• Small Business at Risk from Insurance Shortfall

    Posted on 20 June, 2016

    Recent research has revealed a worrying trend in Australian small business practice. While the overwhelming majority of SMEs believe they have adequate insurance cover, the chances are that unless they took out their policy very recently, many of the assumptions they made at the time are no longer valid.

    This has left several businesses seriously weakened after a loss that was not fully covered, and in some cases has been fatal to the business. This article discusses some of the reasons for the shortfall in cover, and how SMEs can make sure their insurance gives them the protection they need.

    Liability Insurance

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    Liability limits are determined on the basis of current damages awards. Decisions by the courts to make higher awards or which find a duty of care where none had previously been believed to exist may make these limits inadequate, leaving a shortfall which the insured must cover. Case law is being made all the time. A regular review with your broker, who will be keeping an eye out for landmark judgements, is essential.

    Cost of Repairing/Rebuilding

    Building costs in Australia have risen steadily in recent years, and business policies should clearly be maintained to cover this. But what is less obvious when calculating restoration costs is that changing requirements and building codes may mean that “more” building and equipment may be required to restore a commercial building to operational health than was contemplated when the policy was issued. Consider these stats:

    • Between 2010 and 2015 the cost of building a warehouse/distribution centre rose from $600 to $975 per m2 of internal space.
    • Project Construction Costs
      • Sydney Tower was completed in 1981 at a cost of $36m.
      • Barangaroo Tower 1 came in last year at $1billion
    • Fitout Costs
      • 2005 – Café in Inner Eastern Sydney, $160,000
      • 2015 – Café in Northern Beaches, $300,000

    Hidden Rises in Building Costs

    Much of the difference in cost between these two buildings is the consequence of the later building containing so much more technology-related infrastructure. Another major source of cost overrun is the advanced HVAC systems required to meet

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    contemporary energy-usage demands. But as we have discussed, changes to the building regulations can also add a nasty surprise to the costs of a rebuild.

    If you would like a health check-up for your business insurance policy, give the team at Donnellys Insurance Brokers a call today.

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