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Tackling the rising cost of insurance

by Stephen Elliott
General Insurance Broker
January 13, 2023
2 min read

Australia, like most world economies, is facing record levels of inflation owing to the compounding impacts of the pandemic, disrupted supply chains, the surge in energy prices and severe weather events.

As costs continue to rise sharply, underinsurance is tipped to be a major issue with long-term implications for businesses.

In this article, we discuss the hidden costs of underinsurance, common mistakes businesses make when it comes to valuations, and how to tackle the rising cost of insurance.

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According to the Insurance Council of Australia, there are many factors contributing to rapidly rising insurance costs. Insurance prices reflect the level of risk within a given market and insurance globally is currently in a ‘hard’ market. this means capital is scarce, reinsurance is more difficult to obtain, and risk appetites are low, all of which can impact the cost of premiums locally.

As the risk of extreme weather worsens, insurance can become increasingly costly for those in flood, bushfire-prone locations such as New South Wales and Victoria.

Insurers are also seeing increased inflationary pressures coming from building supply constraints and skills shortages.

Rising inflation means many businesses may now be underinsured

Underinsurance is an ongoing issue that has been exacerbated by rising inflation.

According to NewSure General Manager, Brett Edmonds, underinsurance is going to be one of the biggest issues for businesses in 2023.

“If you had correct values in 2021, you’re probably 15% below an accurate valuation right now”, says Edmonds.

“Outdated valuations may leave businesses underinsured if the cost of repairing or rebuilding their properties and replacing stock exceeds existing coverage limits. There is also the risk that the insurer may decide that the business deliberately understated the declared values and will not approve the claim. This is a worst-case scenario, but it can happen”, says Edmonds.

It’s clear that simply adding a nominal 5-10% to last year’s valuation could potentially expose businesses to significant financial risk.

How to mitigate the impacts of inflation and higher insurance premiums

To avoid being caught out with inadequate cover, organisations must take ownership of the valuation process and seek the right advice to ensure that insured values and insurance cost assessments reflect the current replacement value of the asset or property. If you are underinsured, you are effectively self-insuring any gaps in cover.

Use our quick guide as a starting point:

Insurance coverage terms and conditions including any exclusions:

  • What are your policy limits and potential sub-limits?
  • Are there any underinsurance issues?

Adequacy of cover and sums insured:

  • What are your sums insured and are they adequate?
  • Are there any outdated valuations?
  • Do they cover the cost and availability of materials and labour?
  • Do you need to factor in extra time into indemnity periods?

Adequacy of property valuations:

  • Does your current policy cover recovery expenses after a loss in view of current property repair and rebuilding cost inflation?
  • Is there any reliance on accounting valuations for asset repairs or replacements that depend on calculations based on the original purchasing cost?

Managing risk and rising business insurance costs

It is crucial to create and maintain a robust risk management strategy for your business insurance. While this becomes pertinent in the current economic climate, it should be standard practice for businesses at all times.

Working with an insurance broker is one of the best ways to ensure no matter what your circumstances. When an insurance broker acts for you, they help by assessing your situation to develop an insurance package to suit your needs. This involves comparing the myriad of insurance options in the market, from a range of insurers.

An insurance broker will ensure you get the right cover, at a competitive price. With access to the latest innovative tools that help them to find and compare insurance products, they are better equipped to find the best options for you.

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Important notice – NewSure Insurance Brokers Pty Ltd

This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.

Information is current as at the date the article is written as specified within it but is subject to change. NewSure Insurance Brokers Pty Ltd make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of NewSure Insurance Brokers Pty Ltd.


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