Over recent months, the impact of the inflationary environment we’re all experiencing has become very evident. From the price of electricity and gas to the cost of fuel, we’re all being affected.
The insurance sector is also experiencing its fair share of impact, and not just from a pricing perspective.
“The challenges we are all facing – particularly coming off the back of the global pandemic – are immense,” says Brad Kelly, Division Manager at Gow-Gates.
“Good brokers today are helping clients navigate those challenges, identifying emerging risks and ensuring clients have a good understanding of the dynamics at play.”
Insured values – beware underinsurance
One of the major ways inflation is affecting insurance is around sums insured – that is, the declared value of assets within the insurance policy.
During COVID-19-induced global lockdowns, supply chains were severely affected.
Ports were closed, workforces decimated, and many supply chains were significantly delayed – if not ground to a halt.
And this had a major impact on sums insured.
After all, its basic supply and demand theory – if supply slows down, prices will increase, and we saw that perfectly illustrated with the second-hand car market here in Australia. As the availability of new cars slowed, the demand for used vehicles increased – as did prices.
And consequently, so did the value of replacement goods.
Every business has insurable assets, and many couldn’t operate without them. If a piece of machinery is stolen, for example, or a warehouse of stock is destroyed, it’s essential to be able to replace it quickly. If you’re underinsured, you may not be able to. It’s important to speak with your broker to reassess your sums insured – after all, the chances are any value you agreed upon previously wouldn’t be sufficient to replace your loss.
Property valuations are equally important
We all witnessed the property price boom up until midway through 2022 – and although prices have subsequently dipped, it’s still hugely important to check your sums insured – because you need that to be accurate if you’re going to get back to the position you were in before an event occurred.
The valuation of a property should be the cost of rebuilding it, not the price of purchasing a similar property, so it’s important to take into account the availability of builders and tradies, as well as the actual material costs.
If your business premises went up in smoke, would your policy cover not only the cost of rebuilding but the cost of a temporary location to operate from for a realistic amount of time?
Ensure business interruption insurance is realistic for today
While many businesses have business interruption insurance, it’s important to review it to make sure it will cover what’s needed at today’s valuations.
For example, with supply chain delays, how long would it take for your premises to be repaired after a flood? While three or four years ago, four-to-six months may have been enough, today, 12-18 months may be more realistic.
How much time would it take to replace lost stock? Pre-pandemic, it may have been weeks. Today, it could be months – and the costs of doing so will likely be higher.
It’s smart to spend time ensuring you’re covered if the worst happens and confirming your business interruption insurance policy is robust enough for the challenges of today.
After all, you’re better off finding out before an event than in the aftermath.
Speak with your broker to ensure you’re covered for today’s threats
If you haven’t reviewed your insurance coverage in the past 12 months, it’s incredibly important you do so. Contact the Gow-Gates team via email at email@example.com or call us on 02 8267 9999 to arrange a consultation.
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