Many small businesses don’t have enough cover when it comes to business continuity, flood insurance and also certain speciality policies, leaving them vulnerable when they suffer a calamity. This can drastically reduce their profits or, worse, see them shut their doors permanently.
Perennially flood-affected Queensland businesses know this only too well. Although Morris Peluchetti had insurance cover for his Townsville newsagency, he has spent $400,000 rebuilding the shop while waiting for his insurance claim to be settled. The business was devasted when 200 millimetres of rain fell on the town in early January 2020.
Peluchetti’s business is located is an area where underinsurance is a particular problem, with last year’s Northern Australia Insurance Inquiry finding the rate of non-insurance is 20 per cent, twice what it is elsewhere in the country.
The Insurance Council of Australia’s most recent research into underinsurance and small business shows this is a problem around the country. The study indicates 12.8 per cent of small business do not have appropriate insurance cover and 10 per cent of small business are underinsured for their assets.
“12.8 per cent of small business do not have appropriate insurance cover”
Don’t get caught by a deluge
Karl Sullivan is head of risk and operations for the Insurance Council of Australia. He says flood insurance is one area where businesses typically don’t have enough insurance.
“It’s a critical one. Often you find business districts and small industrial estates are located in parts of a town that are not suitable for residential development because of flood risk. When floods come, they can hit businesses hard.
Worse, a very high percentage of businesses even in flood zones don’t take out cover even when it’s offered to them.”Sullivan says when it comes to business interruption insurance, firms often take out bare minimum cover, without proper consideration of the broader issues that could affect them. For example, businesses may not include loss of attraction cover for customers and visitors in their policies, even when their area is at risk of bushfires.
“So many tourism businesses, even though they weren't physically burned by last summer’s fires, are now suffering terribly because tourists vanished as a result of the fires and they didn’t have the appropriate cover.”
Overcoming the underinsurance challenge
Underinsurance doesn’t have to be a problem for small businesses. In fact, there are many steps small firms can take to work toward having the right cover in place. The first is to properly map out risks.
“Start by identifying everything that’s critical for the business to operate. This includes loss of power, loss of access and loss of attraction. It’s also really important to work with your broker to define how much cover you need and how much it will cost,” says Sullivan. Sadly, Sullivan says the businesses that understand the value of insurance are often the ones that have previously suffered a loss or know people who have.
They appreciate the value of insurance and what it takes to recover. Nevertheless, all businesses should make a commercial decision about the level of cover they can afford. “If you can’t afford insurance, you probably can’t afford to run the business,” he says.
“Sullivan concedes every business is facing challenges at present. “Some sectors will feel the weight of this pandemic for a very long time to come.”But he warns small businesses against discarding their insurance cover altogether if they are cutting costs as a result of the pandemic. “This situation does not make us immune to another hailstorm, flood or fire. So it’s important to make sure you are properly protected.”
Sullivan says many underwriters are prepared to work with small businesses and their brokers to put in place policies that protect critical vulnerabilities at this time.
“It’s essential for small businesses to have an eye on what could happen tomorrow, next week and for the rest of the year because it's possible something else could happen while the economy is recovering from the corona crisis. It would be terrible for a disaster to happen to a small business at this time and it not have the right cover.
”Small businesses that are concerned about their cover are encouraged to contact their broker to work out a solution to ensure they have the proper insurance protections in place through this crisis and beyond.
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