Your business is probably one of the most valuable assets you have – so it makes sense to protect it in good times and bad. The major reason why small businesses in Australia fail is inadequate cash flow1. That’s where having the right level of insurance can make all the difference by helping to ensure your business continues to operate smoothly if the unexpected happens.

The risk of underinsurance

Unfortunately, 1 in 10 Australian businesses with insurance don’t have enough cover to protect themselves against business disruption, legal liabilities or loss or damage to their assets2.

This is referred to as ‘underinsurance’ and it can greatly increase the risk of a business having to close down if something goes wrong. So why are so many businesses underinsured?

Some business owners are driven by low premiums and don’t take the time to make sure they are adequately protected after an insurable event. As a result, the sum insured may not be enough to cover losses – or the terms of their policy may limit the amount that can be recovered.

It’s also common for business owners to underestimate either the reinstatement or replacement costs of their business assets after a damaging event such as a fire or storm. If the sum insured doesn’t reflect an up to date reinstatement or replacement cost, the owners will be underinsured and may face substantial out-of-pocket expenses if they need to make a claim.

1ASIC, Insolvency statistics: External administrators’ reports (July 2017 to June 2018).

2Insurance Council of Australia, Non insurance in the small to medium sized enterprise sector, July 2015.

➤ in fact

“1 in 10 Australian small businesses with insurance don’t have enough cover to protect themselves.”