The ongoing cost-of-living crisis and lingering effects of inflation are still impacting insurance cover for many Australian small businesses.
“Underinsurance was already a problem for many small businesses,” says Brad Miller, general manager at BizCover.
“The budget squeeze happening now is likely making it worse, and many business owners could be caught out at claim time.”
While underinsurance is a hot topic for insurers, many small businesses are still in the dark about what it is and its potential impact on their livelihoods.
As defined by the Insurance Council of Australia, underinsurance occurs when you do not have ‘enough insurance to cover the replacement value of the items you’re insuring’.
A 2022 survey by insurer Vero found that 57 per cent of small and medium businesses in Australia are potentially underinsured.
Over one-third (34 per cent) of those had no plan for how to handle an underinsured event, and 20 per cent planned to sell or shut down their business in response.
So how is the current economic climate contributing to underinsurance?
“Often, small business owners don’t think much about their insurance after it’s been purchased,” says Miller. “They may renew their policies each year without checking that they still provide an appropriate level of cover.”
Business Insurance Packs – insurance packages designed to provide cover for a business’ contents, stock, tools and commercial premises – are prime suspects for business owners assessing their underinsurance risk.
According to property data business CoreLogic, the price of building construction rose by 8.4 per cent over the 2022 financial year. Coupled with ongoing labour shortages, business owners may find it dearer to rebuild after a fire, storm damage, or other insured event.
Small businesses may also find that replacing the contents of their business – such as stock, tools and equipment, or furniture – is more expensive than they realised as the cost of many consumer goods continues to rise.
The insuretech recommends that small business owners regularly assess their risks and review their policies.
Adjusting your cover as your circumstances change, such as increased trading volume or in response to inflation, could help reduce cover gaps that often cause small businesses to experience financial hardship and closure.
“Knowing how much you’re covered for is critical to protecting any small business,” says Miller. “It’s better to find out that there’s a gap between what’s covered and what you’ll need to pay now, before an event happens.”
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.