The pitfalls of underinsurance for businesses

Posted on: Friday, 16 June 2017.

Business Closed

You work hard to ensure your business runs smoothly and you’ve taken the steps to ensure it’s protected if the unforeseen happens such as fire, storm, wind and explosion.

BUT are you covered fully?

Have you had your building re-valued recently?

The cost of building has risen sharply over the last few years.  Inflation and general building costs have also risen over time.

Ask yourself the following questions:

  • Have you had your building re-valued recently?
  • Have you recently changed premises?
  • Have you bought new stock or equipment?
  • Has your annual turnover increased?

If you answered yes to any of these questions, it could mean that you’re currently underinsured.

Below are two examples of the impact underinsurance has had on businesses.

Example 1:

A restaurant fire costing the owners over $1.5 million.

A fire broke out in a restaurant building which was part of a large heritage estate.

This building was insured for $400,000.

The loss adjusters calculated the replacement value of this building to be $3 million.

Given the high level of underinsurance, the owners were left with an out of pocket expense of $2,600,000.  The client has to find $2,600,000 to rebuild or simply go out of business.

If the property had been adequately insured, their policy would have covered them for the full extent of the damage caused by the fire.

Example 2:

Insuring more than just stock.

The insured was in the business of manufacturing portable cement mixers and wheelbarrows.  A fire in an external skip bin caused substantial damage to stock and contents.

The total sum insured for the risk was $325,000.

The cost of repairing the machinery alone was independently assessed and well exceeded $1 million, with two items of machinery alone being valued at over $260,000.

In addition, the destroyed stock was valued at $300,000.

These combined figures were significantly more than the sum insured, leaving the insured well out of pocket.

As your insurance advisor, we strongly recommend a review of the values currently insured for your buildings, contents, machinery and stock.  In addition, we recommend that the specific needs of your business be discussed with your Account Manager and that you consider the product disclosure statement in respect of any business insurance policy before making your decision in relation to an insurance product.

To discuss your insurance program, please contact us on (08) 6279 2300 or email us on info@cwib.com.au.

Note: This information is provided as general information only and the examples are offered as theatrical only.  The full policy terms and conditions should be reviewed to determine the correct policy response.

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