Can’t afford insurance! – can you really afford not to have any?
Last week it was reported that a jewelry store in Melbourne’s CBD was robbed of over a million dollars worth of opals. The report went on to say that the owners elected not to insure at last renewal due to the increasing cost of insurance. What ever the premium was, with the benefit of hindsight would be significantly less than the financial loss they now have to overcome.
What staggered me was that apparently the valuable jewelry was not in a safe but in display cases out of normal business hours. For someone as risk averse as me I cannot get my head around the lack of what I would call reasonable care. It is perhaps why the insurance was high. I do not know. If I were the underwriter I would insist the stock of a high end jewelry store be locked in a quality safe at night.
It is not like jewelry stores in Melbourne have not been the target of quiet vicious robberies of late. I was approached to provide risk management advice to the Victorian jewelers association by an insurance broker while LMI attended to quite a few of the claims.
Now with the bush fires and in North Queensland we are seeing many people not have insurance due to increases in premium that are way out of step with inflation but in reality in many cases, not all more in line with the financial risk being transferred to an insurer.
While the study is a little old now, the Quantum research conducted in 2013 found that 83 per cent of those surveyed in Australia believed they would be worse off in the event of a crisis because their insurance would leave them significantly out of pocket. I believe this situation has got worse not better since then, despite all the media coverage on natural disasters. Certainly the increasing cost of insurance is a factor along with the proportional increase in taxes on insurance, particularly in NSW.
If you simply cannot afford the full cost of insurance rather than go without completely discuss with your insurance broker options such as discarding types of insurance you can afford to carry the risk yourself. For example glass insurance or electronic equipment. But keep your public liability, your fire and please your business interruption coverage.
Taking a higher policy deductible may and should bring down the premium. That way you carry some of the risk yourself but not all. You chose the level you feel you can fund if the worst happens.
Another example is car insurance. If you cannot afford comprehensive motor insurance, look to alternatives such as third party property damage which would protect you if you were deemed at fault. You do not want to run up the back of a prestige car for example.
What I do not advocate is to find the cheapest nastiest cover and hope for the best. It is a complete waste of time and creates even more stress if you find the policy you have does not cover the loss or disruption as expected or you have to drag the insurer kicking and screaming to the courts years later to get any payment at all.
Yet another area to fully understand with commercial insurance is there are penalties for being under insured. This can be devastating to a business. Yesterday, I was working on a claim where the loss is over $1 million but due to under insurance the amount claimable is going to be between $100,000 and $200,000. This leaves a huge uninsured loss for the organisation and its owner to bear.
Clearly making yourself as attractive an insured as possible to a quality insurer is more important than ever. Look at what you can do to improve the risk you are asking the insurer to take on.
Some examples are:
- Do not make claims for small losses. Keep your claims history as clean as you can. Keep insurance for the biggie that could be life changing for you, your family and or business.
- Look at the building materials you use in any future building works, renovations etc. EPS is clearly on insurers radar and for very good reason.
- Look at the protection you have in place. Fire, burglary, malicious damage etc.
- Do you have a fully documented and exercised business continuity management plan?
As mentioned above, your insurance broker can assist while LMI can assist with risk management and business continuity management planning.