Under-insurance is fraught with danger!
Making an insurance claim should be a relatively easy process. That is, unless your level of insurance cover is inadequate or non-existent, meaning you’re under-insured.
“If you have don’t have the right level of insurance cover, you could find yourself in financial stress or even risk losing your business”, says Costa Coumbaros, Account Executive at Steadfast Brecknock Insurance Brokers.
Costa says, “Business owner’s often undervalue the expert advice of a qualified and experienced insurance broker” and highlights that, “It’s an insurance broker’s job to understand their client’s business, identify the risks their client’s face and recommend a tailored insurance program to protect them”.
Furthermore, Costa advised, “It doesn’t stop there. An insurance broker and their client need to communicate regularly and review the insurance program to ensure it continually meets the client’s situation and needs”.
“When business owners purchase their insurance policy direct with insurance companies, they are often not receiving expert and tailored advice to make an informed decision, resulting in inadequate or incorrect cover which is fraught with danger”, says Costa.
Costa highlights some common examples where you could find yourself under-insured:
- Under estimating the replacement cost of a building
- No or insufficient cover for removal of debris costs
- No or insufficient cover for increased costs and inflation
- Under estimating or not taking into consideration heritage or council preservation orders
- Not including architectural and engineering fees in a building sum insured
- No or insufficient cover for replacing contents, stock, plant and machinery
- Not reviewing and increasing sums insured at least annually
- Failing to include business interruption cover or at least Additional Increase Costs of Working (AICOW) cover
- Setting an inadequate business interruption indemnity period
- Not adhering to the duty of disclosure requirement
Costa says, “I ensure my clients are made aware of the impacts under-insurance can potentially have on their businesses”.
Many insurance policies include an ‘Average’ or ‘Co-Insurance’ clause (also known as the ‘under-insurance’ clause) which means if you insure for less than the full value of the property, a claim can be reduced in proportion to the amount of the under-insurance.
An example of the ‘Average’/’Co-Insurance’ clause being applied is shown below:
Full Replacement Value = $1,000,000
Sum Insured = $500,000
(Therefore, you would be self-insured for 50% of the full value)
Amount of example insurance claim = $100,000
Amount payable by the insurer as a result of the application of the ‘Average’/’Co-Insurance’ clause (ie. 50%) = $50,000
Some business interruption insurance policies also include an ‘Average’ or ‘Co-Insurance’ clause but the calculation is different. For more information about these clauses and under-insurance, speak to one our insurance experts.
The purpose of this news article is to ensure you are aware of under-insurance and the affects that under-insurance can have on your business.
If you would like us to review your insurance, get in touch with the team at Steadfast Brecknock today to speak to a qualified and experienced insurance expert.
We have access to leading industry tools and calculators which can be of great benefit to you, your business and your insurance program. At the end of the day, your decision not to seek our advice could cost you when you try to make a claim.
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This article was written by Mark Gabell for Steadfast Brecknock Insurance Brokers.
Information provided in this article is general advice only and has been prepared without taking into account your objectives, financial situation or needs. Steadfast Brecknock Insurance Brokers Pty Ltd, ABN 85 060 524 503, AFSL 239942.