Understanding your Assets Value: How being Under Insured will harm your business
Insurance is a safety net to provide you and your business with peace of mind against the unexpected. However, a lesser-known threat lurks
within the realm of insurance – under insurance. But what is under insurance? And how are you at risk come claims time?
Under Insurance in a brokers eyes (What Is under insurance?)
Simply, under insurance is when you don’t have enough insurance to cover replacement value of the items you’re insuring. This is typically a result of improperyl valuing your assets, or not considering full replacement cost and inflation to your asset. For example, the cost to fit our your venue might be $500,000. To save yourself money at renewal time, you decide to keep it insured for $350,000. With a simple calculation, you will find that you are only insured for 70% of your assets actual value. Come claims time, this can have massive impacts to your business health.
Can you afford to be under insured (The dangers of under insurance)
The biggest consequence of your under insurance is the financial strain that your business will come under. The following is a case study with some numbers from before;
Your venue has a total fit out value of $500,000, and you have insured it for $350,000, only 70% of the actual replacement value. Due to a burst pipe, you have unfortunately suffered extensive damage to some of your therapy rooms and will need to make a $100,000 claim for repairs. At claims time, your insurer will undertake the following two tests before deciding your payout:
1) A test for under insurance
The insurer will engage assessors and surveyors to determine the actual replacement value of your asset. In this case the surveyor would
find that you are only insured for 70% of your actual $500,000 replacement value.
2) A test against your policy limits
Your policy limit is the Sum Insured that you have set with your broker at renewal time. While the claim of $100,000 is less than your sum
insured of $350,000, the insurer will see that you are only insured for 70% of your total replacement value. Seeing this, they will pay
$70,000 of your claim and you will be liable for the uninsured portion of $30,000. Can your business afford this $30,000 cost?
The Insurance Council of Australia notes that under insurance is increasingly common in Australia. While premium discounts may seem exciting at renewal time, can your business really afford to be inadequately covered at claims time. This is an example case and your insurer will operate according to their individual policy wordings and disclosure statements. For more examples of under insurance, see the under insurance calculator available on Risk Coach Calculators.
Protecting against Underinsurance (How can I make sure I am not under insured?)
Fortunately for your business, you do not have to face the threat of under insurance alone. To protect yourself from financial damage at claims time it is best to follow these guidelines:
1) Engage a property assessor
With a qualified assessor, you will take the guesswork out of your
insurance limits and sums. We recommend Asset Inspect. Using an
experienced valuer like this, they can combine a valuation of your property with an assessment of the risks to your asset and tell you
how much your Sums Insured should be. This will ensure at claims time your insurer will see you are adequately insured also
2) Review your policy terms and limits
Carefully read and review all policy documentation that you have to ensure you understand the conditions, exclusions and coverage limits that are in place. Pay attention to deductibles and endorsements that may affect your limits
3) Keep records of owned assets and their values
Keep in depth records of your assets. After
completion of a survey report, request documentation and refer to it. If you are replacing or upgrading any facilities, keep record of
this to know if your sums insured should be changed
4) Work with your broker
Business Insurance Cover services understands the risks and needs of health and wellness centres. By booking a meeting with us, we can assist in reviewing your coverage limits and needs to make sure that you are fully insured should you ever need to claim.
Protect yourself now!
Do not wait for a claim to find out if you are under insured. The consequences to your business could be potentially devastating and leave you financially vulnerable. By taking proactive measures against your risks, and working with Business Insurance Cover services, you can protect your financial health and stability against uncertainty. Adequate coverage is not just an investment – it is an essential safeguard for your business wellbeing. Call us on 1300 268 371 to discuss your policy limits and review your risks now!
