Business insurance provides security for you, your business, your customers and your employees. Whilst every business may not need all types of insurance, every business should consider the types of insurance they need regardless of the size of business.
In this blog, we debunk some of the main myths about commercial insurance.
Myth #1: Underinsurance isn’t an issue
“Underinsurance of my commercial property isn’t a problem, as long as the cost of damage repair and item replacement doesn’t exceed the sum insured”.
Wrong! Insurers assume that the property is covered up to its full value. At the point you make a claim, the insurer checks the rebuild value and if it is found the customer is underinsured, the insurer will reduce the payout.
Should a property be underinsured, the insurers are not obligated to pay the full costs of reinstating the building. Instead, they will apply the Condition of Average Clause.
For example, your property is insured for £1,000,000, but the actual cost to rebuild should be £2,000,000. Any insurance claim you make for the property could be reduced by 50%. In this example, you would need to find £1,000,000 of your own money to cover the cost of rebuilding your property following a major incident, such as a fire that destroys your building. Such a large sum of money could have a significant financial impact on your business or worse your business failing.
To avoid this problem, you should regularly obtain a Rebuild Cost Assessment. A Rebuild Cost Assessment (RCA) provides comprehensive information on how much a property would cost to rebuild from scratch if it was destroyed.
Contact us for more details and to obtain a discounted rate for a Rebuild Cost Assessment.
Myth #2: My business won’t be a target of cyber attacks
” My business is too small to be targeted by cybercriminals and my business isn’t heavily reliant on technology, so the impact of an attack would be minimal.”
Incorrect! Many SMEs believe that cyber-attacks won’t be targeted at them as cybercriminals are more likely to target large organisations. However, in reality, SMEs are a huge target for cybercriminals. For example, the Cyber Breaches Survey 2024 found that the risk of cyber attacks on medium-sized businesses is 70% (much higher than the average of 50% across all sizes of business).
Cybercriminals are now able to target more businesses and quicker through the use of AI.
Generative AI is now used in cyber attacks, meaning attacks can be generated and targeted at all sizes of businesses quickly and efficiently. Cyber attacks may affect your customers as well through things such as data breaches, so the need for cyber insurance is growing.
Your business is likely to incur costs should a cyber attack occur. These costs can include things such as recovery of data, IT support, ongoing advice, notifying victims of data breaches and restoring systems.
If you experience a cyber attack, most cyber insurance policies will cover financial loss to third parties. For example, if you transmit a virus to a third party or disclose confidential information and a third party suffers losses, cyber insurance will cover any claims by the third party.
Even if your systems are not fully automated, you may still be at risk of a cyber attack to get access to customer data and systems.
Often with cyber insurance, you will also have access to an incident response specialist who is there to advise and coordinate the steps you will need to recover from a cyber security incident. This may be an investigation of your IT systems, legal advice, responding to regulators and securing your systems from future attacks.
Myth #3 Covering current turnover for business interruption insurance is fine
“Basing my business interruption sum insured on my current turnover will be sufficient to cover any business interruption loss that I may suffer.”
Incorrect. Business interruption insurance covers you for loss of income during periods when you cannot carry out business as usual due to an unexpected event. For example, if your business suffers a material damage claim e.g. fire or flood it is likely they will be unable to operate for some time.
Only covering your business based on current turnover could lead to being underinsured. You will need to consider many factors when taking out business interruption such as increases in future revenue or profit that may have occurred if the business interruption hadn’t occurred.
The correct and most suitable business interruption cover must be in place based on your business turnover now and in the future. There are three main types of business interruption cover which are: loss of gross profit, loss of gross revenue and increased cost of working.
It is advisable to speak to an insurance broker to understand the best cover for your business.
Myth #4: Insurance brokers are more expensive
“Buying insurance through an insurance broker is more expensive than buying it directly from an insurer or online.”
Contrary to popular belief, using a broker is often cheaper than going directly to an insurance company.
An insurance broker works on your behalf to find the right insurance for your needs at the best price.
Many people automatically assume buying insurance directly from a company is better than through a broker, as it removes the cost of the middleman. However, this is often not the case.
Insurance brokers also add value by offering advice on risk, reading and advising on the small print of policies and being able to find the right cover for niche businesses. This ensures the business owner has all the cover they require, giving individuals peace of mind that they are fully protected.
Find out 5 reasons to use an insurance broker here.
Summary
There are many myths in the insurance industry, but it is always worth speaking to a chartered insurance broker such as Harborough Portas to fully understand the risks your business faces, and the insurance cover you require and to get support in the event of a claim.
For all your commercial insurance needs contact Harborough Portas today by calling 0116 260 0506 or email mail@harboroughportas.com.
