Many small and medium enterprises (SMEs) in New Zealand may not have adequate insurance in place.
The volatile business environment, greatly influenced by the COVID-19 pandemic, could leave small business owners underinsured – which is when the cost of a major loss exceeds the sum covered by the insurer.
“Insurance is not a set-and-forget product. It covers the risk of what a business faces, which is constantly changing,” said Jane Mason, head of product, channels and risk for SME insurance platform BizCover. “The pandemic and climate change combined with the rising cost of living have changed the operating landscape for many businesses, and with it, the amount of risk they take on.”
Inflation is another factor businesses must contend with, with inflation having reached a 30-year high in December and set to rise even further.
A high inflation rate causes goods and services to become more expensive, and insurance is not an exception.
“While we don’t have detailed statistics on underinsurance, it’s clear from when we have major claims events that, while the number of SMEs insured is high, they are often underinsured,” said a spokesperson for the Insurance Council of New Zealand. “Our members saw an increase in commercial fire losses in 2021. While, at ICNZ, we do not know the specifics of the insurance coverages for those affected property owners, we do know that recent high levels of building cost inflation can mean that previously set insurance values may not be enough for 2022.”
According to Mason, the costs of replacement stock, machinery or specialist equipment have risen significantly and, in many cases, beyond the amount they were originally insured for.
“So, if the worst were to happen and you had to make a claim, you and your business could wind up with not enough insurance to cover the new, higher cost … leaving you and your inflation-ridden bank account to foot the bill,” Mason said.
To help Kiwi small business owners protect themselves from the underinsurance trap, Mason said they should set some time aside every couple months to understand the true value of their buildings and business contents. Owners should also keep track of their purchases to maintain adequate insurance for the business.
“While renewal is a great time to review your cover, you can check any time with your insurer that you are adequately insured,” Mason said. “If you need new cover, then jump online and compare at BizCover and we can help you avoid the underinsurance trap along your business journey.”
