By Aaron Cordy
INFLATION is a word that sparks financial uncertainty in very uncertain times, the ever-increasing cost of living makes it harder for families and businesses across the country. Now small businesses face the prospect of being uninsurable, due largely to inflation.
Inflation affects insurance costs in several ways. The cost of replacing assets, such as buildings and equipment, rises with inflation. To cover potential losses, insurers keep up with the costs by increasing premiums.
Medical and legal costs also rise with inflation which directly affects public liability insurance cover. When claims are made, insurers need to cover the sum insured. This is why insurers consider inflation when calculating premiums. To reduce the risk of underinsurance, insurers adjust the insurance sum automatically to reflect rising costs.
It is not just inflation that affects insurance costs. Other market conditions and factors affecting businesses can also influence premiums.
Location-based risks play a big part when calculating business insurance premiums. When crime rates are high, or it’s prone to natural disasters, such as bushfires or a massive flood that devastated many local businesses, this can affect premiums. This is the nuts and bolts of why Greater Shepparton’s premiums have increased, the area is considered high risk.
This leads to reinsurance. Insurers also pay for insurance. Specialist insurers help cover the cost of claims for major disasters like floods. This is called ‘reinsurance’, and it works in the same way as your insurance. As premiums increase after many claims, so will insurers insurance too.
For business owners, it is incumbent on them to regularly review their insurers and compare them with others in the marketplace, while continuously working to mitigate the possibility of having to make a claim to help reduce costs.
