Many businesses only realise they are underinsured once it’s already too late. Underinsurance – having an insurance policy the wrong sum insured to cover potential losses – is increasingly becoming a major business risk.
According to global research group Rice Warner, Australia is one of the most underinsured nations in the developed world. Indeed, it’s estimated that Australians are underinsured by a massive $1.37 trillion!
One in ten Australian businesses have no insurance cover
A recent report from the Insurance Council of Australia showed that the prevalence of non-insurance or underinsurance in the Australian SME sector was approximately 12.8 per cent.
Matthew Richardson, Director of Business Development & R & R Insurance Group, suggests underinsurance is a big problem for small businesses.
“There are some small businesses that either do not have any insurance at all, or have inadequate sum insured coverage,” he says.
“Obviously, having no insurance is a major risk, but some business owners look to save money by having cheaper insurance premiums, but the danger in this is that the lower the premium, the narrower the cover.”
Taking the cheap option could mean lower costs in insurance premiums but at the risk of having a policy to protect your interests should disaster strike.
Review your Insurance needs regularly
Even if your business doesn’t change much over time, it’s still very likely that the space in which it operates has changed.
For example, a few years ago malware attacks and data breaches weren’t something SMEs had to worry about. However, in recent years ransomware attacks have exploded with 50% of them directed at a small or medium-sized business.
“It’s important to update your insurance broker with any important changes to your business, whether it’s taking on new clients, hiring new employees, moving premises or buying new equipment,” says Richardson.
How a R & R Insurance group can help
With the expertise of one of our R & R Insurance Advisers, you will have access to a broad range of general insurance solutions that can be tailored to your specific needs.
R & R Insurance group has enormous bargaining power and can get far more competitive rates than if you were to go directly to an insurer. We want to make sure you are well covered and at a competitive price.
Click here to contact a R & R Insurance adviser.
Does your sum insured cover all your potential losses?
Underinsurance triggers when businesses underestimate either the reinstatement or replacement costs of their business assets after a damaging event such as a fire or storm. If the sum insured doesn’t reflect an up-to-date reinstatement or replacement cost not what you can get on the 2nd hand market, the owners will be underinsured and face substantial out-of-pocket expenses if they need to make a claim.
Case studies illustrating the insurance versus underinsurance
Are you at risk of being underinsured?
If you answer ‘yes’ to any of these then you are likely to be underinsured.
Your insurance cover isn’t updated with changed circumstances (you may not have changed your insurance in years and your business has since grown in size and assets).
Your ‘sum insured’ is not enough to cover losses (because your current insurance is based on out-of-date replacement costs of your business assets).
Your coverage is limited to your business premises only and does not include consideration of other types of financial loss like business interruption, professional indemnity and management liability.
References
[1] Rice Warner, Australias-relentless-underinsurance-gap, 2016.
[2] Insurance Council of Australia, 2015-non-insurance-in-the-small-to-medium-size-enterprise-sector.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact R & R Insurance group directly.