Insurance Mistakes Commonly Made by Australian Business Owners

1. The business fails to purchase the correct cover.

Often, without the help of an insurance broker, a business does not understand the cover it needs. The most common example we see is owners insuring the physical assets of the business, but failing to purchase cover for Business Interruption. Typically, following a fire or flood or other major claim occurring at a business premises, some form of interruption to the business operation occurs. 

This interruption results in a reduction in turnover. Companies that don’t have Business Interruption insurance have little chance of surviving. Did you know that 43% of companies that experience disasters don’t reopen and 29% close within 2 years?

Another example is that many business owners don’t understand that flood insurance is not automatically covered and in most cases is an optional extension. If you want to know if a flood is covered, it is important to check the policy closely. Regular policy reviews for Australian businesses can ensure gaps like this are addressed before they become critical.

2. The business is underinsured.

Most business owners incorrectly believe that if they under-insure the only issue that they will have in the event of a claim is if the amount being claimed exceeds the insurance policy sum insured. Sadly, this belief is incorrect because insurance premiums are calculated on the fact that assets or in the case of business interruption, are insured for the full amount. 

Unfortunately, it is only at the time of claiming that some business owners discover that business insurance policies will treat the policyholder as being a co-insurer in the event of underinsurance. In a Business Insurance policy, this clause or condition is referred to as either an “Average Clause” of a “Co-Insurance Clause”. 

In simple terms, if as a business owner you underinsure, your claim will be reduced in proportion to the amount of the underinsurance.

A simple example illustrating the basic principle, application and effect of the Average / Co-Insurance clause is as follows:

Let’s assume the nominated insured sum for a commercial building is $1M, but the correct replacement sum insured should be $2M. If the building is damaged by a storm and the cost of the repairs is $400K, under most business insurance policies, the insured can recover $400K x $1M/80% of $2M, which works out at $400K x ($1M/$1.6M), which equals $250K.

3. The business does not identify its risks adequately.

Australian business owners must have a formal risk assessment process in place that is periodically reviewed and updated to ensure the company is aware of its potential exposures. Once the business has identified and prioritised the risks it is facing, it is important to put in place a suitable insurance program to address the exposures. 

As stated above, FD Beck Insurance Brokers commonly see examples where the business owner insures the physical assets of the business, but fails to identify risks such as cybercrime; claims against the business owners by employees at Fair Work; or the risk of employee fraud. 

These risks can be addressed by way of insurance policies such as Cyber Insurance, Employment Practices Liability, or Employee Theft policies.

How to Prepare for Filing a Business Insurance Claim

Knowing how to file a business insurance claim is just as important as having the right coverage. To streamline the process and improve the likelihood of a successful claim:

• Document Everything: Maintain thorough records of assets, valuations, and incidents.
• Understand Your Policy: Be aware of inclusions, exclusions, and required evidence for claims.
• Work with Your Broker: An experienced broker can guide you through the claim process, ensuring all requirements are met.

By addressing common insurance mistakes, Australian business owners can safeguard their businesses and navigate challenges confidently. Contact FD Beck Insurance Brokers to ensure your business is fully covered and prepared for the unexpected.