The impact of rising inflation on insurance for small businesses

The current rise in inflation is having a significant impact on various aspects of the economy, including insurance. Small businesses, in particular, need to understand how inflation affects their insurance requirements, especially when it comes to property and asset coverage. In this blog post, we will explore the implications of rising inflation on small business insurance and provide valuable insights from industry experts.

Ensuring accurate sum insured:

One crucial consideration for small businesses is to ensure that the sum insured reflects the true replacement cost of their assets at the time of policy inception. While home insurance may not have strict requirements, business insurance often includes a coinsurance clause that mandates coverage for the building’s replacement cost. 

Consequences of underinsuring:

Failing to insure for the full replacement cost can have severe consequences for small businesses. Even in the event of a partial loss, insurers may reduce the payout if the sum insured is inadequate. This means that businesses could face substantial out-of-pocket expenses to cover the shortfall between the insured amount and the actual replacement cost. Small business owners must understand the potential financial risks associated with underinsuring their assets.

Regular review of sum insured:

To mitigate the risks of underinsurance, it is recommended that small business owners conduct yearly reviews of their insurance policies. Given the significant increases in replacement costs, more frequent reviews, such as semi-annual assessments, may be advisable. During these reviews, the insured value of assets should be reevaluated to ensure it accurately reflects the current market conditions and inflationary environment. Seeking professional assistance from quantity surveyors or valuers can provide more accurate calculations, particularly for assets with unique features.

Considerations for time lag:

Small businesses should also factor in the potential time lag between filing an insurance claim and replacing damaged or destroyed assets. In the current market, certain materials may not be readily available, causing delays in construction or repair projects. Additionally, obtaining necessary approvals from authorities may take longer than expected. Consequently, costs can further increase during these delays, necessitating appropriate coverage to account for the extended timeframe and potential cost escalation.

The impact of rising inflation on small business insurance requirements cannot be overlooked. It is essential for small business owners to stay proactive and ensure their insurance coverage adequately reflects the true replacement cost of their assets. Regular reviews, expert consultations, and considering potential time lags are all crucial steps in managing insurance requirements effectively. By understanding and addressing the implications of rising inflation, small businesses can protect their interests and minimize financial risks associated with underinsurance. Remember, discussing your insurance needs with a knowledgeable broker is key to navigating this changing landscape successfully.

Samantha Raco, our experienced Account Executive, is dedicated to guiding you through the complexities of insurance with her 18 years of industry expertise. Her ability to simplify complex concepts and foster trust through open communication ensures you have the coverage and support you need. Reach out to Sam today to discuss your insurance needs and make sure you’re prepared for whatever lies ahead. 

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