The risks of underinsurance for SMEs
It's estimated 62% of SMEs are underinsured. With the financial pressures of higher interest rates, the increased costs of transport, utilities, rent, supplier products, and wages, some businesses see insurance as one area where they can reduce expenses.
Additionally, business owners don't always update their insurance after upgrading or acquiring new equipment or completing renovations or account for property value increases. This means their current level of insurance has not kept pace with growth or changes in business operations.
Take a quick look around your business and do a little mental accounting. Consider how much you paid for your equipment and other assets when you first purchased them. Have you completed any value-add renovations or extensions?
Now, think about how much it would cost to replace it all to the same level as today's prices.
If you have undervalued, and therefore underinsured, your business and assets, the balance of the cost of repairs, rebuilds or replacement of equipment following a claim can leave you out of pocket.
- If you insure your business and equipment for $300,000.
- An event occurs - fire, floods etc - causing $150,000 damage.
- You lodge a claim for $150,000 for replacement of equipment and building repairs.
- An assessor determines your total business and equipment is valued at $600,000.
- As you have declared/insured your business for $300,000 but the assessed value is $600,000, you're underinsured by 50%.
- As such, your claim is reduced by 50%.
- This means you only receive $75,000, not the full $150,000 of your claim.
In the 2023 Vero SME insurance index:
- 47% of businesses surveyed are making changes to their insurance due to inflation and rising supply costs, which were rated as the biggest worry for business owners, ahead of employee concerns.
- 61% of businesses are planning changes in the next year, but less than half (41%) said insurance was not on their priority list.
- 36% of those surveyed believed it would be more expensive to go through a broker. The figure is up from 25% in 2019.
Your business is your livelihood. Without the right level of insurance cover, you may not be able to maintain business continuity in the event of a claim.
Here are a few ways you can avoid being underinsured:
- Understand your risks - including legal, financial, environmental, and operational.
- Reassess your policy frequently - ensure it matches the current needs of your business.
- Complete regular inventories of your business and property - know the replacement costs of items and equipment rather than the original cost. Know what is covered and what is not.
- Get expert advice - engage an insurance broker who can provide personalised advice and key insights on insurance solutions designed for your business.
How Coverforce can help
With so many variables unique to your business, finding the right insurance can be challenging. The last thing you want to do is think you're fully covered until you need to lodge a claim.
Our team of brokers can help assess your risks and provide personalised advice on the right insurance program to 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, contact our expert team of brokers at your local Coverforce Office today.
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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