Under Insurance - a big issue

Managing the Risk of Underinsurance

Under insurance is often highlighted after a wide spread natural disaster along with the other major issue, Non-Insurance (discussed elsewhere).

 Too many people do not carefully insure for the full replacement or reinstatement value, leaving them well short in the event of a total loss. In fact it can be even worse if there are Average or Co-insurance clauses in policies. These are applied to minor losses and basically pay the same percentage of a minor loss as you should have been insured for (though the Insurance Contracts Act specifies a slightly different formula), if insured for less than 80% of the full replacement value.

Check these figures out from a 2007 report on the issue by insurer CGU :

  • 83% of businesses have inadequate building insurance
  • 47% are not adequately insured to replace stock and contents
  • 50% have insufficient liability insurance
  • 2% only of businesses have adequate business interruption insurance
  • 15% do not adequately insure Plant & Machinery
  • Most businesses have poor or inadequate security measures to contain or prevent burglary losses
  • Many businesses do not realise their leases make them responsible for the Shop Front Glass
  • Many Businesses fail to take into account their fixtures and fittings, particularly when updating them

 

What is Under-insurance?

The Insurance Council of Australia defines this as “the result of nominating a value for an asset such as your home that is too low to actually replace it in the event that it is lost or damaged”.

 In 2005 the Australian Securities and Investments Commission (ASIC) estimated that 70% of Australian homes were underinsured. While Average Clauses seem to have largely disappeared from Householders policies, it is a total loss claim where the crisis of under insurance is highlighted. Yet it would not have cost much more to fully insure.

 

 Why do people under insure? 

While some may deliberately choose to under insure to save money on their insurance premiums, the majority of these appear to be due to these issues being overlooked by policy holders.

An Insurance Broker may review your insurance needs each year, he can only go by the information provided by the Insured. Insurance Brokers are not Valuers or Estimators. The Insured needs to know what his assets are and needs to obtain specialist assistance to calculate what it would cost to replace or reinstate them.

Many insurers can offer tools to assist such as Calculators on their Web Sites, or links to Valuers who can provide estimates. However these rely on the information you provide, such as the Square Metres of the Building. Often there are subjective figures that need to be included such as anticipated Consumer Price Index allowance, attitudes and by-laws of local councils, availability of Builders in that area at that time.

 Avoiding the pitfalls of underinsurance is really a matter for consumers. Only the owner of a building or its contents can take responsibility to determine the amount of insurance they wish to take out over their assets.

 

Why does it matter?

If you are in Business, you have a duty of care owed to all the other Stakeholders, including Shareholders, employees, suppliers, customers to adequately deal with the risks exposed to the Firm or Organisation. Small to Medium Businesses find the most cost effective way to manage the risks to their assets by transferring the risk to Insurers. However, if not insured for enough, they are effectively self-insuring (called co-insurance) the difference. Do you want to expose the Company to even greater expenses in the event of an un-expected event? 

Under-insurance in Business Package policies

Latest News

High Court dismisses Business Interruption Test Case

Today the High Court dismissed appeal by Insurers on the Business Interruption test case. Even the big insurers make silly mistakes! But you the policy holder may benefit if you were one of the 40% of Business Pack policy holders that added Business Interruption cover to their Business Pack. While it was never the intent of insurers to cover policyholders for the loss of income from a pandemic, the fact that insurers never factored in a risk premium for it, and the fact there is supposed to be a material or physical loss to trigger the Business Interruption section, none of that matters according to the highest Court in the land. So what was the mistake? Simply that when insurers defined what they considered to be the definition of an infectious disease, they referred to the Quarantine Act of 1908 which since was superseded by the Biodiversity Act of 2015. Because the Quarantine Act of 1908 no longer exists, apparently you cannot draw on this for a definition of an infectious disease? Not one of the insurers picked up on this! Shows how much interest we take on the business of Governments, except what is reported in the media.

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Three Years running - Insurance Brokerage of the Year 1 to 5 staff

Mandy and Robert Cooper were extremely honoured and astounded to once again win, Insurance Brokerage of the Year for 2020 from Insurance Business Australia magazine. This is the third year running.

While this year has not been the easiest of years for the business with Covid 19, the Recession, the hard market and issues at Lloyds of London, we are literally all in this together as an Insurance Industry.

CPR Insurance Services continues to make our clients the number one focus of our business while managing our relationships with Insurers, who we need more than ever in this market climate.

CPR Insurance Services are a highly ethical Brokerage with a reputation as a trusted advisor who always acts in the Client's best interests. Their experience, knowledge and expertise is amongst the highest in the industry.

CPR Insurance Services is now ten years old as a business and is proud of being an Authorised Representative of Ausure and their partnership with Steadfast, giving CPR the strength and backing to match it with any Broking firm in the Insurance Industry, but remain focussed on supporting the Small to Medium business segment.

Memberships of the National Insurance Brokers Association, Australia and New Zealand Institute of Insurance and Finance, Australian Insurance Law Association, Australian Professional Indemnity Group and the Australian Institute of Company Directors, ensures CPR Insurance Services maintains the high standard of knowledge and expertise required to be one of the best Brokerages in Australia.

CPR Insurance Services also plays a strong role in their local community supporting other Sporting Clubs and Community organisations. They also support and promote local businesses with their operation of the Kedron Brook Business Group who meet regularly and has 174 members.

We are truly honoured to receive this National award once again for the third year as a recognition of CPR Insurance Services contribution.

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