The under-insurance problem
Is your business prepared for this?
In the face of an economic slowdown managing cash flow is now not merely prudent business management but a necessity for physiotherapy practice owners. It's in times like these that the ever-present risk of under-insurance becomes a real problem. An accident, mishap or loss now could put a hole in your cash flow that may be hard to repair.
OmniAccess' Small Business Survey showed that 55% of small businesses (defined as those with less than 20 employees) were found to be very concerned about cash flow[1]. Yet many business owners fail to make the link between concerns about cash flow and the importance of having the right insurance cover to protect against unexpected events. Now more than ever, its important to ask yourself 'is my business faced with the risk of under-insurance?'
What is under-insurance?
Put simply under-insurance is when your insurance cover is less than the value of your practice assets. The dangers of this for business owners are obvious – you may not be fully protected against the impact of unexpected events. And yet startling statistics have revealed that at least 50 percent of Australian small businesses are underinsured[2], and therefore, at risk.
Under-insurance is a reality for business owners, and a perpetual challenge in the insurance market. The major difficulty is in correctly assessing the value of your assets. Think about whether you know how much your physiotherapy practice is worth? This difficulty increases when the level of cover needed changes over time as the practice inevitably receives additional stock, purchases new equipment, refurbishes, and takes on additional staff. Also, the amount of cover required for money changes frequently based upon the last time you banked your money.
Full Replacement Cost Cover
While Guild would encourage you to inform your insurer whenever the value of your business changes, we recognise the difficulty in doing so. At Guild we provide a 'safety net' feature, which sets our cover apart from many and tackles the under-insurance problem.
This feature is Guild's 'Full Replacement Cost Cover', which essentially removes the risk of under-insurance. No longer will you face the problem of your practice's value increasing beyond the value of your cover. 'Full Replacement Cost Cover' means that Guild will pay the actual cost to rebuild or replace your building or contents (the full replacement cost), if you have inadvertently undervalued your business assets.
A Guild Business Manager also helps you to overcome the under-insurance problem by personally discussing the level of cover you need. It can be difficult to determine how much insurance you need without the experience and knowledge to do so. That's why it helps to have a Guild Business Manager, with years of experience and a vast knowledge of a physiotherapy practice's exposures to risk, provide an onsite review of your business's needs to help determine your cover.
Practice Interruption
Many business insurance policies have an 'under-insurance clause' that can lead to a substantially reduced payout in the event of a claim. Unfortunately, most people don't find out about this until it's too late (read our example below).
Another important cover option is practice interruption. Practice interruption covers your profit and the costs associated with your practice being disrupted by damages. It can take significant time to recover from a major loss, and the costs of missing trading days can really hurt.
It's a fact that 70% of businesses fail after a major loss (major fire, storm, flood)[3]. Under-insurance is a major reason why the unfortunate so often occurs. In the current environment it's important to ask yourself – is your practice prepared for this? Review your insurance policy and find out if you are at risk from under-insurance.
How under-insurance can hurt:
Debbie, owner of Forward In Motion, a hypothetical physiotherapy practice, insured her physiotherapy practice receiving total cover for $325,000 worth of contents.
Nine months later, Debbie awoke to a call from her security firm at
When it came to the claim payout, Debbie had some more bad news. The entire value of the practice and contents that she'd insured had been found to have risen from $325,000 to $450,000, thanks to the practice's new equipment and recent refurbishment. This meant that the amount she was insured for was less than 80% of the assessed value and due to the 'under-insurance clause' contained in the policy she held she would receive a reduced a payout for her claim. Based upon these numbers Debbie received only $90,728 of the $100,000 claim and was left $9,722 out of pocket.
Think this will never happen to you? The occurrence of fires in practices is more common than many would realise. While major losses often draw media attention, a number of small incidents go largely unreported. Many people find out too late that their business is under-insured.
This is information of a general nature only and is not intended to constitute the provision of advice. Before making any decision in relation to any of the products mentioned, you should consider your own circumstances and needs, read the relevant Product Disclosure Statement (
[1] OmniAccess Small Business Survey April 2007
[2] CGU Small Business Underinsurance Research – Pilot Findings 2006-2007
[3] Insurance Council of Australia Report on Non-insurance & Under-insurance survey 2002
[4] CGU/McLarens Young International Underinsurance Research 2007
