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Insurer warns small businesses against the perils of under-insurance

The Managing Director of Earby-based West Craven Insurance Services has this week urged businesses to be cautious and avoid the dangers of under-insuring.

Ian Clarkson has suggested that the recession will have encouraged many small businesses to cut costs, often buying insurance policies online – a practice that may be cheaper, but that doesn’t necessarily give the comprehensive cover that is required for business continuity should losses occur.

“Buying online is not the best way for SMEs to ensure they have full insurance cover,” said Mr. Clarkson. “It always helps to get the advice of a qualified intermediary, as the insurance requirements of even a very small business are much more complex than personal insurance.”

Recent research says that 45 per cent of small business use brokers, with micro businesses being most likely to shop online.

“This can often mean they just buy the basics and often miss things like Business Interruption Cover or other products that are fundamental to the protection of a business, its staff and assets. This is compounded by the fact that most small businesses only think about insurance at renewal or when filing a claim,” added Mr. Clarkson.

“An advised sale from a broker provides you with some accountability and responsibility. Unadvised sales can lead businesses towards insurance products where there’s more likely to be under-insurance. I’d advise businesses to look online to get an idea of price, but then to talk to a broker who knows their business or sector.”

A Building Cost Information Service report from 2012 suggested that 80 per cent of commercial properties were underinsured.

“It’s common for businesses to be over-optimistic about their ability to react following a loss and underestimate the time and cost of recovery. Insurance planning requires flexibility and taking a longer term view, which might mean taking Increased Cost of Working cover. Businesses may have bought the cheapest insurance packages available during the recession, but now with building costs and demand for materials and labour rising, their level of cover could be seriously lacking. Equally, as businesses come out of leaner times, their growth means that they’ll have more to insure.”

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