In the face of rising costs, declared values for buildings, assets, Gross Profit and Payroll may no longer be sufficient, meaning in the event of a claim your business may not receive adequate payment to restore it to its pre-loss condition. Some of the contributing factors include:

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• Labour shortages: A shortage of tradespeople and skilled labour is causing delays to rectification and building works. The shortage in labour has also pushed wages up, adding to the total costs associated with claims.  
• Material costs: The cost of materials such as steel, timber, cement, and metals have increased (upwards of 50% in some cases since 2020), all adding to the cost of claims. For example, one client in the automotive industry advised us that vehicles in need of standard repairs were being written off because of the delays to import parts, the cost of the parts themselves, and the increased freight costs, which made it more economical to write the vehicles off. 
• Supply chain bottlenecks: Delays in the delivery of goods and materials along with a shortage of shipping containers are resulting in significant cost increases.
• Insufficient Business Interruption declared: As a result of the points listed above, your declared Gross Profit, Payroll, and Indemnity periods may no longer be appropriate due to the increase in overall prices and time required to finalise losses. Indemnity periods may also be insufficient due to delays in returning businesses to their pre-loss state.

How we can help

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• Business Interruption reviews: We can arrange Business Interruption Reviews to ensure your Indemnity Periods, Gross Profit and Payroll inputs are accurate.
• Asset Valuations: We can arrange for buildings and assets to be professionally valued. As Plant & Equipment, goods and materials become harder and more expensive to source, your sums insured may not be sufficient, so it’s important to have your buildings and assets professionally valued.
• Program review: To help avoid under and overinsurance, we can review your insurance program. Key Clauses, Limits, Sub-limits, and Deductibles should also be reviewed.
• Risk management: By working closely with your insurers, we can determine what risk management initiatives you can implement to make your risk more appealing. Examples include implementing Business Continuity Plans (BCPs) and stress-testing loss scenarios, updating security, cleaning up fire hazards, and updating fire protection. These measures can limit your losses and make your business more attractive to underwriters, providing more choices at renewal time.
• Benchmarking: By benchmarking your insurance program and your deductibles and limits against industry peers, we can reveal how sufficient your program is in the current environment.

The state of play: Casualty/Liability insurance

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‍Liability insurance provides protection against claims resulting from injuries and damage to other people or property. Rising costs are also affecting the liability sector, including:

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• Property and material costs: Costs relating to losses from third-party property damage continue to rise. Beyond material cost increases, professionals such as Surveyors and Engineers are also now more expensive.
• Medical costs:  Overall medical costs are increasing, impacting the cost of third-party injury claims.
• Long-tail nature of liability claims: Some claims do not develop for years after the initial date of loss, which adds to costs e.g., claims related to diseases such as Silicosis may emerge several years later.
• Operational costs: Insurance companies’ overall costs are increasing in line with inflation, meanwhile, lawyers’ and legal experts’ rates are adding to the growing cost of disputing and settling claims.

What can businesses do?

• Benchmarking: By benchmarking your insurance program, your deductibles and limits against industry peers, we can reveal how sufficient your program is in the current economic environment.
• Program review: We can work with you to review the appropriateness of your current key clauses, limits, and deductible levels.
• Accurate Turnover declaration:  Be sure to declare accurate turnover at renewal time to ensure that the insurer is rating your risk appropriately.
• Third-party contracts: Ensure that contracts you enter into with third parties protect your business as much as possible. To limit scenarios where a claim is unnecessarily made on your policy, have your broker check the insurance clauses fairly distribute the risk, and a legal expert ensures indemnity provisions are negligence-based.

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Next steps

To find out more or to discuss your insurance requirements, feel free to reach out at any time.

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Vinh Ngo

Client Manager – Corporate Insurance & Risk Solutions

vinh.ngo@honan.com.au