Ross Williams understands why business owners are tempted to cut back their insurance cover.

“New Zealand is officially in a recession, following three quarters of negative GDP growth,” says Williams, account director – National Partnerships – at the Wellington office of insurance brokerage Gallagher New Zealand. “The reserve bank has been putting a lot of pressure on interest rates with the aim of keeping inflation low, but it’s been stubborn.”

Those who took advantage of 2021’s historically low mortgage rates – as low as 1.79% per annum for some one-year fixed-term loans – are now paying 6–7%.

“Mortgage repayments, groceries, fuel – things are expensive on all fronts,” says Williams. “At the same time, we’ve had quite a hard insurance market in New Zealand, following a number of major weather events that led to global reinsurers raising their rates for New Zealand.

“It’s not surprising that many businesses are struggling and looking to cut costs wherever they can. As insurance is sometimes the second or third largest cost of a business, it’s easy to see why it appears to be an obvious target.”

The problem is that a struggling business is particularly vulnerable to loss. “It’s even more difficult to cover costs you can no longer claim,” he says.

Searching out the alternatives

A review, or second opinion, could identify ways to cut costs, while retaining crucial cover.

“Most people buy insurance and then keep on renewing it, without checking whether it’s still the best match for their needs,” says Williams. “The original advice you received may have been great at the time but inappropriate when circumstances change. For example, if your turnover and profits are down, you could be paying for more cover than you need.

“Basing your assessment on what you expect for the year ahead, rather than last year’s accounts, could significantly reduce your premiums. You can also bring costs down by putting larger excesses in place. This gives you the security of putting a ceiling on what you’d have to pay if something went wrong, rather than run the risk of losing your business.”

Step 2: Review your business description/professional services

Your business description is another area which is very important to keep up to date. Your insurance documents should clearly state all the services your business provides. If you are currently providing services which are not listed on your insurance policy, or conducting activities which are outside the scope of your qualifications, you may not be covered under your professional indemnity (PI) insurance.

This is particularly important if you’ve taken on new staff members or contractors who provide additional service(s) which are not noted on your insurance policy. Even if the contractor has their own insurance policy, your client could still sue you for the negligence of your contractor.

Some policies may default your retroactive date to the date the policy starts, which could leave you with a significant gap in cover. For retroactive cover... you must not have known about the claim or a circumstance that may lead to a claim.

How accountants can help

A long-term partner of CA ANZ, Gallagher works in partnership with many accountants.

“We see accountants as key business advisers who are keen to do the best for their clients,” says Williams. “When you explain the importance of getting a review or a second opinion, you’re providing them with a valuable extra service.”

This is particularly important if clients are planning to cut back on insurance thinking it’s an obvious cost-cutting measure. “You could prevent them from putting their whole livelihood at risk by advising them to do this under guidance.”

A second opinion assessment from an insurance expert can help all clients – and accountants themselves – to ensure they’re not paying more than they need to.

“We offer a helpful service option called Gallagher Second Opinion designed specifically to address these issues,” says Williams.

Find out more

So you and your clients can face the future with confidence, please contact your Gallagher broker to discuss your specific situation.