The Financial Conduct Authority (FCA) estimates that around 40% of SMEs are underinsured. Among the reasons for this are, some business owners believe they are adequately insured, without checking the detail, whilst others have used low figures as a means of reducing insurance premiums. Both are gambling with the future of their business, falsely believing they are fully covered.

The cost of under insuring

Take the case of a business that has insured its premises for £800,000. When the building is damaged by fire, it is calculated during the claim process that the rebuild cost is actually £1,000,000. Based on this the client has only paid a premium for 80% of the risk so using an ‘average’ clause in the contract, the insured will only be covered for 80% of the repairs leaving the business with a large shortfall.  The slight increase in the cost of the policy to ensure adequate cover was in place would have been a small price to pay, compared to the amount now required. Such scenarios are all too common, with the amount initially saved on the premium never equating to the consequences of a major loss.
 
What steps can an SME take to ensure the business is adequately insured?

There are a number of basic guidelines to follow. To start with, ignore the market value of the building and base cover on the cost of rebuilding. Cover for stock and equipment should be based on the new replacement cost and not on the written down book value. You should also consider whether busy periods in your business may need higher levels of cover.

Business interruption shouldn’t be forgotten.

Business interruption is another key area that is often uninsured. If your building is destroyed and needs to be rebuilt, it may take longer than you think to return to business as usual, and you may need temporary premises during the rebuild. What happens if you have cover in place for 12 months, but it actually takes 3 years? Factors such as site clearance, use of cranes, availability of building contractor, inspections, unforeseen issues and re-stocking can all cause delays, which is why it’s essential to have the appropriate level of business interruption insurance in place.

New and emerging risks represent another area of threat, also requiring appropriate insurance. IT and connectivity failure can cause a ripple effect across your business, damaging not only the business’s finances but also its reputation. Currency fluctuations can take their toll, with the pound continuing to struggle since the Brexit vote, resulting in pricier imports and exports losing value, and making the cost of recovery from a disruptive incident more expensive.

Cyber attack represents a real and growing threat, with attacks leaving mayhem in their wake, as businesses struggle to cope with lost business, a damaged reputation and a costly recovery process. In June 2017, ‘Petya’ malware infected computers across Europe, blocking access to files and programs, with victims receiving a ransom demand on their screens.

As your broker, it’s our job to assess your exposure to risk and advise on the necessary level of cover you need to have in place to cover rebuild costs, business interruption, IT failure, cyber attack and so on. With many years’ experience arranging business cover for SME’s and a full awareness of new and emerging risks, J Bennett is happy to advise, ensuring the policy we arrange provides adequate protection for your business, both today and in the future.

Why not call us for a chat on 01494 450 450 or email insure@jbennett.co.uk