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Is there something you’ve forgotten?

  • Adroit Insurance and Risk
  • February 25, 2022

Many Australians seized on the opportunity provided by lockdowns to “fix things up” around their businesses. For some it was merely a chance to improve processes, while for others it meant renovations.

Whatever you’ve changed is an investment in a more prosperous future. But have you given any thought to insuring these changes?

Whether you’ve been renovating and/or changing the way you work, how does your insurance stack up?

It’s a realistic question because Australia’s already severe rate of underinsurance has been exacerbated by so much that has changed over the past two years. Take for example residential construction costs across the country. They’ve risen 7% in a year – the highest rise in 16 years.

A global supply chain squeeze and an inability to import skilled labour due to border closures has substantially increased the price of timber, metal and plumbing goods and lengthened the time it takes to complete a rebuild.

That means the cost of rebuilding your home or business premises if they are lost or damaged has also risen. And if you haven’t talked to us already, it’s highly likely your insurance cover is now inadequate.

If your insurance policy covers less than the true cost of replacement – regardless of the original amount you paid for your business premises or home – you’re very likely underinsured.

Research suggests as many as two-thirds of Australian homes are underinsured. With SME businesses it’s likely to be far worse.

With costs continuing to rise, it’s vital you reassess. It’s not something your insurer can advise you on. Luckily for you, your broker can.

For businesses in particular, it’s not just a total loss scenario that you have to worry about.

Many policies accept 80% cover of the replacement value without penalty. Below this figure the insured risks having an “underinsurance penalty calculation” applied, which could see the claim payout fall short of replacement costs.

This was brought to light in a recent case heard by the Australian Financial Complaints Authority in which underinsurance left a business owner out of pocket at claim time after the property was damaged in a fire.

That building was underinsured to the tune of around $250,000, and so an underinsurance clause was proportionately applied to the claim payout. The business owner’s complaint that the insurer should have advised her of the correct level of cover was not upheld, with the independent ombudsman explaining that insurers can only provide general advice and it’s the customer’s responsibility to read and understand the policy.

The Insurance Council of Australia urges Australians to “know your worth” to protect your standard of living after a claim. Most underinsured people guess the costs rather than using tools available online such as a building or contents insurance calculator.

But online calculators have their limitations as well, and for complete peace of mind you should invest in having a professional properly assess your individual circumstances and provide a much more precise estimate of your replacement costs.

Not calculating the cost of demolition, clean-up, asbestos removal, council applications, architect and surveyor services – and for householders even the cost of temporary accommodation, along with things like the garden shed and even the lawnmower – should be factored in.

The spate of floods, fires and storms in the past year should make the importance of properly insuring your business clear enough. Yes, it’s likely to cost more, but not so much that the likely trauma of a hefty shortfall can be ignored at claims time.

So if you haven’t already, talk to us now about the things that have changed for your business. We’re here to help you get it right.

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