduce the premiums, whereby the business undervalues its property to avoid paying higher premiums.
3. Insufficient policies. Businesses may take out adequate insurance for the replacement of their commercial property but may not have considered business interruption insurance. This means they could still be out of pocket because the business can’t operate as normal while the property is being repaired or replaced. If a liability claim is made and the insured amount is too low, or the business doesn’t have any liability insurance, then the business could face significant losses if the claim against it is successful.
Nigel Thomas said, “To mitigate the risk of underinsurance, business decision-makers could consider reviewing their policies with a trusted advisor to make sure they’re adequately covered for the events that could happen, and to ensure they’ve considered all aspects of a disaster. This includes not just damage to or loss of property but business interruption and other potential liabilities.”