How to avoid underinsurance in business

17 Apr 2019

Underinsurance happens when someone doesn’t have the adequate insurance to cover the cost of loss or damage to their business when something goes wrong.

When business owners find themselves underinsured, they’re often exposed to financial hardship or inadequate cash flow when disaster strikes.

This can often determine whether a company remains open for business.

Here are some tips to avoid getting caught short:

1. Understand your risks

“Essentially business owners need to have a view of how much it would cost to replace everything in their business today”, QBE General Manager, Small to Medium Enterprises (SME) Aaron Gavin said.

“They need to be adequately insured for the replacement value of the items as opposed to the original value written in the books.

“This is often overlooked because assets in a business context can be changeable by a range of factors including exchange rates and inflation,” he added.

2. Assess your policy frequently

To ensure your business has sufficient coverage, it’s key to understand the specific risks your business faces and ensure that the critical factors to operate are covered.

You should take all types of risk into consideration including legal, financial, environmental and operational.

3. Value your business and its assets correctly

Being pro-active and assessing your insurance frequently is crucial as circumstances can change in a business environment and you could risk being underinsured.

“Once you’ve bought your business insurance policy, you should ask if you’re making big purchases or winning contracts in an area where exchange rates may impact you because you need to think about the flow-on effects to your insurance values,” Gavin added.

It's also sound business practice to keep tabs on every internal business change, whether it be upgrading equipment, systems or processes, expanding stock or premises and investing in new people.

Talk to an expert broker

As business insurance experts, brokers can find the policies that best meet your business needs. How do they work? They’re best described as licensed individuals or firms that serve as intermediaries between insurers and business owners to negotiate insurance policy contracts.

Brokers are often viewed as professional trusted advisors and can offer strategic risk management for business. They can also help business owners who operate in niche sectors with specialised insurance needs that may not be included in a business insurance or business packages insurance, for example, bed and breakfasts or 24-hour convenience stores.

So how do you find a good one?

How to buy business insurance

Business insurance is commonly bought through brokers. If you don’t have a reliable personal recommendation, the National Insurance Brokers Association (NIBA)* can help you find an accredited broker. When you’re choosing a broker it’s wise to check their credentials and determine whether they’ll be a good fit for you.

*The brokers on this site are not employees or agents of QBE, but are independent entities. QBE is not responsible for any advice provided to you by any broker on this site. Any such advice is the responsibility of the broker concerned.

This advice is general in nature and has been prepared without taking into account your objectives, financial situation or needs and may not be right for you. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. To decide if QBE’s products are right for you, please ensure you obtain and consider the Policy Wording or Product Disclosure Statements and Target Market Determinations, available online at QBE.com/au. Insurance issued and underwritten by QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFSL 239545).