Skip to main content
Marsh logo

Article

Three insurance program shortcomings to avoid during inflation

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.

22/09/2022

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. It is key to make any needed changes to remain resilient amidst a changing environment. Out of the threats you want to mitigate for is the impact of inflation 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.

Safeguarding your insurance program from hidden losses 

Reviewing asset values to avoid the risk of underinsurance 

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 the sum insured that may have been appropriate six months ago, may not be sufficient now– 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 according to the new market value of reinstatement. Now more than ever, it is important to have your assets professionally valued and substantiated. Here are questions to ask when insuring assets to avoid unexpected losses.

Addressing indemnity period gaps in your Business Interruption policies

The risk is not just restricted to assets. For instance, during inflationary periods, coupled with supply chain issues, it may now take longer to re-instate a business premises after a serious incident. 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.

Scouting for uninsured losses in your Business Interruption polices 

It is essential to accurately predict revenue and cost estimates into the future and include accurate values in your Business Interruption insurance. 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:

  1. How are rising raw material and labour costs affecting your profitability?
  2. Are the rising costs being passed onto customers via increases in sales revenues?  

Collaboration and transparency are key in addressing inflation risks

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:

  • Communicating around strategy for placement. Work with an insurance broker or advisor who has deep expertise in your industry to help communicate mitigation strategies and risk management protocols around cost increases due to inflation to the insurers. 
  • Review your asset values on a frequent basis. Stay up-to-date on increases in re-instatement costs and asset values. Work with your insurance broker or advisor to outline the market changes and your unique business needs. 
  • Understand your approach to risk transfer. For polices with a limit of loss, carefully review the methodology used to determine an appropriate limit and run it again against new values. Engage with your insurance broker or advisor to consider the potential impact of any discrepancies.

Contact us

Complete our online form and a Marsh Advisor will get back to you.

Contact us

Related insights

Container truck in ship port for business Logistics and transportation of Container Cargo ship and Cargo plane with working crane bridge in shipyard at sunrise, logistic import export and transport industry background

Article

Supply chain risk resiliency

14/03/2025
Image of a conference that takes place in a large conference room, workshop for young professionals, training in a large conference room, adult training

Article

Take your supply chain and people risk management to the next level

24/07/2024
Business Consulting meeting working and brainstorming new business project finance investment concept.

Article

Turn supply chain exposure into business opportunity through data

14/06/2024
Coworkers talking in the office

Article

Managing business interruption risks amidst uncertainty

12/02/2024
View more