Events of the magnitude of the Bushfires put the issue of underinsurance under the microscope. Ms Nixon said 25 per cent of those affected by Black Saturday were not insured and even where insurance was in place, 80 per cent were underinsured. Small businesses were particularly exposed, many of which had no insurance and in one case a business lost $3 million in assets.

There are many reasons that you as a business or property owner might be underinsured, putting you at risk of receiving a payout for less than the full amount of damage. The 2009 Victorian Bushfires Royal Commission highlighted some key reasons for underinsurance including:

An inability to accurately calculate risk

Accurately assessing the level of insurance you require can be difficult. A Guild business manager with experience and knowledge of an optometrist's risks can provide an on-site review of your practice and assist you in obtaining levels of cover that help you avoid underinsurance.

‘It won’t happen to me’ mindset

Many people mistakenly base insurance decisions on past experience rather than future risk. Just because you haven’t experienced disaster before, it doesn’t mean you won’t in the future. Optimism can often taint people’s view and an ‘it won’t happen to me’ mindset can lead to people taking their chances with inadequate protection.

Failure to inform the insurer of changes

Insurers are not always informed of changes in the value of their contents and property. Rising building costs, refurbishments and new equipment can substantially alter the value of assets that you need to insure.

Post-disaster building cost increases

Increased building costs typically accompany post-disaster reconstruction. Disasters such as Cyclone Tracy and the Newcastle earthquake led to increases in building costs of 75 and 35 per cent, respectively. These cost increases further exacerbate underinsurance problems.

A shortfall in insurance payments resulting from underinsurance could make the difference between your business surviving or not, but as shown above, it can be challenging to avoid underinsurance – what can you do?

Another option…

One solution is full Replacement Cost cover. This is a benefit provided by Guild that means that if you, as a business owner, make a claim and find that you have unintentionally undervalued your assets, we will pay the full cost to rebuild or replace your building and contents. Above and beyond any set amount of insurance cover, full Replacement Cost cover is essentially  a ‘safety net’ option that helps you to make a full recovery in the event of a disaster.

Following a disaster, the recovery process takes time. Ensure that you have adequate insurance cover and the support of an insurer you can trust. With careful planning you will give yourself every chance to make a full recovery from the events that affect your business. Alternatively, like the business that lost $3 million, you can take the chance that ‘it won’t happen to me’.

Ask Guild Insurance about how full Replacement Cost cover can protect your optometry practice from underinsurance on 1800 810 213.