Hidden Danger Of Doing Homework
Sun Herald
Sunday December 1, 2002
HOME-BASED business operators beware your home and contents insurance doesn't cover your business assets.
A recent survey by the Insurance Council of Australia (ICA) found that many home-based business operators faced ruin having made the mistake of thinking their home and contents insurance covered their business.
The survey found that 65 per cent of small businesses in NSW had either failed to take out insurance or were not adequately covered.
It concluded that the high number of small business operators who had no (or inadequate) insurance cover stemmed largely from home-based business operators wrongly believing their domestic insurance covered their business activities.
ICA chief executive Alan Mason said the survey findings should sound alarm bells for home-based businesses. The council is urging small business owners to review their insurance policies to ensure they provide adequate protection.
ICA statistics show that 70pc of businesses affected by major disasters such as fire, storm or flood don't reopen.
``Seeking insurance when disaster strikes is too late," Mason said.
IAG business insurance executive Doug Pearce said the ICA findings were particularly worrying given that research carried out by IAG found 85pc of businesses that were inadequately insured did not know they had a problem.
``We strongly urge all small business owners to re-examine the level of coverage offered by their insurance policy as a matter of urgency," Pearce said.
He warned that when taking out business insurance many small business operators overlooked factors such as the rising cost of construction, downtime while trying to get back on their feet, debris removal following a disaster and the up-to-date cost of equipment.
``When thinking about the amount of cover needed, a small business owner should remember that the majority of business insurance policies work a lot like a home insurance policy," he said. ``That is, they are new-for-old replacement.
``So people need to think about the cost of replacing materials at today's prices, not at what was paid when they were purchased five or 10 years ago.
``At a minimum, business owners should consider increasing the building sum insured by the rate of inflation.
``While underestimating property might seem to save money in the short term, the impact of being unable to rebuild a business because of underinsurance is a much more significant blowout in the cost of reconstructing premises."
Websites of the ICA and most insurance companies contain checklists for small business operators to follow when compiling their insurance policy inventory.
© 2002 Sun Herald
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