Avoiding the hidden traps of underinsurance

Published: 05/11/2021

Avoiding the hidden traps of underinsurance

For any business owner, suffering loss or damage due to an extreme weather event is devastating enough as it is. So, consider what it would be like to find out that the insurance you have in place provides insufficient cover to support your need for repairs when you go to lodge a claim. That can make things all the more difficult.

According to the Insurance Council of Australia's most recent research into underinsurance, this is the case for 12.8% of small businesses.

What can lead to underinsurance?

Not having sufficient cover in place can be due to several reasons. For example:

  • When taking out certain business interruption policies, additional features such as flood cover may be optional. In an attempt to save on costs, business owners may opt for the minimum cover before properly considering the broader issues that could affect them.
  • If a business owner fails to adjust their policy to relect any growth or change in business circumstances
  • Community or regulatory changes that make previous sums insured inadequate
  • When a business realises that premiums can be lowered with limited downside by taking out insurance for a sum less than the actual value of the property being covered. In such instances, the policy holder often anticipates they will still be fully covered for partial damage or lesser impacts, even though their total sum is deliberately underinsured. But this isn't necessarily true.

Many insurance contracts have average or co-insurance clauses proportionately lower than the sum paid for partial damage, reflecting underinsurance applied for the total value. The clauses highlight why having correct valuations for insurance purposes is essential and the financial risks of having an insufficient level of cover.

How Coverforce can help

When the unexpected happens, the realisation that the payout is less than expected can make an already stressful time all the more difficult. That's why our team of brokers can help assess your risks and provide personalised advice on the right insurance program to adequately protect your business and assets.

In the event of a claim, we are on hand to provide advice and minimise disruption to your business. Our highly experienced claims team will work with the insurer on your behalf to ensure you receive your full entitlement without undue delay.

For more information or to arrange cover, please contact your local Coverforce Office.

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 Coverforce directly.

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