Under or insufficient insurance & how to protect yourself
Under or insufficient insurance means that you or your business doesn’t have the correct insurance in place, leaving you or the business exposed to potentially large financial losses.
Based on surveys from ASIC and insurers, under or insufficient insurance cover affects between 60% - 80% of SMEs. This is one financial risk that can be easily dealt with, amongst the many challenges currently facing business.
Types of under-insurance include not having loss of profits/business interruption cover, flood cover and management liability and cyber liability insurance. This means that if your business is unable to trade due a fire or is inundated by flood waters or you suffer a ransomware attack, you will have to bear the burden of restarting operations or rebuilding, along with the financial costs without the assistance of an insurer.
Inadequate sums insured are another area of under-insurance, in this case you have the correct policy, but the claim settlement won’t be enough to cover the losses. Insurers apply an average clause to most property and business interruption insurance policies. Basically, this states that if you declare half of the building replacement value or annual the annual turnover, then the insurer will only pay half the claim amount, as you are seen to have taken on half the risk of the loss. It’s very important to make sure the sums insured you tell the insurance company are enough to cover the replacement of reinstatement of the stock, contents or buildings. This will ensure that the claim settlement is sufficient to cover your losses.
A professional insurance adviser works for you and provides advice in your best interests. They can help you understand your insurance exposures, identifying any uninsured or under-insured risks. You can then decide if you want to buy insurance and how much insurance is best for you, the business and the cost.
Is your business underinsured?
Here’s three common reasons why SMEs are often uninsured or under-insured:
- Failure to purchase the correct cover. Either the type of policy (some wordings offer less cover than others) or the sums insured are inadequate for the replacement or reinstatement value when making a claim.
- Lack of awareness of insurance policies, such as Management Liability/ Directors & Officers, Cyber Insurance (covering your loss of income and third-party liability), trade credit (covering non-payment of invoices by customers).
- Neglecting to review existing insurance policies, both on renewal or during the year to reflect any important changes made to the business. It’s also a condition of insurance policies that the insurer must be kept advised of important changes to the business, such as increase in stock, contents or new building, products or and operations.
Top 10 Liability Risks to Identify
Do you know the top 10 liability accidents that can impact your busines are: faulty workmanship, damage to third party property, water damage, damage to other vehicles, personal injury – slip, trips and falls or impacts, damage while digging, faulty products, fire and lifting and carrying injuries?
A professional adviser can assist you to identify the key business risks that may result in significant financial loss, then work with you to find appropriate insurance solutions, that fit your budget.
Collaborate with your insurance adviser
Collaborating with your professional insurance adviser is key to a managing your business risks. With their insurance industry knowledge and experience, and your in-depth understanding of the business and industry, together you can ensure that you have a comprehensive insurance program that manages your key financial risks at a competitive price.
This will provide you and your managers with the security and peace of mind to focus on managing and growing your business, especially in these challenging times.
It’s also important to remember that with insurance companies reducing their willingness to underwrite certain occupations and increasing premiums and excesses, collaborating with your insurance adviser will save you both time and money.
This article originally appeared on Insurance Advisernet News and has been published here with permission.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Gail Findlay.