What is Underinsurance exactly?

Underinsurance occurs when an insurance policy lacks a sufficient ‘sum insured’ to cover all potential losses adequately. Indeed, underinsurance has emerged as a notable business risk for many Australian enterprises, with half of the nation’s populace possessing limited or no home insurance and one in ten businesses lacking adequate coverage, according to Ben Hastie, Managing Director of Resilium Insurance Broking.

Mr. Hastie says that businesses that merely insure their physical assets may not hold enough insurance to cover the unexpected additional costs. While it may protect against events like fire, storms, or theft, this narrow approach fails to address the myriad of potential losses that can ensue after such incidents.

“Consider the aftermath of a fire or storm,” Mr. Hastie suggests. “In addition to the physical damage that this kind of events effect, businesses must contend with disruptions and interruptions.”

“Staff costs and other regular bills will still need to be paid despite no income coming in,” Mr Hastie explained. “Simply having the building insured will leave the business owner significantly underinsured and liable for all those costs that come with running a business.”

“Without comprehensive coverage, covering aspects like staff costs and regular bills during periods of halted operations, business owners may find themselves significantly underinsured and burdened with unforeseen expenses.”

Insurance premiums are based on the assumption that the property, assets, or profits are insured for their full value at the inception date of the policy and will remain adequate should the claim occur later in the policy period.

The diverse nature of potential disasters, such as cyberattacks holding a business to virtual ransom, underscores the need for a thorough examination of all conceivable risks.

Having professional insurance advice of the kind that Resilium Brokers or Advisers provide, can play a crucial role in ensuring their clients are well-informed about every conceivable scenario, guiding them to secure adequate sum insured coverage for potential claims.

Recognising underinsurance triggers:

Underinsurance is triggered when business owners underestimate the reinstatement or replacement costs of their assets following a damaging event. If the sum insured does not accurately reflect these costs, owners may face substantial out-of-pocket expenses when filing a claim.

Assessing your risk of underinsurance: To determine whether you are at risk of underinsurance, consider the following indicators:
• Your insurance cover is not updated with changed circumstances, neglecting the growth of your business in size and assets.
• The ‘sum insured’ is insufficient to cover losses due to outdated replacement cost calculations (consider what inflation has done to push up costs).
• Your coverage is confined to your business premises, neglecting potential financial losses like business interruption, professional indemnity, and management liability.

How a Resilium Broker or Adviser can help: As qualified and authorised representatives of Resilium Insurance Broking, Resilium Advisers possess the knowledge and experience needed to assess your business’s risk level comprehensively. Click here to find your nearest Adviser.

The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Resilium directly.