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Run for cover: Is your business underinsured?

03/05/2019 by Pascoe Partners Accountants

Run for cover: Is your business underinsured?

 

We recently met with our insurance broker to review the level of cover required for our business. As part of that discussion, we got talking about the issue of underinsurance. As it turns out, underinsurance is a significant problem for Australian businesses.

In many cases, business owners only find out that they don’t have enough cover – or that they’re not covered for certain events – until it is too late. This can place a business under significant financial stress.

A report by the Insurance Council of Australia suggested that a startling 25 percent of Australian small businesses had no insurance – that’s zero financial protection in the event that something goes wrong.

Reasons for underinsurance in Australia

There are a number of reasons that businesses here don’t take out adequate cover. Here are some common scenarios:

  • The desire to minimise premiums leads some business owners to choose lower levels of cover.
  • Cover is arranged over the internet, without getting advice on appropriate levels of cover from an experienced professional.
  • Startup businesses want to minimise costs. (In this instance in particular, a lack of adequate cover may prove to be a false economy.)

Insurance tips for business owners

Types of cover

There are new insurance products entering the market all the time. One example is cyber cover. We hear daily of increasingly sophisticated scams impacting businesses. Insuring your business against cyber-attacks is therefore worth investigating.

Another one to consider is journey insurance. We had a recent experience where one of our employees was involved in an accident on his bicycle on the way to work. There was no avenue to claim under workers’ compensation, but we have now subscribed to a journey insurance package, which provides some level of cover to our employees on their daily commute by normal means of transport.

Your circumstances

It pays to take your specific circumstances and location into consideration when organising insurance for your business. In Brisbane, for example, it is very difficult (and expensive) to get cover for flood damage because flooding is considered a likely event. A broker experienced in your location would be aware of such issues and able to give you valuable advice.

Accurate valuation

It is also very important when assessing the appropriate level of cover that the replacement value of plant and machinery is considered. You shouldn’t necessarily rely on the historical cost of the article as a guide to determine a sufficient level of cover.

Depending on when the plant item was purchased and what the item is, the replacement cost may be cheaper than the original cost – things like electronics or computer equipment are getting cheaper all the time. It might also be that you purchased at the peak of the market, in which case a lesser value could be appropriate. If necessary, have the equipment appraised (although in most cases a Google search should give a reasonable estimation).

Reviewing your cover

To ensure that you are not caught unawares in the event of having to make a claim review the level of cover annually and deal with a suitably qualified and experienced broker.

For advice on insuring your business wisely, get in touch with us.