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Is Your Business Underinsured?

Does your business have the insurance it needs to protect its success?


When it comes to insurance, make sure you have the level of protection you need.

Your business is probably one of the most valuable assets you have – so it makes sense to protect it in good times and bad. The major reason why small businesses in Australia fail is inadequate cash flow [1].

That’s where having the right level of insurance can make all the difference by helping to ensure your business continues to operate smoothly if the unexpected happens.

 “1 in 10 Australian small businesses with insurance don’t have enough cover to protect themselves.” 

 

The risk of underinsurance


Unfortunately, 1 in 10 Australian businesses with insurance don’t have enough cover to protect themselves against business disruption, legal liabilities or loss or damage to their assets [2].

This is referred to as ‘underinsurance’ and it can greatly increase the risk of a business having to close down if something goes wrong. So why are so many businesses underinsured?

Some business owners are driven by low premiums and don’t take the time to make sure they are adequately protected after an insurable event. As a result, the sum insured may not be enough to cover losses – or the terms of their policy may limit the amount that can be recovered.

It’s also common for business owners to underestimate either the reinstatement or replacement costs of their business assets after a damaging event such as a fire or storm. If the sum insured doesn’t reflect an up-to-date reinstatement or replacement cost, the owners will be underinsured and may face substantial out-of-pocket expenses if they need to make a claim. 

 

The difference insurance can make 


Type of cover: Business Interruption
Scenario: A dental clinic is severely damaged when part of the ceiling caves in during a major storm. The business is forced to close for two months of repairs.
With insurance: The owner's Business Interruption insurance can cover the amount of lost income while the business is closed.
Without insurance: The business loses two months of revenue and struggles for weeks afterwards to generate enough profit to make up for the lost income.

Type of cover: Professional Indemnity
Scenario: An architecture firm provides a flawed design, and the building then needs to be demolished and rebuilt from scratch. The client sues the arcitect for these costs.
With insurance: The firm has Professional Indemnity Insurance which can cover this amount, plus most legal costs.
Without insurance: The firm can't afford to cover the costs and is forced to go into liquidation.

Type of cover: Property Insurance
Scenario: A community organisation is targeted by vandals, who break a window to enter the building and steal computers.
With insurance: With Property Insurance cover, the organisation is able to repair the damage and replace the computers with new ones.
Without insurance: The organisation doesn't have enough cash to pay for the repairs and replacement computers and has to close down.

Typer of cover: Management Liability
Scenario: An agency terminates the employment of a worker, on the grounds of serious misconduct. He sues for unfair dismissal and is awarded a large payout.
With insurance: The agency can be covered for the damages and most legal costs by Management Liability insurance.


Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.

Purchase up to six products under one Business Insurance Package. 


Type of cover: Business Interruption
Scenario: A dental clinic is severely damaged when part of the ceiling caves in during a major storm. The business is forced to close for two months of repairs.
With insurance: The owner's Business Interruption insurance can cover the amount of lost income while the business is closed.
Without insurance: The business loses two months of revenue and struggles for weeks afterwards to generate enough profit to make up for the lost income.

Type of cover: Professional Indemnity
Scenario: An architecture firm provides a flawed design, and the building then needs to be demolished and rebuilt from scratch. The client sues the arcitect for these costs.
With insurance: The firm has Professional Indemnity Insurance which can cover this amount, plus most legal costs.
Without insurance: The firm can't afford to cover the costs and is forced to go into liquidation.

Type of cover: Property Insurance
Scenario: A community organisation is targeted by vandals, who break a window to enter the building and steal computers.
With insurance: With Property Insurance cover, the organisation is able to repair the damage and replace the computers with new ones.
Without insurance: The organisation doesn't have enough cash to pay for the repairs and replacement computers and has to close down.

Typer of cover: Management Liability
Scenario: An agency terminates the employment of a worker, on the grounds of serious misconduct. He sues for unfair dismissal and is awarded a large payout.
With insurance: The agency can be covered for the damages and most legal costs by Management Liability insurance.


How do you know if you are underinsured?

 
You are at risk of being underinsured if:

  • You haven’t updated your insurance cover to reflect the growth of your business.
  • Your insurance is based on an outdated replacement cost of your business assets.
  • You are covered for damage to your business premises but have not considered other forms of financial loss such as business interruption and management liability.
 

How can we help?


Sorting out your insurance cover often drops to the bottom of your never-ending to-do list. That’s where we can help. We do the hard work of reviewing your insurance strategy, adapting your cover, and giving you peace of mind that your business is properly insured.

Contact Clear Insurance today.


[1] ASIC, Insolvency statistics: External administrators’ reports (July 2017 to June 2018).

[2] Insurance Council of Australia, Non insurance in the small to medium sized enterprise sector, July 2015.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
Clear Insurance Pty Ltd. ABN. 41 601 916 689. AFSL No. 548953. 
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.


Clear Insurance, ABN 41601916689, AFSL 548953

This article originally appeared on Clear Insurance Blog and has been published here with permission.

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