As inflation rates soar in many countries, businesses need to consider the impact of rising costs, persisting supply chain pressures, and raw material shortages on their operations and make any needed changes to remain resilient amidst a changing environment. Of the threats you want to mitigate for of is the impact on your insurance program during inflation. A good place to start is to fully understand the direct and indirect cost impact on your current insurance spend and policies.
It is important to consider the adequacy of your current insurance program in terms of loss limits, indemnity periods, coverage extensions or limitations and the risk of underinsurance/over-insurance. Assessing and reviewing your current insurance program will ensure you have optimal coverage and mitigate for unexpected losses in the event you need to make a claim.
One such implication is the increased risk of underinsurance – when the level of insurance taken out is not enough to cover the cost of rebuilding, repairing or replacing insured items following a claim.
Clearly, a high rate of inflation tells us that prices are rising fast, so even insurance that may have been appropriate six months ago, may now be insufficient – for instance rising material costs may mean the cost of re-instating a property may now exceed the cost declared in a property insurance policy. Similarly, if an insured asset has risen beyond the value declared in an insurance policy, this can also create an underinsurance risk.
As asset values increase, your insurance policy needs to accurately reflect their replacement value. Now more than ever, it is important to have your assets professionally valued and substantiated. Here are 8 Questions to make sure your property is fully insured.
The risk is not just restricted to assets. For instance, if high rates of inflation, coupled with supply chain issues, it may now take longer to re-instate a business premises after a serious incident, then business interruption insurance indemnity periods – the period of time when a policy will help to cover lost earnings for example – may not be sufficient either. Speak to your insurer or broker about whether the indemnity period is long enough to protect the business after an incident in the current climate, and adjust if necessary.
This is an essential understanding for businesses if they are to accurately predict revenue and cost estimates into the future. Only then can business impact be appreciated and addressed through the creation of a meaningful Business Interruption insurance policy. Here are some questions to consider:
All stakeholders, from companies to insurers, should take a collaborative and transparent approach in order to help mitigate the effects of high inflation. Among other actions, consider:
In order to develop an insurance program that meets your needs, it is important to involve your broker or insurance advisor as early in the process as possible, so they can help you assess the potential impact on insurance program design and allow sufficient time for terms to be negotiated.