In our increasingly litigious society, even a seemingly insignificant mistake or accident could bring about large lawsuits.
This is the nightmare of many companies; one that could soon become a reality.
Due to the increased cost of construction exacerbated by soft economic conditions, many companies are taking the risk of being underinsured or not insured at all, thus risking heavy payouts from their own pockets in the event of a claim.
While failing to get adequate insurance can be seen as a cost-cutting measure up front, the long-term pitfalls could be crippling.
Adam Richardson of Honan Insurance Group notes that, “it is imperative for builders to get their contracts, exposures and liabilities right. If not, companies can be subject to average clauses where underinsuring a contract can not only be breaching a contract but having to dig their hand in their own pocket to pay part of the loss.”
This is where taking on the services of an insurance broker can make the difference between a business-ending claim and a claim that is covered by the right insurance. For example, Commercial General Liability insurance is a critical cover for construction companies as it protects a company’s assets if the company is sued for causing damage or personal injury.
Designed to cover project locations, contractual liability, legal defence and liability exposures that might arise from subcontractors, CGL provides an initial base from which other policies are integrated to broaden the cover. This means there are often gaps and overlaps in the cover in areas such as the pollution caused by a company, wilful neglect and professional liability, all of which are especially important when covering construction risks. Without the knowledge of a broker, many of the smaller construction companies working under tight budget constraints may not realise they are underinsured for particular risks.
Dr. Allan Manning, Managing Director of loss adjuster LMI Group told the Brisbane Times that many companies are already underinsured and few realise they are underinsured until they are forced to dip into their own pockets when a claim is made.
“I get these two looks when I explain it to people: first, a look of understanding then a look of horror, because they realise how much it’s going to hurt them,” he says.
Although the services of an insurance broker may seem an unnecessary expense in the short term, a broker’s role is to understand their client’s every insurance need and advise the client on appropriate cover so the client can make informed decisions to eliminate any gaps in their insurance as their company grows.
According to Manning, many businesses often fail to increase their insurance levels to match increases in their risk levels. In fact, almost half of Australian businesses have not increased their insurance coverage in the past three years, suggesting many are not keeping up with rising costs.
‘We have a perfect storm coming over the next 12 months,” Allan predicts.
It is this perfect storm that could send an industry already in a downturn into an industry in free fall.