Whenever a major loss event happens in Australia – hailstorms, cyclones and bushfires are amongst the most common examples – it’s only a matter of time before heart-wrenching stories emerge of the devastation experienced by uninsured households and businesses. But arguably even worse are the stories of those who thought they were adequately protected, but weren’t. In other words, those who were underinsured.
What is Underinsurance?
When an individual or business has inadequate insurance to cover their legal liabilities or the full cost of loss or damage to their assets.
The numbers are alarming.
Australia has long been considered one of the most underinsured nations in the developed world. A study conducted by one of the country’s largest insurers, QBE, in 2019 suggested as many as 62% of all Australian SMEs were likely to have inadequate insurance. The same study also found 87% of small business owners felt a major business liability claim had the potential to put them out of business, or at the very least cause them to lose significant revenue or dry up their cash flow. A separate report from the Insurance Council of Australia found that 26% of SMEs are operating with no form of general insurance – including a whopping 40% of sole traders.
Source: QBE SMEs and Insurance Report 2019 (Pg 10)
Why are so many underinsured?
There will always be some businesses that actively choose not to have insurance. However the data shows there’s also a significant portion of underinsured businesses who have made no such choice and don’t even realise it. Typically, we find these tend to be businesses that choose to ‘go it alone’ and aren’t partnering with an insurance adviser. Perhaps they’re not fully aware of the risks they actually face? Maybe they’ve underestimated their sums insured should a loss event occur, such as repair or replacement costs for buildings, vehicles, stock and other assets that have appreciated considerably in value? Have they accurately factored in the bottom-line impact if their business operations were interrupted for weeks, or possibly even months, on end?
Each year, these exact scenarios place existential pressure on unsuspecting Australian businesses, right at the time when they can least afford it. It’s why we work tirelessly each year to ensure you’re not one of them.
Always know your cover
They say ‘ignorance is bliss’. But when it comes to being underinsured, it’s to be avoided at all costs. Knowledge is everything. Our very strong advice is to take the time to review your risks at regular intervals, understand the details of your cover, and take whatever steps are necessary to ensure you are – and remain – one of the 38% of Australian businesses who are adequately protected.
After all, you can never be over-prepared when it comes to underinsurance.
Ask an expert
Accurately estimating replacement values for business contents and equipment is complex – yet critically important. You may find it useful to engage an independent assessor to ensure you’re covered for the correct amounts. We are here to support you and ensure you have all the tools and knowledge at your fingertips.
Did you know?
In 2020, $US268 billion of economic losses were reported globally. But only US$97 billion of these were covered by insurance, leaving a staggering protection gap of US$171 billion, or 64%.
SOURCE: Aon Weather Climate & Catastrophe Insight Report 2020.