Gallagher has reported that Australian businesses are confronting new obstacles in securing comprehensive commercial property insurance coverage, amid inflationary pressures, rising rebuilding costs, and an uptick in extreme weather incidents.
These factors have contributed to larger claim volumes, pushing insurers to adopt stricter underwriting standards and reduce their willingness to cover higher-risk properties.
Consequently, some commercial properties remain underinsured, while others face difficulty in obtaining the full scope of protection they may require.
Insufficient insurance coverage can leave businesses financially exposed in the event of significant loss events, Gallagher highlighted. However, companies that actively implement risk management strategies may be in a better position to secure more favourable terms and premiums.
Gallagher said that rapid inflation has driven up property and asset values across Australia, rendering many existing coverage limits inadequate.
Rebuilding costs have escalated in particular, with timber, steel, and other construction materials seeing steep price increases.
Gallagher noted that repeated claims for weather-related damages have strained capacity in the commercial insurance and reinsurance markets, making it challenging for some businesses to secure full insurance limits.
Gallagher said that some businesses underestimate how long it may take to recover after a significant loss.
Rising costs, supply chain disruptions, and labour shortages can lead to protracted restoration periods, which may exceed the indemnity periods set in some policies, leaving businesses financially vulnerable.
According to Gallagher, many Australian companies may not fully grasp the financial risks associated with underinsurance.
A coverage shortfall can have significant repercussions, potentially causing businesses to incur substantial costs that could lead to closures if a claim exceeds policy limits.
As inflation, increased claims, and reduced reinsurance options drive up the cost and limit the availability of commercial property insurance, Gallagher indicated that some insurers are scaling back capacity in certain regions prone to natural disasters, covering only higher-risk layers within property programs.
Gallagher advised property owners to be well-informed about their tenants’ business activities, as these factors can impact insurers’ assessments and influence premium rates and willingness to offer coverage.
Due to these pressures, some businesses have had to seek coverage from multiple insurers, creating more complex insurance structures with potentially higher administrative costs. Many insurers are also demanding more detailed information on risk mitigation measures and updated valuations of assets to inform their underwriting decisions, according to Gallagher.
Businesses that proactively manage their risk exposure may improve their ability to secure insurance coverage and obtain better pricing, Gallagher said. Key strategies include:
Gallagher emphasised the importance of understanding the risks associated with underinsurance, especially for small and medium-sized enterprises.
The company said that brokers could assist in educating business owners on policy terms, coverage conditions, and exclusions, helping them make more informed insurance decisions and reduce exposure to potential gaps.
