Natural disaster: Mitigating risk through knowledge and action

By  Vero Insurance

After three years of La Niña weather patterns bringing floods and record rains to much of south-eastern Australia, we are now facing into El Niño with predictions of intense bushfires across many parts of Australia.

We’re experiencing the impact of natural disasters across the country more and more acutely with every passing year. People are generally aware of the impact floods, fires and droughts have on individuals, communities and businesses.

But the findings of the 2023 Vero SME Insurance Index suggest a knowledge gap when it comes to understanding if a business is covered for certain natural disasters – and how to help weather the economic and material impact of disastrous events.

Expectations of business insurance

As part of the Vero 2023 SME Insurance Index research, 1,750 business owners and decision-makers across the country shared what types of natural disasters they believed standard business insurance cover would protect against.

As you can see in Figure 1.1 below there are a range of common misconceptions. Many businesses believe they’re covered for all natural disaster events, when in fact standard business insurance may not provide cover for all these perils.

For example, 30% mistakenly believe that standard business insurance would cover them against pandemic events.

This provides a key opportunity for brokers to lead the conversation with potential and existing clients – educating them about what their cover can or does protect against and talking through the steps needed to prepare for and mitigate against loss of business due to natural disasters.

This could include making changes to reduce risk in areas not covered by insurance – or even involving a business relocating to reduce disaster risk.

Current levels of disaster insurance cover

There’s no doubt that businesses are aware of the potential impacts of natural disasters, with 77% of business owners and decision makers expecting at least some impact to their business from natural disasters in the future.

However, there is a much smaller group of just 34% of business owners and decision makers who say it is important that their insurance covers them against natural disasters.

So why is this? When business owners and operators evaluated their current levels of cover against natural disasters, they provided some interesting findings.

Figure 1.2 shows that only 13% see themselves as completely covered by insurance against the impact of natural disasters. Meanwhile, 66% of businesses consider themselves mostly covered and 21% believe they are only partially covered.

Of those not completely covered:

  • 49% do not see the risk as relevant.
  • 39% do not see the risk as a priority.
  • 38% say the cover is too expensive.
  • 11% could not find an insurer to cover them.

When it comes to these reasons for potential underinsurance, brokers have a key role to play in ensuring clients understand the risks and review whether insurance could be part of the solution to protecting their business, as well as helping them reduce levels of risk for their business.

Hear from real business and the value of discussing their natural disaster plans with their brokers

SMEs want to feel informed with natural disaster claims

There is a leadership role for brokers to deliver education and clarity around what is and isn’t included in insurance when it comes to natural disasters. This is especially important when you consider claims satisfaction.

76% of business owners and decision makers surveyed who made a claim following a natural disaster felt well-informed about their cover before making the claim.

Of those who say they felt well-informed prior to a claim, a majority were those who purchase most of their insurance through a broker, rather than directly.

In fact, 73% of those who buy most of their insurance through a broker (purchasing more than 90% of their cover) said they felt well-informed, compared to just 64% of direct-purchasing customers.

As you can see from Figure 1.3 below, business owners and decision makers who feel very well-informed prior to a natural disaster claim are more likely to be satisfied with their overall claims experience.

71% of those we spoke to who felt very informed about natural disaster insurance were satisfied with their claims experience, compared to just 50% of those who felt they didn’t know enough about their cover prior to making a claim.

As seen in Figure 1.4 below, that lack of satisfaction when making a natural disaster insurance claim is driven by three key concerns, each of which was flagged by more than a third of those we surveyed.

Each of these issues are areas that a broker who’s seen as a trusted expert can help alleviate for a business through advice and education – reducing the number of business owners and decision makers who feel they’re not well informed enough when it comes to their insurance cover.

57% of those we surveyed would like their broker to discuss insurance cover against natural disasters, but only 27% said that their broker had raised the topic.

That provides a large group of customers who are seeking leadership from a broker about natural disaster protection.

When it comes to having that conversation, those same people have flagged four topics they consider the highest priority (seen in Figure 1.5 below).

So, what’s next?

When it comes to helping clients address concerns about the risk of natural disasters, there’s a diverse range of opportunities for brokers to be relied on as trusted experts. These include:

1. Educate clients: As the research suggests, there is a significant knowledge gap when it comes to understanding natural disaster insurance coverage. You can lead the conversation with potential and existing clients, educating them about what their cover does and does not protect against, and taking them through the steps needed to prepare for and mitigate against loss of business due to natural disasters.

2. Assess client risk: Help clients reduce risk in areas not covered by insurance, such as making changes to their premises or even relocating to reduce disaster risk. Conduct risk assessments to help clients identify potential hazards and develop risk management strategies.

3. Address misconceptions: Address common misconceptions about natural disaster insurance coverage, such as the belief that standard business insurance covers against all natural hazard perils.

4. Highlight importance of understanding natural disasters and insurance: Explain what insurances can protect their business from financial loss and support them in the event of a natural disaster.

5. Facilitate the claims process: Provide clarity around what is and isn’t included in insurance when it comes to natural disasters. Help clients navigate the claims process and provide support to ensure they feel well-informed throughout.

6. Prioritise communication: Provide ongoing education and communication around natural disaster & insurance coverage to ensure clients feel informed and supported. Be proactive in discussing natural disasters with clients and address their concerns to build trust and long-term relationships.

For the full findings for 2023 Vero SME Insurance Index and what they mean for brokers, download the report or watch the CPD-accredited Vero SME Insurance Index Webinar on demand.

Disclaimer: AAI  Limited ABN 48 005 297 807 trading as Vero Insurance (Vero) has prepared the Vero SME Insurance Index Report (Report) & Webinar. The information in the Report & Webinar is general information only and is not intended to be relied upon – please make your own enquiries.  Subject to any rights you may have under any law, Vero and its related bodies corporate do not assume or accept any legal responsibility for any loss or damage, including loss of business or profits or any other indirect loss, relating to the Webinar & Report. Vero and its related bodies corporate do not guarantee the accuracy, reliability, completeness or currency of the information provided. The Webinar & Report are not a recommendation or statement of opinion about whether a reader or viewer should acquire insurance from Vero (or its related bodies corporate) or services from any insurance intermediary or otherwise alter their business arrangements. The Webinar & Report are based on commissioned research by Vero and should not be used as the basis for any decision in relation to the acquisition or disposal of insurance products or the use of broker services. Readers should confirm information and interpretation of information by seeking independent advice.

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