Howden Pacific says 70% of Australian businesses underinsured

The issue is particularly severe amongst small and medium-sized enterprises.

Around 70% of Australian businesses are underinsured, with an average shortfall of 30% across property and asset values, according to Matt Bacon, CEO of Howden Pacific. 

He told the Australian Financial Review the issue is particularly severe amongst small and medium-sized enterprises (SMEs), which make up 98% of all businesses and employ 70% of the workforce.

Bacon warned that underinsurance has wider economic consequences. “the downstream economic flow of that underinsurance is businesses not being able to get back on their feet post a major loss, and it becomes a real economic timebomb,” he said.

Property is one of the biggest problem areas. Many firms rely on outdated valuations that fail to reflect inflation and rising replacement costs. 

Non-residential inflation has climbed 27% since COVID-19, leaving many firms at least 30% underinsured.

Business interruption cover is also often underestimated, with many companies setting indemnity periods too short to return to pre-loss profitability. 

Liability limits are frequently based on minimum contractual requirements, whilst key risks such as floods, bushfires and cyber threats are sometimes excluded altogether.

Underinsurance can trigger averaging clauses that further cut claim payouts. Industry estimates suggest up to 78% of businesses fail to recover after a major uninsured or underinsured event.