Underinsurance - Business Insurance
The right level of insurance can mean the difference between sink and swim in the event of a mishap
The purpose of business insurance is to restore a company to the position it was in before any catastrophic losses. That means if the sum insured - the maximum amount an insurer will pay in a disaster such as building damage - isn't enough to recover the bottom line, business owners are left out of pocket.
Underinsurance or having incorrect insurance can often also determine whether a company remains open for business.
There are three main ways that your business can be underinsured:
- Events not covered. The insurance policy may not include cover for events that are likely to happen. For example, in Brisbane, many insurance policies won't cover you for damage due to floodwaters.
- Insufficient value or sum insured. The submitted value of your property may be significantly lower than the replacement value. This can be due to renovations or improvements that happened after the initial policy was taken out, or it can be a deliberate ploy to reduce the premiums, whereby the business undervalues its property to avoid paying higher premiums.
- Insufficient policies. You may have adequate insurance for the replacement of your commercial property but you may not have considered business interruption insurance or liability insurance. This means you could still be out of pocket because the business can't operate as normal while the property is being repaired or replaced. If a liability claim is made and the insured amount is too low, or you don't have any liability insurance, then the business could face significant losses if the claim against you is successful.
Review your policies
Take the opportunity to review your policies with a broker to make sure you're adequately covered for the events that could happen, and to ensure you've considered all aspects of a disaster. This includes not just damage to or loss of property but business interruption and other potential liabilities.