Could your business be underinsured? Do you feel your business has the necessary insurance to protect its success?
As a business owner, your enterprise is one of your most valuable assets. Therefore, it makes sense to take the necessary steps to protect it.
In Australia, inadequate cash flow is the primary reason small businesses fail. [1]
Which highlights the importance of having a robust risk transfer strategy in place, which may include transferring risks to insurance to safeguard against financial losses.
“1 in 10 Australian small businesses with insurance don’t have enough cover to protect themselves.”
The importance of a comprehensive risk transfer strategy
Insurance is a risk transfer tool that businesses can use to safeguard against financial losses when the unexpected occurs, such as loss of income due to equipment breakdown or storm damage. A well-designed risk transfer and insurance program can help safeguard your business against unexpected financial losses and build resilience for your business during challenging times.
Did you know that ‘one in ten Australian businesses with insurance don’t have enough coverage to protect the business from the losses associated with business disruption, legal liabilities, or loss or damage to assets [2]? It highlights the potential risks associated with underinsurance.
Understanding underinsurance: Is it a risk you can afford?
Underinsurance refers to having inadequate insurance cover for your business, increasing the risk of severe financial strain if something goes wrong. The temptation of low premiums can lead business owners to overlook adequate insurance protection.
- Outdated Coverage: If you have not updated your insurance to reflect recent or future business growth, you may make your business vulnerable.
- Inaccurate Replacement Valuations: Underestimating the repair or replacement of equipment or other business assets can lead to significant out-of-pocket expenses following a storm, fire or other claimable event.
- Inadequate Sums Insured: If financial limits (sums insured) are inadequate, it may expose the business to financial losses following management or legal liability claims, or business interruption events.
The impact of proper insurance cover
| Type of Cover | Scenario | With Insurance | Without Insurance |
|---|---|---|---|
| Business Interruption | A major storm severely damages a dental clinic’s ceiling, forcing the business to close for two months for repairs. | The owner’s Business Interruption insurance can cover lost income during repairs, ensuring financial stability. | Without adequate insurance, the business may face significant revenue loss, hindering its ability to recover lost income. |
| Professional Indemnity | An architecture firm provides a flawed design, requiring the building to be demolished and rebuilt from scratch. The client sues the architect for these costs. | With adequate Professional Indemnity Insurance, the firm can effectively manage the cost, plus legal expenses. | The firm may struggle to cover its expenses, which may force the business into liquidation. |
| Property | Vandals target a community organisation, breaking a window to enter the building and stealing computers. | With property insurance cover, the organisation can repair the damage and replace the computers with new ones. | The organisation may lack the necessary funds for repairs and computer replacements and could be forced to close. |
| Management Liability | An agency terminates the employment of a worker, due to serious misconduct. He sues for unfair dismissal, resulting in a large payout. | The agency can be covered for the damages and most legal costs by Management Liability insurance. | The agency directors may have to liquidate the company to fund the payout. |
Are you at risk of being underinsured?
You may be at risk of underinsurance if:
- You have not updated your risk and insurance program to account for business growth.
- You are relying on outdated insurance replacement costs for business assets.
- You have cover for property damage, but have overlooked other important areas of financial loss, such as business interruption or management liability.
How can we help you secure your business?
Sorting out your insurance cover often falls to the bottom of a busy business-owners to-do list. That’s where we come in.
At Clear Insurance, we specialise in reviewing your risk transfer and insurance strategy. We ensure you understand the risks unique to your business and ensure you have the information you need to make informed decisions on whether to keep, mitigate or transfer risks to insurance. We tailor cover to your specific needs and ensure that you have the peace of mind that comes with knowing your business is adequately protected.
Don’t leave your business’s future to chance. Contact Clear Insurance to ensure your risk transfer and insurance program protects your success for years to come.
[1] ASIC, Insolvency statistics: External administrators’ reports (July 2017 to June 2018).
[2] Insurance Council of Australia, Non-insurance in the small to medium-sized enterprise sector, July 2015.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
Clear Insurance Pty Ltd. ABN. 41 601 916 689. AFSL No. 548953.
