New Zealand is a land of uncertainties which can have a major impact on your business.
The earthquakes in recent years are proof that no one is immune to the forces of nature, not to mention the many internal incidents that force businesses to stop working at full capacity each year.
All businesses should have property insurance that covers their buildings, plant, equipment and contents.
Most businesses assume that they are fully covered. Perhaps they have spoken to a competent broker, or perhaps a trusted employee is looking after the valuations and renewals for years.
Inadequate cover
But that is only half the story. Unless your assets have been valued correctly, this kind of approach can result in chronic underinsurance. This can have dire consequences for your business and its ability to operate in the event of a major loss.
Insurance is designed to restore your business to the position it was in before an insured loss and to reinstate your business on a like-for-like basis without financial penalty.
Without a formal valuation program in place, the likelihood is that the business will be underinsured.
Unfortunately, businesses often base their valuations on incorrect advice and false assumptions leading to two major problems.
Firstly, the methods they use will usually lead to errors in the initial assessment of the value of a property and contents.
Secondly, these values are generally revised annually by internal staff, who fail to account for the rise or fall in associated costs impacting the true cost of reinstatement. These costs include professional fees, changes to building codes, debris removal, site improvements, and currency fluctuations, as well as lead times for building approvals, planning, rebuild period and policy life.
Costly errors
Unfortunately, the risks in getting it wrong can be substantial and not just for the business. Ultimately, it is the Directors of the business who bear the responsibility for declaring insured values and they can be penalised for misrepresentation in the event of a claim.
Most businesses need to get up-and-running again quickly after a loss.
But if there is no solid basis for the declared values, ensuing investigations may lead to protracted claims processes and delayed settlements lasting months or even years.
Assuring benefits
The benefits of having a valuation carried out are significant, both to you and your business, and include (a) Not paying the consequences of underinsurance in the event of a claim (b) Not paying excess premiums due to over-insurance (c) More negotiating power when it comes to renewals (d) Fast-tracked claims process without disputes around the insured values (e) Minimised interruption to business operations and (f) Compliance for risk mitigation.
Ensuring that you and your business are fully covered is much simpler than you think. The most important aspect is to make sure you have your business properly assessed by a qualified insurance valuer.
Next Step
Please contact me to arrange an appointment.
Jeffery Nathan is Account Manager of Aon Insurance Brokers New Zealand, Sponsor of the ‘Best Young Entrepreneur of the Year’ category of the Indian Newslink Indian Business Awards 2014. Mr Nathan can be reached on (09) 3629535 or 027-7027875; Email: jeffery.nathan@aon.com
The Top Reasons Businesses Underinsure
1. Adding 5 or 10 % to last year’s figures
2. Basing the increase on real estate market conditions
3. Asking the bank, builder, architect, or real estate agent
4. Relying on advice from an in-house accountant or engineer
5. Referring to building guides
6. Adopting book value;
7. Using financial valuation reports and
8. deducting land value;
9. Adopting the second-hand purchase price of an asset.
