Business changes and what this means for your insurance
Many Australians used the recent lockdowns to make some changes to their business. While some revamped their processes, others put their downtime towards renovations.
These changes are an investment in your business' future. But have you looked into the impact this could have on your insurance? If you have renovated or changed your work approach, this could have flow-on effects on the level of insurance you need.
After the past two years, the already severe rate of underinsurance has been amplified. For instance, residential construction costs have gone up by 7% in a year. This increase is the highest we have seen in 16 years.
Thanks to a global supply chain squeeze and border closures - which made it more difficult to get skilled labour - the time and money needed to acquire timber, metals and plumbing goods went up. The consequence of this: a rebuild is now more expensive and takes longer.
But this increase in the cost for rebuilding your home or business premises may not be reflected in your current insurance cover. As a result, some policies cover less than the true cost of replacement, which can leave you underinsured and at risk of financial hardship.
Research suggests as many as two-thirds of Australian homes are underinsured. Furthermore, it's thought that the rate of underinsurance is even worse for SME businesses.
As costs stay high, the time to reassess is now. Unfortunately, your insurer can't advise you on this matter, but you can turn to your broker for assistance.
There is more to think about for businesses than just a total loss scenario. Many policies accept 80% cover of the replacement value without penalty. But below this figure, an 'underinsurance penalty calculation' could impact the insured. In such instances, the insured is left at risk of their claim payout not covering replacement costs in full.
A recent case heard by the Australian Financial Complaints Authority highlighted this exact issue. A business owner whose property was damaged in a fire was left out of pocket due to being underinsured to the value of approximately $250,000. An underinsurance clause was proportionately applied to the claim payout.
The business owner argued that the insurer should have advised her of the right level of cover. The claim was not successful. As explained by the independent ombudsman, the responsibility to read and understand the policy falls on the customer. Insurers can only provide general advice.
The Insurance Council of Australia says that if Australians wish to protect their business premises or standard of living after a claim, they need to know their worth. But unfortunately, in most cases, underinsured people don't make use of the available tools like building or contents calculators and instead guess the costs.
That being said, online calculators also have their limitations. It could be a good idea to invest in getting a professional assessment done for complete peace of mind that you aren't undervaluing your property. In addition, looking at your specific circumstances helps you get a far more accurate estimation of replacement costs.
It's also important to factor in additional costs. This includes demolition, clean-up, asbestos removal, council applications, an architect, surveyor services, temporary accommodation and even the garden shed and lawnmower.
After a year packed with floods, fires and storms, the importance of properly insuring your business has only become more apparent. While it's more expensive initially, it can help you avoid significant losses at claims time.
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 current business circumstances.
If you haven't already, get in contact with your local Coverforce Office or call 1 3000 COVER.
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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