The 2010 Lifewise/NATSEM Underinsurance Report highlighted the true extent of the problem, finding that a staggering 95 per cent of Australian families are underinsured. The report also found that 83 per cent of Australians insure their car but only 23 per cent insure their ability to earn an income.
And while underinsurance is a serious concern, there are plenty more Australians with no insurance cover at all. Statistics provided by the Insurance Council of Australia (ICA) that were derived from the 2009/10 Australian Bureau of Statistics’ Household Expenditure Survey show that across the country, 24.8 per cent of all occupied households have absolutely no home or contents insurance.
According to the ICA, underinsurance is the result of nominating a value for an asset that is too low to actually replace it in the event that it is lost or damaged. What many don’t understand is that, should the worst happen and the underinsured asset be lost, there is no capacity under the insurance policy to replace that asset.
Missing the message
Australians can’t blame a lack of knowledge about underinsurance for their apparent indifference toward the issue. After all, underinsured homes and businesses feature prominently in news reports following major natural disasters or weather events, which should serve as a warning. Most often, it’s affordability that Australians cite as the reason for being underinsured.
Other reasons for such high levels of underinsurance were investigated by the Australian National University’s Centre for Law and Economics, using data from Roy Morgan Research and the Australian Bureau of Statistics. The centre prepared a report on the issue titled The Non-Insured: Who, Why and Trends for the ICA in 2007.
The report found that non-insurance is closely related to many demographic variables, including life stage, age, location, education and country of birth. In summary, it found that a large proportion of those not insuring their property are young, tend to live in cities, are often born in non-western countries, have low levels of education and are without full-time work. Non-insurance is also an issue among retirees with mortgages and single parents, with non-insurance rates significantly lower among those who have paid off their home.
[breakoutbox][breakoutbox_title]Business insurance policies to consider[/breakoutbox_title][breakoutbox_content]
Fire & defined events – covers assets such as stock, contents, fixtures and fittings against events such as fire, wind and water damage
Business interruption – covers loss of profits after a fire or listed peril, burglary and money loss
Burglary – covers theft due to forcible entry to your business
Money – loss of money in transit/safe/office
Glass – internal and/or external glass against accidental breakage
Liability – cover arising from your services to the general public (shopping centres/council require this for retailers)
General property – for tools of trade, such as camera, mobile, tools away from the business
Machinery breakdown – loss or damage as a result of breakdown
Electronic breakdown – loss or damage to electrical or electronic items
Goods in transit – should be considered if you constantly deliver goods to customers
Work cover – mandatory cover for work-related injury claims by employees
Disability/income protection – cover if you’re forced to stop work due to an accident or illness
Management liability – to indemnify the insured against legal liability arising from or in connection with the management of the company
Company – claims that could arise, such as unfair dismissal [/breakoutbox_content][/breakoutbox]
Businesses at risk
Large numbers of business owners are also significantly underinsured. A 2008 survey conducted by Woolcott Research on behalf of the ICA to analyse non-insurance in the small to medium-sized enterprise (SME) sector found that sole traders have the highest rate of non-insurance, with an alarming 40 per cent operating their business with no general insurance. The survey also found that more than 80 per cent of those SMEs with inadequate cover cited the cost of premiums as a barrier to purchasing insurance.
The ICA says many businesses don’t realise they are underinsured until they make a claim and find the amount for which they are covered is less than the market value or replacement cost of assets.
In other cases, a business will be adequately insured when they take out the policy, but over time, as assets appreciate in value, their coverage is not reviewed.
