Reviewing sums insured: do your customers have adequate cover?

• With high inflation, it’s more important than ever to ensure customers have sufficient cover
• It’s important that your customers’ sum insureds are at the right level, in line with their risk profile
• We recommend you make it a priority for renewal season when meeting with your customers to discuss sum insured limits.

With customer needs always changing, sometimes it is easy to overlook the need to review sum insured limits.

Research shows some commercial customers haven’t had their property sum insured values amended in the last three years.

For each renewal, it’s important to encourage your customers to review sum insured values on their policies, particularly in the current economic climate. That way, you can make sure the sum insured is sufficient to cover the full replacement value of the property insured.

Why is this so important?

Rising costs are having a huge impact on claims

The cost of reinstatement or repairs are being heavily impacted by ever-increasing costs for property damage claims, resulting in a rise in the volume of claims where underinsured policy holders are not completely covered.

This can include:

• Building products and materials
• Equipment and machinery replacement, or the cost of parts
• Labour costs.

Implications for claims where sums insured aren’t reviewed annually¹

If cover isn’t reviewed regularly, underinsurance could result in:

• Application of the co-insurance clause in the case of a partial loss
• Customers being left out of pocket where the difference between the sum insured and the amount of loss, if the damage is a total loss
• A customer not having the right type of cover, so when an unexpected event occurs , they may find themselves liable for expenses that aren’t planned
• Determining whether a company remains open for business after a large loss.

Why is it such a common issue for SMEs?

Underinsurance can come down to a number of factors such as:

• Buildings and contents being undervalued
• A change in the business, which can introduce new risks
• The business making infrequent, large purchases like an industrial fridge for example, so it’s hard to stay across current replacement prices

We know businesses change and evolve, as do insurance requirements, so it’s important to keep up to date with your customers’ needs.

Tips to make sure your customers are adequately insured

John Schroder, QBE’s General Manager, SME, lists his top tips to avoid underinsurance:

“Business owners need to have a view of how much it would cost to replace everything in their business today – it’s important to understand the value of business’s assets.

“Also, ensure your customers understand the specific risks their business faces, and have sufficient coverage to make sure critical factors they need to operate are covered.”

What about indexation?

While auto-indexation is applied to most consumer insurance products, sometimes this isn’t the case for business products and it is important to check this on your customer’s policy.

However, the existing sum insured needs to be adequate for any form of indexation to work as intended in the future. And that’s another reason to address potential underinsurance issues now, as you review and renew your customers’ policies.

For more information

Please get in touch with your relationship manager who will be able to help with any questions you may have.

¹ The Australian Small Business Market for Financial Services 2020