With rising inflation, soaring interest rates, supply chain issues and a difficult labour market – business owners have less time to spend on managing risks and insurance. These factors could lead to underinsurance or incorrect insurance cover, as your business has changed, or the sums insured haven’t kept up with rebuilding costs or inflation. This means your business could be exposed to potentially large uninsured financial losses.

Based on surveys from ASIC and insurers, under or insufficient insurance cover affects between 60% – 80% of SMEs. This is one financial risk that can be easily dealt with, amongst the many challenges currently facing business.

Types of under-insurance include not having loss of profits/business interruption cover, flood cover and management liability and cyber liability insurance. This means that if your business is unable to trade due a fire or is inundated by flood waters or you suffer a ransomware attack, you will have to bear the burden of restarting operations or rebuilding, along with the financial costs without the assistance of an insurer.

Inadequate sums insured are another area of under-insurance, in this case you have the correct policy, but the claim settlement won’t be enough to cover the losses.

At Insurance Lewis Insurance we have professional insurance advisers who can provide you with advice and help you to identifying any uninsured or under-insured risks.

What is underinsurance?

Underinsurance is mainly due to three common causes:

1. Failure to purchase the correct cover. Either the type of policy (some wordings offer less cover than others) or the sums insured are inadequate for the replacement or reinstatement value when making a claim.
2. Lack of awareness of insurance policies, such as Management Liability/Directors & Officers, Cyber Insurance (covering your loss of income and third-party liability), trade credit (covering non-payment of invoices by customers).
3. Neglecting to review existing insurance policies, both on renewal and during the year to reflect any important changes made to the business. It’s also a condition of insurance policies that the insurer must be kept advised of important changes to the business, such as increase in stock, contents or new building, products or and operations.

Why is avoiding underinsurance so important for SMEs?

Avoiding underinsurance is vital to the sustainability of businesses. Insurance is an essential tool used by business owners to transfer the largest types of losses to insurers.

Insurers promise to pay if a building is burnt down or a product malfunctions. If the sum insured is too low, you won’t have enough money to rebuild or if you don’t have product liability cover, you’ll have to pay for any damage the products cause as well as any legal defence costs. That’s why it’s essential to have the right cover and sums insured so avoiding underinsurance is key.

Solving underinsurance for small businesses

Talking to a professional insurance adviser is key to managing your business risks. With their insurance industry knowledge and experience and your in-depth understanding of your business and industry, together will ensure that you have the advice to minimise your key financial risks.

Contact Lewis Insurance Services on 07 3217 9015 or send us an email by clicking here.

This article was published by our AFSL Licensee, Insurance Advisernet Australia P/L, www.insuranceadviser.net

Disclaimer:
This information and any accompanying material does not consider your personal circumstances as it is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances and considering the Product Disclosure Statement.

Important Information 

This communication including any weblinks or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to constitute personal advice. This type of insurance product is designed for small and large businesses, that want to be covered against financial loss relating to accidents or personal injury involving contractors or sub-contractors.

We strongly recommend that you consider the suitability of this information, in respect of your objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.