Business insurance packs are generally designed to insure a business’s assets, compensate for any loss of revenue or pay liability claims resulting from injury or property damage to a third party.

However, it can be complicated, with a wide range of competing products offering varying levels of cover. But getting it right is crucial, as one of the biggest disasters a business owner can face is discovering too late that their policy isn’t as comprehensive as they’d assumed.

“In some instances, businesses find out only after making a claim that they don’t have the correct insurance policy or cover,” says Stacey Tonkin, Aon’s growth and partnership manager for health & professions, and an insurance specialist for more than 20 years. “And when you’ve suffered a catastrophic event like a fire or storm, the last thing you need is something else to worry about.”

“In some instances, businesses find out only after making a claim that they don’t have the correct insurance policy or cover.”

Avoiding underinsurance

Underinsurance is a common issue that has serious consequences for businesses. A Business Australia report suggests it may affect as many as two-thirds of Australian companies.

Insufficient coverage can result in a policyholder being responsible for a large percentage of a loss. It usually applies when the declared value of a property is less than 80% of the actual value.

Should the worst happen, it’s a dangerous position to be in. Business insurance packs typically require insurance for the ‘new replacement value’ rather than the current cash value, which takes into account the item’s condition (indemnity value), and the two figures can vary considerably.

“In some cases, underinsurance can be disastrous and mean the business owner is unable to rebuild,” says Tonkin. “Obtaining an insurance valuation from a specialist is a great risk management strategy.”

Covering ongoing losses

“Business interruption insurance is designed to compensate for ongoing losses caused by the initial event,” says Tonkin. “For example, if your premises is destroyed by fire, you may suffer a loss of revenue over an extended period of time, even if you re-establish your business in a new location.”

It’s a section where the underinsurance clause often applies, so income figures need to be accurate and reviewed annually, or more frequently if other significant business changes occur.

Business interruption may include an option for an indemnity period of more than 12 months, even if that’s longer than the actual policy itself lasts.

“This isn’t something all business owners will need,” says Tonkin, “but if your revenue is reliant on your location, you own the building or had equipment that’ll take a long time to replace, it may be worth considering.”

Regular reviews

“I’ve known companies that moved offices and forgot to tell their broker, so they continued to insure assets at the wrong location!” says Tonkin. “Good insurance housekeeping involves thoroughly checking that your details are correct and notifying your broker of any changes.”

Find out more

Aon is the preferred PI CA ANZ member benefits partner for practitioners in Australia. Its specialist SME brokers can arrange insurance tailored for the risks commonly faced by businesses, and industry-specialised advice on the typical insurance needs of chartered accountants. Visit aon.com.au/ca for details of how Aon’s business insurance packs can help protect your business.

_{© 2023 Aon Risk Services Australia Limited ABN 17 000 434 720 AFSL 241141 (Aon). The information contained in this communication is general in nature, and should not be relied on as advice (personal or otherwise) because your personal needs, objectives and financial situation have not been considered. Before deciding whether a particular product is right for you, consider your personal circumstances, as well as the relevant product disclosure statement (if applicable), target market determination and full policy terms and conditions, available from Aon on request. All representations in this communication in relation to insurance products Aon arranges are subject to the full terms and conditions of the relevant policy. Contact Aon if you have any queries.}