How many Australian businesses run the risk of being underinsured?
Underinsurance – the sum insured and coverage under a policy being insufficient to fully cover the value of assets or potential losses in the event of a claim – remains a significant issue for Australian businesses in today’s volatile economic climate.
With inflationary pressures pushing up operational costs and insurance premiums, it’s more important than ever for businesses to know their coverage is adequate. But businesses may not be reviewing their policies and sums insured as often as you might think.
Is there a lack of concern?
The 2025 Vero SME Insurance Index highlights an apparent lack of concern from business decision makers about underinsurance. Even when provided with what it can mean, over two-thirds of business owners and decision makers say they’re not worried about underinsurance.
Yet less than half of businesses review sums insured annually, with many doing so less frequently – and others doing so only every few years or when significant changes occur. A number of businesses don’t regularly review sums insured, while some are unsure if they’ve ever done so.
There is, however, a small proportion of businesses that see underinsurance as a significant risk. Hear from Australian business owners about what’s at play:
I tend to look at what it's going to cost me to insure it more than what the amount is that I'm insured for.
– Kathleen, Conveyancing, Small Business, Light Broker User
Impacting businesses of all sizes
The Index highlights that businesses of all sizes say they don’t review their cover annually, including more than half of heavy broker users. In an inflationary environment, this is a potentially risky move.
But over one-third of businesses have already experienced the impact of underinsurance during claims. This should serve as a reminder for those with a "set and forget" mentality.
Decision-making challenges
Businesses aren’t always sure who should make decisions about sums insured, according to the findings of the Index. While the majority of businesses who use a broker share decision-making between the broker and the business, a fifth claim to make these decisions independently.
Larger businesses – those that often have in-house risk managers or insurance specialists – say they are even more likely to be the primary decision-makers. This highlights the opportunity for brokers to provide continued support to those decision-makers.
A cost-saving strategy for some
One interesting finding from the 2025 Index is that, for some businesses, underinsurance is a conscious decision in response to affordability.
Almost one in 10 businesses admit they’re currently underinsured to save money, and a quarter of all businesses say they’ve done this in the past. This behaviour is more common among those with declining revenue, compared to those with stable or growing revenues.
Businesses that are intentionally underinsured are more likely to say they are not concerned about being at risk. This suggests a gap in the understanding of the consequences, as the inadequate coverage at claim time can far outweigh any temporary savings.
An opportunity for brokers
There’s an important role brokers can play in educating businesses about the value of comprehensive coverage – using real-life loss scenarios to illustrate the risks of underinsurance, and encouraging clients to undertake regular reviews.
A positive sign from the Index suggests businesses that make insurance decisions in collaboration with a broker are more likely to also review sums insured annually.
Communication and collaboration are key. Brokers can establish themselves as trusted advisors – emphasising the false economy of saving on premiums at the expense of potential claim shortfalls.
Take action today
Underinsurance is a preventable risk, but addressing it requires proactive engagement, education and collaboration. By encouraging regular policy reviews, providing transparent advice and building trust, brokers can empower clients to make informed decisions.
For more insights into the behaviours and attitudes that shape the insurance decisions of Australian businesses, watch the Vero SME Insurance Index Webinar or download the full report today.
AAI Limited ABN 48 005 297 807 trading as Vero Insurance (Vero) has commissioned the 2025 SME Insurance Index Report. The information in this article and Report is intended to be of a general nature only. Subject to any rights you may have under any law, Vero and its related bodies corporate do not accept any legal responsibility for any loss or damage, including loss of business or profits or any other indirect loss, resulting from any reliance upon on it - please make your own enquiries. Vero and its related bodies corporate do not guarantee the accuracy, reliability, completeness or currency of the information provided. Any advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you or your business before acting on it. The information is not a recommendation or statement of opinion about whether a reader should acquire insurance from Vero (or its related bodies corporate) or services from any insurance intermediary or otherwise alter their business arrangements. Readers should confirm information and interpretation of information by seeking independent advice.
