One of the most common risks for Australian businesses is underinsurance.
And about 25% of SMEs have no business insurance!
For many small business owners, your business is your entire livelihood. Make sure it is protected sufficiently beyond just compulsory basics. Ask yourself if you are not insuring some aspects of your business because you want to save money, thinking ‘it won’t happen to me’.
When the unthinkable happens like a burglary, car accident, machinery breakdown or even a tax investigation, it could cost many thousands of dollars for the sake of saving a few hundred.
Some brokers estimate between 70-80% of businesses are underinsured, which could result in huge losses for them when trying to rebuild and repair after damage to their business.
The Insurance Council of Australia examined small to medium-sized businesses and found that 26% have no form of general insurance. Sole traders are among the most uninsured, with 40% operating with no coverage.
Tips to consider to avoid underinsurance recommended by CGU:
Ensure cover reflects the true replacement value of stock, equipment or buildings
This is one of the most common ways businesses get into trouble after an event such as a fire or storm. Initially, to cut premium costs, you might choose to insure only a percentage of the replacement value. However, with that, you are also electing to take on a percentage of the risk.
A fire caused by an electrical fault, for example, can cause the total loss for a business leading to significant costs and months of rebuilding.
Another pitfall is neglecting to review the sum insured both at renewal time or when changes happen to the business. For example, growing businesses may expand premises, buy new equipment or diversify products.
When the time comes to make a claim, the sum insured no longer reflects the true replacement value of your business assets. A business’ insurance policy needs to grow with the business.
You may be only insuring for the value of assets in a balance sheet – often this value does not represent replacement value, which is the cost to replace stock, equipment or the cost to rebuild. This can also leave you underinsured.
Take out business interruption cover: Some 81% of small and medium-sized businesses admitted that an unforeseen business disruption would have a severe impact on their business, yet only 27% have Business Interruption insurance. Ensure when you take out this cover, the period it would cover you for would be sufficient to support your business if you couldn’t trade for a substantive period
The true cost of underinsurance for your business: Underinsured businesses face a huge financial risk of high unplanned costs which can’t be covered by the savings made in paying a smaller premium. That’s why it is worth discussing with your Insurance Broker the value of your assets and needs and develop an insurance policy that fully meets your requirements.
Our tip 3 tips!
- Review your insurance policy every year. Things change and it’s important that your policy changes to reflect this. We can provide you with a complimentary review and quote at any time.
- Seek advice from one of our brokers who can review your policy to ensure you have adequate cover.
- Business insurance may be tax deductible and our accountants will be able to advise you.