With rising inflation, soaring interest rates, supply chain issues and a difficult labour market – business owners have less time to spend on managing risks and insurance. These factors could lead to underinsurance or incorrect insurance cover, as your business has changed, or the sums insured haven’t kept up with rebuilding costs or inflation. This means your business could be exposed to potentially large uninsured 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.
At Insurance Lewis Insurance we have professional insurance advisers who can provide you with advice and help you to identifying any uninsured or under-insured risks.
What is underinsurance?
Underinsurance is mainly due to three common causes:
- 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 and 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.
Why is avoiding underinsurance so important for SMEs?
Avoiding underinsurance is vital to the sustainability of businesses. Insurance is an essential tool used by business owners to transfer the largest types of losses to insurers.
Insurers promise to pay if a building is burnt down or a product malfunctions. If the sum insured is too low, you won’t have enough money to rebuild or if you don’t have product liability cover, you’ll have to pay for any damage the products cause as well as any legal defence costs. That’s why it’s essential to have the right cover and sums insured so avoiding underinsurance is key.
Solving underinsurance for small businesses
Talking to a professional insurance adviser is key to managing your business risks. With their insurance industry knowledge and experience and your in-depth understanding of your business and industry, together will ensure that you have the advice to minimise your key financial risks.
Contact Lewis Insurance Services on 07 3217 9015 or send us an email by clicking here.
This article was published by our AFSL Licensee, Insurance Advisernet Australia P/L, www.insuranceadviser.net
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