Not true value
An ICA spokesperson says factors that can contribute to underinsurance among business owners include not accounting for upgraded assets, a gradual accumulation of possessions, the progressively increasing costs of building or the fact that some choose a premium they want to pay and then live with an arbitrary level of coverage that this provides, which isn’t the same as working out the value of your assets and insuring them for that value.
While the onus is on home and business owners to ensure they have adequate cover, the insurance sector is working hard to get the message through to Australians. Many insurance firms have invested in the technology to offer web calculators that provide an estimate of the costs to replace a property. Many also offer comparative estimates that give data on the average sum insured of nearby properties, as well as a range of different policies on offer.
[breakoutbox][breakoutbox_title]Case study: McKnights Retravision[/breakoutbox_title][breakoutbox_excerpt]Having insurance of the right sort at the right level enabled one small business to recover quickly from storm damage.[/breakoutbox_excerpt][breakoutbox_content]Having insurance of the right sort at the right level enabled one small business to recover quickly from storm damage.
Heavy rain and storms caused flash flooding, power outages and property damage in various parts of Melbourne in February 2011.
One of the businesses affected was electrical store McKnights Retravision, which has one shop in Melbourne and another in Ballarat, in western Victoria. The store owner called his insurance adviser the morning after the deluge.
McKnights financial controller Mark Posch says the Melbourne shop was able to continue trading but that the roof of the Ballarat premises couldn’t cope with the hail and heavy rain, forcing closure for a week. When insurance assessors turned up, they found stock and equipment floating inside the deluged store.
Posch says business interruption cover was a critical part of the claim, enabling the insurer to make two $50,000 payments before the claim was finally settled, which meant the business could continue operating.
“Part of the payment meant we were able to organise our own tradespeople to start repairs straight away,” says Posch, adding that the money also enabled the business to pay staff, who couldn’t work until the damage was repaired.
“The fact that we received a part payment meant we were able to get back on our feet and start trading again relatively quickly after the flood incident.”[/breakoutbox_content][/breakoutbox]
Wising up
A major campaign to raise awareness of the issue of underinsurance was launched by the Australian insurance industry three years ago. Called Lifewise, the campaign is coordinated by the Financial Services Council and funded by special contributions from members.
Lifewise Campaign Manager Holly Dorber says that, despite the fact that almost every working Australian has a level of insurance cover within their superannuation, Australia has proved to be one of the most underinsured nations in the developed world. Small businesses most commonly overlook key person or business expenses insurance, while individuals often don’t bother with income protection and life insurance, she says.
“While most working Australians are covered to a certain degree in their super, unfortunately it isn’t enough to meet their needs should the worst happen,” says Dorber. She says the campaign message has been communicated to more than 15 million Australians through online, traditional and social media since it first launched three years ago.
It is hoped that a recently relaunched campaign with a web presence, greater social media presence and a new slogan – Love Life. Protect it. – will help reduce the incidence of underinsurance.
[breakoutbox][breakoutbox_title]Does your PI insurance measure up?[/breakoutbox_title][breakoutbox_excerpt]Understanding the complexity of an insurance poligy can be difficult, especially with policies like professional indemnity, which insures your business against negligent acts, errors or omissions that may occur when providing professional advice or services to your clients.[/breakoutbox_excerpt][breakoutbox_content]Understanding the complexity of an insurance policy can be difficult, especially with policies like professional indemnity, which insures your business against negligent acts, errors or omissions that may occur when providing professional advice or services to your clients.
A classic example of underinsuring in this area may result from a lack of understanding of how professional indemnity insurance operates and how the different types of insuring clauses and structure of the policy can affect your cover and the ability to make a claim.
For example, when purchasing a professional indemnity policy that has a sum insured of $500,000 cost inclusive, this means that legal and defence costs are deducted from the limit of cover, which reduces the insured sum available for the claim payout itself.
Check to see if the following benefits are included before renewing your professional indemnity insurance:
– continuous cover
– full civil liability
– claims investigation and defence costs in addition to the policy limit (cost exclusive)
– claims preparation costs
– expanded definition of claim
– cost-exclusive excess and only if the claim is successful
– unlimited retroactive cover date
– covers the insured for mistakes, negligence or errors of anyone working for the insured
– worldwide territorial limits
– run-off cover seven years automatic
– one hour free legal advice on any insured business-related matter
– fidelity/fraud and dishonesty cover for innocent parties.
All of these key cover benefits are provided by the IPA Professional Indemnity scheme available through AXS Insurance services. The PI scheme meets and exceeds the minimum standards of the Tax Practitioners Board and the IPA by-laws.
Visit the IPA corporate website for more information on insurance through AXS Insurance and to apply online.
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Apathy or complacency?
Lifewise research on the reasons for underinsurance found that the ‘she’ll be right’ attitude so prevalent among Australians is a common reason that many don’t know or don’t check if they’re underinsured. Others wrongly assume that, if something was to happen, the government, friends or family would look after them.
The solution, according to Dorber, is education and awareness. Australia’s high level of underinsurance is seen clearly through users of the Lifewise calculator, where the average existing cover was just $127,000, compared to the average level of cover necessary of $530,000, revealing an insurance gap of more than $400,000, she says.
“If Australians fully understand what their starting point is through their superannuation, how much they need and why they need it, and [if they] truly understand the financial and lifestyle consequences of not having a safety net in place, then we will hopefully see the underinsurance gap closing,” says Dorber.
“There is also an important role for financial advice. Then, Australians will view income protection and life insurance as a necessity, just as they do their car insurance.”
The ICA recommends that business owners understand exactly what their policy covers them for and make sure they are familiar with the terms and conditions of the policy.
“Businesses should also review the value of assets at least once a year or when the business expands or acquires new assets, to ensure the sum insured matches the value of the business,” says the ICA spokesperson. “Should the worst happen and an underinsured asset be lost, there is no requirement under the insurance policy to replace the asset.”
