Many insurance policies have what is known as a co-insurance clause.
In simple terms, what it means is, that in the event of a claim, if your property or business is under-insured, or not insured for it’s full value, the insurance company can discount your claim.
This can happen even if you have a partial claim.
According to leading insurance industry figure Dr Allan Manning over 70% of Business Interruption policies could be impacted by under insurance.
Here’s an example of how it works.
If a business had a sum insured for gross profit of $500,000 when the actual insurable gross profit of the business was $1,000,000 on a policy with 80% co-insurance; and the loss was $200,000, the claim would be adjusted as follows:
Declared Value x Loss = Insured Loss
Value at Risk x Co-insurance
i.e. $500,000 x $200,000 = $125,000
$1,000,000 x 80%
This means the uninsured loss (reduction in claim) would be $75,000.
This is an example of why the role of the insurance broker is so important. A small saving in premium can have a large cost in the event of a claim. Many business policies also fail to have a long enough Indemnity Period and cover for increased cost of working.
To have your insurance program checked contact one of our brokers.
*The above example was provided by Dr A Manning of LMI Group.