The Remaining Risk: What Isn’t Covered and Why it Matters
One of the most common issues with Business Insurance is that policy owners often fail to understand what it does protect you against, and the risks that still remain.
Being aware of what’s in your policy is great (that’s why you bought it, right?), but being aware of what isn’t covered should also be considered, because finding out the hard way – when you try to lodge a claim – is a painful way to learn.
Business owners also need to stay engaged in the insurance process. Insurance isn’t a ‘set and forget’ undertaking, and you need to regularly review your insurance and assess whether it’s appropriate to your situation.
Know the Purpose of Your Cover
The first step to knowing what your coverage includes is to understand its purpose. This will depend on the type of your insurance. Read the below carefully:
- Public Liability – This protects against the financial risk of being found liable for causing injury to a third party or damage to their property. Generally also includes Product liability cover.
- Professional Indemnity – Professional Indemnity covers professionals who provide advice or a service against legal costs and claims for damages arising from any act, omission, or breach of duty in the delivery of a service.
- Business Insurance – This can cover your work premises and contents against loss, damage or theft, and guard against financial loss arising from any interruption to the business.
- Personal Accident – If you’re temporarily unable to work due to an accident, this cover provides up to 85% of your income (up to $3,000 per week) until you can work again.
- Cyber Liability Insurance – Cyber Liability Insurance protects against the expenses and legal costs of data breaches or hacking, including the loss or theft of client information.
Note that Business Insurance includes a whole bunch of further options, which can sometimes confuse people. When you set up Business insurance at BizCover, you’ll have around 15 options to choose from; things like Portable Equipment, Glass, Money, and Goods in Transit. All of these options deserve consideration, so be sure to take stock of the risks specific to your business and select the options that are important to you.
Know Your Inclusions & Exclusions, Limits & Sub-Limits
Having a good understanding of your insurance boils down to knowing what’s in it, and what’s not. For insurers, it’s in their best interest for clients to know what they’re purchasing, so they go to great lengths to make it clear in the Product Disclosure Statement (PDS). In the past, these documents have been overly long, complicated, and in all honesty… a bit dull. ASIC put a stop to this in 2011, however, by demanding “shorter, simpler PDSs” (1) so that customers could get the information they needed quickly and easily.
You don’t need to know your PDS by heart, but having a rough idea of what’s covered will certainly come in handy. For example, if you purchase Professional Indemnity (PI) insurance you should know that you’re covered for any damages claims awarded against you, plus defence costs. And you should know that you’re definitely not covered for intentional damage, fraud and dishonesty or property damage.
You should also be familiar with how much you’re covered for. Using Professional Liability as an example again, you could be covered for any amount between $250,000 and $10,000,000, so there can be a fairly large variance between amounts. There may also be a sub-limit within your policy, whereby a certain claim type is limited to a smaller amount than the standard limit. For example, while your PI insurance might pay for Court Attendance fees, there could be a $500 daily sub-limit to the amount the insurer will pay for that particular cost.
Beware the Danger of Under-Insurance
Owners will sometimes underestimate their business building and contents’ value for insurance purposes, in an effort to minimise their premiums and save a few dollars. This is a bad idea for a few reasons. The first is pretty self-evident; if you’re only insuring part of the value, you’ll need to make up the shortfall if an insurable event occurs. That is, if you insure an $800,000 property for $500,000 and a fire burns the building to the ground, you’ll need to find $300,000 to rebuild at the same value.
What’s more, most insurers have a clause for under-insurance, whereby if a partial claim is made the insured can only claim a pro-rata amount. For example, if a fire caused $4,000,000 worth of damage to a building that was worth $10,000,000, but only insured for $6,000,000, the formula would be as follows:
CLAIM = LOSS X (SUM INSURED/MARKET VALUE)
CLAIM = $4,000,000 X ($6,000,000/$10,000,000)
CLAIM = $2,400,000
Again, underinsurance leads to the insured needing to make up the shortfall between the damage cost and the claim amount, which would be $1,600,000.
Review and Update
Your business is constantly evolving – hopefully, it grows, but sometimes it contracts. You might be hiring or firing staff, purchasing new equipment, changing your processes or taking on considerable stock. Whatever the case, whenever there is a significant change in the business, the insurance shouldn’t policy shouldn’t be too far behind.
You don’t need to think about your policy every day (thank god!), but you will need to give it some thought at least once a year when your service anniversary comes around. You also need to review your policy if you acquire significant additional assets or change your business location. Look at your turnover, staff level, assets, stock, products, and processes; if anything has undergone considerable change, you need to update your policy. Ideally, these updates would happen as they occur, but as a fallback, you’ll definitely want to take stock at renewal time. Keep in mind that you have a ‘Duty of Disclosure’ to advise your insurer of anything that may affect your policy, and failure to do so may adversely affect your chances of a successful claim.
Think of it as a chance to give your policy an annual tune-up, or a health check. You might realise that you have considerable assets that aren’t covered, or it could be that you’ve downsized and can arrange a cheaper premium. The point is that you need to keep your insurance as current and correct as possible so that when you need to make a claim the right coverage is in place.