It is estimated that 62% of small and medium-sized enterprises (SMEs) are underinsured. Amid rising financial pressures—such as higher interest rates and increased costs for transportation, utilities, rent, supplies, and wages—many business owners view insurance as an area to cut expenses.

Additionally, business owners often neglect to update their insurance policies after acquiring new equipment, completing renovations, or accounting for increases in property value. As a result, their coverage may not reflect the current value or operational changes of the business.

Take a moment to assess your business. Consider how much you paid for your equipment and assets when you first acquired them. Have you made any enhancements or expansions? Now, think about the cost of replacing everything at today’s prices.

If you have undervalued your business and assets, the costs associated with repairs, rebuilding, or replacing equipment after a claim could leave you with significant out-of-pocket expenses.

Example Scenario:

• Suppose you insure your business and equipment for $300,000.
• An incident, such as a fire or flood, causes $150,000 in damage.
• You file a claim for $150,000 for repairs and replacements.
• An assessor later values your total business and equipment at $600,000.
• Since you insured your business for $300,000 but the assessed value is $600,000, you are underinsured by 50%.
• Consequently, your claim is halved, resulting in a payout of only $75,000 instead of the full $150,000.

According to the 2023 Vero SME Insurance Index:

• 47% of businesses surveyed are adjusting their insurance due to inflation and rising supply costs, which are seen as the biggest concerns for business owners, even more than employee-related issues.
• 61% plan to make changes within the next year, but only 41% consider insurance a priority.
• 36% believe using a broker will be more expensive, up from 25% in 2019.

Your business is your livelihood. Without adequate insurance coverage, maintaining business continuity during a claim can become extremely challenging.

Ways to Avoid Being Underinsured

1. Understand Your Risks: Assess legal, financial, environmental, and operational risks.
2. Reassess Your Policy Regularly: Ensure it aligns with your business's current needs.
3. Conduct Regular Inventories: Keep track of replacement costs for items and equipment rather than their original costs, and know what your policy covers.
4. Seek Expert Advice: Consult an insurance broker for tailored guidance and insights on suitable insurance solutions for your business.

How Clearlake Insurance Brokers Can Help

Finding the right insurance can be complex, especially with the unique variables each business faces. The last thing you want is to discover you're underinsured when filing a claim.

Our team of brokers is here to help assess your risks and offer personalised advice on the right insurance program to protect your business and assets. In the event of a claim, we provide ongoing support to minimise disruption, working with the insurer to ensure you receive your full entitlement without unnecessary delays.

For more information, contact our expert team of brokers at your local Clearlake Insurance Brokers office today.

The information in this article is general and does not consider individual objectives, financial situations, or needs. For tailored advice specific to your circumstances, please contact Clearlake Insurance Brokers directly.