Can you afford the gap?
The dangers of underinsurance for businesses are obvious - you are not fully protected against the impact of an unexpected event. And yet over half of Australian small businesses are underinsured and at risk.
If you need to make a claim you may be in for an unpleasant surprise! Could you afford the gap?
Some of the most common mistakes made include:
- Underestimating the reinstatement costs of buildings
- Not allowing for engineering or architectural fees when determining the sum insured
- Underestimating the cost of replacing plant and equipment
- Underestimating the removal of debris costs
- Reviewing the sums insured each year
- Lack of business interruption insurance
- Lack of additional increased cost of working cover
In the case of underinsurance, Insurance companies will only pay a percentage of the value of the loss.
For example:
If you have a building insured for $500,000, and suffer a loss of $200,000, but the value at the time of the risk is $800,000, the Insurance Company will adjust the claim as follows:
Adjusted loss = (Declared value / Actual value) x Loss amount
Adjusted loss = (500,000 / 800,000) x 200,000
Adjusted loss = $125,000
In this instance the insured would be $75,000 out of pocket.
While underinsurance is across all sections of a policy the three main ones are:
Extra Cost of Reinstatement - In addition to the property values which people tend to roll year-on-year, damage can trigger a requirement to comply with building codes that were not current when the original building was erected. Governments have also moved to regulate water and energy saving devices for domestic and commercial buildings.
Removal of debris - People are unaware of how high the costs are to remove debris after a fire.
Business Interruption - Over half of businesses fail after a major loss mainly due in underinsurance. There is an ‘It will never happen to me' attitude where people focus on the premium and how much they can save. They need to talk to their insurance broker to get advice, as they would talk to their accountant or solicitor.
It is important to obtain a correct assessment of the value of your business and assets when taking out an insurance policy. P B Insurance strongly recommends business owners review their sum insured each year, to include any increase in property value, new assets, or renovations, think about it. Are you underinsured?
“This article provides a factual summary only of the product(s) we offer. It is not intended to be advice and you should not rely on it as a substitute for any form of advice”
