The world is increasingly volatile with newspapers being filled with stories of economic doom and gloom. Continuing issues with supply chains are impacting the availability of all imported goods including building materials, replacement parts, and machinery.
Inflation is set to hit levels not seen since the late 80’s and early 90’s.The consequence of this is that prices continue to rise increasing the cost of living and doing business here in New Zealand and globally. Your Insurance Values Need to Keep Up With all of these changes it is essential that your Material Damage (Property) and Business Interruption policies are reviewed regularly to ensure that your cover is at the right level. These policies will include limits that you select for your assets and loss of profit, and typically these will be variations of:
- Buildings
- Plant/ Machinery/Equipment
- Stock
- Loss of Gross
The amounts detailed in your policy schedule and shown against these items are the maximum amount that the insurer will pay in the event of a claim. Insurers confirm this within the policy by stating that the maximum payable in the event of a claim is the amount included within the schedule provided by you.
It may be tempting in a time of generally increasing costs to leave insurance values as they are. However, come claim time, you may find that the insurance policy is insufficient to reinstate the loss incurred and ensure the continuity of your business. Underinsurance Under insurance is very common in New Zealand and can happen for a number of reasons:
- Not understanding the basis of the values to be insured;
- Not including all costs in the sums insured e.g. debris removal and/or site improvements;
- Currency fluctuations where businesses are heavily dependent on imported machinery;
- Not accounting for delays or shortages in the supply chain;
- Not reviewing values annually;
- Not factoring in increasing prices.
Under Insured Claims Reports in the UK show that:
- 70% to 80% of business that suffer a major disaster go out of business within three years
- Companies that are not open again within 10 days are unlikely to survive
A good disaster recovery plan, together with properly insured assets/revenue to provide adequate funds for recovery, will increase the chances of survival.
Deliberate underinsurance will be a problem at claim time and may impact the decision of the insurer on whether to pay the claim, and if so on what basis. While insurance concepts such as
“Average” do not, in the main, apply in NZ, insurers are not obligated to settle claims where there has been deliberate misinformation/underinsurance.
Next Steps
Getting the sums insured correct for your business is critical to its survival in the event of a loss. We recommend:
- Talking with a professional valuation firm and/or
- Implementing a valuation programme with a qualified valuer to ensure sums insured are regularly reviewed.
If you arrange premium funding for your insurance programme then it may be possible to fund the cost of the valuations at the same time.
