Australia: SMEs at risk of insurance gaps due to inflation
Source: Middle East Insurance Review | Jun 2023
Small and medium businesses in Australia may be at risk of gaps in their insurance coverages due to inflation, leading to a potential ‘serious financial crisis’ according to insurance service provider InsurTech BizCover.
Losses due to storms, fires and other significant events could result in insurance claim pay-outs that do not cover the total cost of replacement due to the difference between what the business has insured and the cost to rebuild.
BizCover head of product, channel and risk Jane Mason said even as data suggests inflation has likely peaked in Australia, the remnants of double-digit inflation growth for construction input costs to reach all-time-high levels could still leave small business owners with significant holes in their business insurance.
Its analysis has revealed that major inflationary pressures adding to building costs peaking mid-2022 for prices of staples like steel (which rose in price by 42.1%), board and joinery (up 20.6%) and glass (14.1%).
According to property data business firm CoreLogic, the overall price of building construction rose by close to 12% over the course of 2022, meaning if one insured a building in December 2021 the cost to replace that building may be dearer than planned.
BizCover said insurers typically pay to repair, rebuild or replace damaged property to the state it was in when insured though some may offer to cover 120% of the total insured amount to account for changes in replacement costs.
The InsurTech has suggested that business owners regularly assess their exposure to risks and ensure that they have sufficient coverage for the current value of their assets which can significantly reduce coverage gaps.
Ms Mason said, “It is important to insure your business for an amount that is sufficient to cover not only the tangible assets but the cost of repairs and any other variables that might leave you out of pocket.” M