QHA-Review_August_Digital

NEWS
UNDERINSURANCE – ARE YOU COVERED?
WITH RISING PROPERTY AND ASSET VALUES, IS YOUR BUSINESS AT RISK OF UNDERINSURANCE?
QHA REVIEW | 18
Businesses are often surprised to discover their assets
are not covered to their full value under their insurance
policy. This means they don’t have the cover they need
in the worst possible circumstances — when they
need to claim.
Australia is currently grappling with an inflation rate that
has reached historic highs, impacting all sectors of the
economy including insurance. The consequence of
this surge in inflation for business owners is that their
current insurance coverage may not be sufficient to
cover expenses when the unexpected strikes.
So how is inflation contributing to
underinsurance, and how can property insurance
valuation keep your business safe?
Global economic volatility, the effects of extreme
weather events, supply chain disruptions and the
Ukraine-Russia war are all factors that have pushed
up the cost of labour and materials, particularly in
the construction industry. According to CoreLogic,
construction costs increased 11.9% in 2022 and
almost 25% over the last 5 years.
Otherwise, if your property is damaged in an
unforeseen event, your insurance claim payout will fall
short of the cost required to repair or rebuild and you
will be underinsured.
Not only will this leave you significantly out of pocket,
but it could also lead to prolonged negotiations with
insurers, force you to seek finance on an already
stretched budget and expose you to legal actions by
business partners and customers if you’re unable to
meet contractual obligations.
Professional insurance valuations are critical to
avoid being underinsured
Engaging an insurance valuation expert for the
valuation of your property and business assets is the
most accurate way to determine values to declare on
your insurance policy and avoid underinsurance.
These reports identify your full costs in the event
of partial or total loss to your property and typically
include the following components:
• the demolition and removal of debris and asbestos
of the original structure, including all associated
consultant fees
• the cost of reconstructing a new building including
revised or amended planning constraints and
updated building codes
• consultant fees
• cost escalations for time taken to complete
assessment, design, tender evaluations,
construction periods and new policy renewal dates
Insurance valuation traps to avoid
• do not rely on last year’s figures — you will be
underinsured
• simply increasing last year’s figures by a small
percentage is not advisable, nor is relying on market
or book value
• do not rely on a bank to provide a valuation
because this is calculated on lender risk
• do not rely on your real estate agent either as these
values fluctuate
• if the business is an acquisition don’t make the
mistake of accepting the stated value of the assets.
The value of broker involvement in avoiding
underinsurance
Involving an insurance broker who understands your
industry sector and the risks that are particular to your
business will help you ensure you have the cover you
need. For any more information, QHA Gold Partner,
Gallagher are here to help. Connect one of their
experts by visiting www.ajg.com/au.