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Australia is currently grappling with an inflation rate that has reached historic highs, impacting all sectors of the economy including insurance. The consequence of this surge in inflation for business owners is that their current insurance coverage may not be sufficient to cover expenses when the unexpected strikes.

In this article we explore how inflation is contributing to underinsurance and explain how a property insurance valuation can keep your business safe.

Global economic volatility, the effects of extreme weather events, supply chain disruptions and the Ukraine-Russia war are all factors that have pushed up the cost of labour and materials, particularly in the construction industry. According to CoreLogic, construction costs increased 11.9% in 2022 and almost 25% over the last 5 years.

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In this type of economic climate it is vital that you regularly review the insured value of your property and business assets to keep them in line with inflation.

Otherwise, if your property is damaged in an unforeseen event, your insurance claim payout will fall short of the cost required to repair or rebuild and you will be underinsured.

Not only will this leave you significantly out of pocket, it could lead to prolonged negotiations with insurers, force you to seek finance on an already stretched budget and expose you to legal actions by business partners and customers if you're unable to meet contractual obligations.

Professional insurance valuations are critical to avoid being underinsured

Engaging an insurance valuation expert for the valuation of your property and business assets is the most accurate way to determine values to declare on your insurance policy and avoid underinsurance.

These reports identify your full costs in the event of partial or total loss to your property and typically include the following components:

  • The demolition and removal of debris and asbestos of the original structure, including all associated consultant fees
  • The cost of reconstructing a new building including revised or amended planning constraints and updated building codes
  • Consultant fees
  • Cost escalations for time taken to complete assessment, design, tender evaluations, construction periods and new policy renewal dates

Insurance valuation traps to avoid

  • Do not rely on last year's figures — you will be underinsured
  • Simply increasing last year's figures by a small percentage is not advisable, nor is relying on market or book value
  • Do not rely on a bank to provide a valuation because this is calculated on lender risk
  • Do not rely on your Real Estate agent either as these values fluctuate
  • If the business is an acquisition don't make the mistake of accepting the stated value of the assets.

The value of broker involvement in avoiding underinsurance

Involving an insurance broker who understands your industry sector and the risks that are particular to your business will help you ensure you have the cover you need. We're here to help. Connect with one of our experts who can help you organise a professional insurance valuation and address underinsurance today.

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Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

Gallagher publications may contain links to non-Gallagher websites that are created and controlled by other organisations. We claim no responsibility for the content of any linked website, or any link contained therein. The inclusion of any link does not imply endorsement by Gallagher, as we have no responsibility for information referenced in material owned and controlled by other parties. Gallagher strongly encourages you to review any separate terms of use and privacy policies governing use of these third party websites and resources.

Insurance brokerage and related services to be provided by Arthur J. Gallagher & Co (Aus) Limited (ABN 34 005 543 920). Australian Financial Services License (AFSL) No. 238312

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