'Underinsurance trap': brokers urged to help tackle rising concern

The broking industry can play a critical role in stemming the issue of underinsurance by actively informing clients of the risk, BizCover says.

As insuranceNEWS.com.au has reported, underinsurance has become a prevalent issue, as small businesses are feeling the financial brunt of the pandemic, climate events, and inflation.

These events have created “the perfect conditions for an uninsurance trap” with many consumers being forced to reduce coverage to cut costs.

“Some small business owners that try and save money by reducing their coverage may not be aware of the risks of underinsurance,” BizCover Head of Product Channels and Risk Jane Mason said.

Ms Mason says brokers should step up to ensure their clients are sufficiently insured.

“It’s the perfect opportunity for brokers to advocate for their clients, explaining underinsurance in simple terms and urging them that their business insurance policy is not a set-and-forget product,” she said.

While underinsurance is not a new issue, rising inflation and increased labour costs have seen more businesses cutting insurance premiums for financial security.

BizCover says that the dangers of underinsurance outweigh short-term financial savings.

“While the reasons for underinsurance are complex, brokers can help their clients avoid the pitfalls of underinsurance,” Ms Mason said.

Beyond the consumers’ benefit, Ms Mason says that assuring adequate insurance covers helps brokers just as much.

“Failing to maintain appropriate coverage or explain this risk of underinsurance could expose the brokers’ own E&O.”

Errors and omissions (E&O) insurance provides cover for negligent actions. By not informing clients of the risks posed by underinsurance, BizCover says a broker could be putting themselves in danger of being found negligent if an uninsured client is required to pay excess sums.

For brokers with a range of clients, establishing plans with multiple insurers can be time-consuming and convoluted, and some may not have time to warn clients about underinsurance.

BizCover says that insurtechs such as its own Bizcover for Brokers (B4B) can help ease the burden on brokers and allow them to quickly access markets and find which insurer suits their client best.

It hopes that a streamlined process will let brokers play a more active role in educating their clients.

“Many of the inefficiencies that brokers experience in the traditional broking process is removed from the equation with our offering,” said Ms Mason. “This allows brokers to do what they do best, advocating for their clients and ensuring that they are adequately insured.”