When it comes to your business, do you really understand underinsurance?

What keeps us up at night as insurance brokers? Hands down it’s when our family, friends or clients are underinsured or worse, uninsured. Often price is the biggest reason cited as the reason someone is underinsured or uninsured, but equally there is a lack or understanding, or perhaps many people have never properly had underinsurance explained to them and may not understand the significant implications it could have on their business or family.

‘If you think insurance is expensive, try ignorance.’

They say that the cost of education is high, but the cost of ignorance is higher – well, today we’re going to share some education with you for FREE in hopes that it helps you understand and make informed decisions about your risks. And so both you and your insurance broker can get a good night’s sleep.

Understanding underinsurance

We get it, insurance isn’t the most interesting and compelling topic. Many consider it a grudge purchase and just look for the easiest and cheapest way to cover the bare minimum or mandatory insurance requirements. And then many of us experience an insurable incident and realise the value and importance of insurance just a little too late.

If this sounds like you, you’re not alone. Research indicates that Australia is one of the most underinsured nations in the developed world[1].

So, what is underinsurance?

There is a proper definition of underinsurance that is important to know and understand, and that’s when the situation when your insurance covers less than 90% of the total costs in the event of a loss[2].

This can apply to most types of business insurance policies.

Some policies have averaging provisions that reduce the sum paid out by a certain percentage when the sum insured is less than the value of the insured object. If that sounds confusing, let’s look at an example: for instance, if you insure your contents for 25 per cent less that their true value and lodge a $30,000 claim, the insurer may reduce your claim by $7500[3].

Therefore, being uninsured or underinsured may not save you money in the end and could cause a great deal of financial difficulty and heartache in a worst case scenario.

5 common reasons you could be underinsured

You’ve changed, renovated or added features to your business.
You haven’t checked the details or alerted your insurance broker to anything that’s changed in your situation during your yearly renewal.
You’ve invested in your business or purchased expensive items, such as machinery or electronics.
You haven’t calculated an accurate value for your property or contents or haven’t reviewed the value recently.
You didn’t include the full costs that could be incurred in the case of an incident in your total sum, such as demolition, removal of a debris and rebuilding.

Am I underinsured?

The best way to get confident about having a strong insurance solution is with the help of your insurance broker. And insurance is not a ‘set and forget’ programme – you should have an open and honest discussion with your broker each year ahead of your renewal. The good news is that having appropriate insurance doesn’t necessarily mean you have to spend a huge amount more money – with the help of your broker, many insurers will also take into account other factors such as your risk management practices when it comes to pricing.

The information above may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information.

[1] According to a survey conducted by Zurich in partnership with Oxford University

[2] ASIC definition on MoneySmart.gov.au

[3] Source: http://understandinsurance.com.au/do-you-have-enough-insurance