What are the dangers of under-insurance?
Everyone knows the benefit of insurance – it can save your business and your personal finances when things go wrong.
But while the value of insurance is well understood, it is a lot harder to know how much insurance is necessary to protect your business from unforeseen circumstances.
In fact, it is estimated that 80 per cent of businesses are under-insured by 10 per cent or more, according to the National Insurance Brokers Association (NIBA).
Under-insurance is a big risk for businesses – being underinsured by as little as 10 per cent can still have big repercussions when unexpected accidents occur in the workplace.
Sole traders also have among the lowest insurance rates. Forty per cent of sole trader businesses have no insurance cover at all, according to the Insurance Council of Australia (ICA). For tradies and owner-builders this is especially worrying, given the risks involved on site and the large costs which can be incurred when accidents do happen.
The perceived value of different insurance projects was also pointed to as a factor driving under-insurance. Whereas nearly every firm recognised the value of public liability insurance, other variations were much lower. Machinery insurance for example, had the lowest rates – slightly more than 40 per cent according to the ICA – despite being so fundamental to running a business.
How can you avoid being under-insured?
The first step towards being better insured is to consult with your insurance provider to make sure that your level of cover is appropriate for your business.
Many firms pointed to the high costs of insurance to explain their lack of cover. If high costs keep you from having greater insurance cover, it might be worth consulting a new insurance broker.
Making sure you regularly check your insurance cover can also help prevent under-insurance. For tradies, consider how new projects and equipment might leave your firm under-insured, and reevaluate your insurance policies as necessary.