Reviewing your Sum Insured: Do you have enough cover for the post-Covid world?

The COVID-19 pandemic has impacted businesses around the world in different ways. Here in Australia, the insurance industry – and the companies it protects – have seen new costs and challenges. Nick Dendrinos, NTI’s Head of Motor Portfolio, took time out to explain how the industry is travelling and how businesses can make sure they’re ready for the challenges ahead.

The most straightforward place to start is with business costs. Nick says that microchip shortages and fuel price increases (due to lockdowns reducing output) have impacted businesses across the board.

“The cost of oil and fuel have a major impact on the production of raw materials,” he said. “Which in turn has an impact on things like the price of vehicle parts, building and construction parts… the price of everything, really.”

This uptick in prices coincided with a growing demand for vehicles. Nick says this was driven by many factors, including low interest rates and the instant asset tax write-off incentives. Then there was the COVID-related surge in demand for transport and delivery services.

“The huge explosion of e-commerce, the consumable, wholesale goods market and the construction material markets have created a higher demand for freight movement,” he says. “At the same time, there are other factors. For example, we’ve had stronger rainfalls with the La Niña season, which has created bumper crops for our farmers. 

“Which is fantastic, of course, but at the same time, that industry needs to move those crops fast.”

The result is a significant backlog in new vehicle orders. Some original equipment manufacturers (OEMs) have closed their order books until 2023.

“The sheer lack of availability of vehicles at the moment has put a hold on a lot of business’s plans,” he notes. “There’ll be patches of growth coming through when manufacturers start filling their orders.”

What it means for insurance

On the insurance side, the most important step any business can take is to review their policies and cover, with particular attention to their sums insured.

“We pay out the market value or the sum insured, whichever is the lesser,” Nick says. “The dynamic we have at the moment is that market values have in many cases surpassed the declared sums insured.”

“At the same time, underlying inflation’s gone up as well. So the cost of repair is up too.” 

“The key message is for brokers and customers to work together to get their sums aligned to what their vehicles are worth now. We’ve seen ten per cent increases, but for some items, like specialised trailers, we’ve seen fifty, even sixty per cent increases.”

Nick says many transport business operators will have a clear idea of these cost changes and review their fleets internally. There’s also a role for independent valuers to come in and assist.

Total losses and replacement vehicles

Upwards pressure on vehicle and parts prices is just one complication. In the case of a total loss or a vehicle replacement, businesses can face significant delays in getting their new vehicle.

“That’s another reason to review the sum insured”, Nick says, “because there’s a ratio of when a vehicle is deemed repairable or not.”

“With a higher sum insured, you have more flexibility regarding the viability of repairs.

Nick says that thanks to our extensive and long-standing dealer, distributor and manufacturer relationships, losses are often less for NTI customers than others. Even so, delays are inevitable.

“On the total loss side, where there could be long delays in getting a new vehicle, we’ve got various options for settling quickly. Hopefully, we can get businesses back on track. 

“We can help source vehicles, but in some cases, a fleet operator might need to consider a different brand.”

Business owners have to be realistic and work with their insurers to find the best option for their situation.

Final thoughts

It’s a great time to review your fleet values to ensure your cover reflects your assets.

“This is a time for brokers and businesses to review those values upwards. They want to make sure that if they do have a loss, they’re compensated appropriately for what their vehicle is worth,” Nick says.

“So if they need to go out and buy another vehicle, they’re not out of pocket. At the same time, because of underlying inflation, it’s important to get any new sum insured declared to NTI, that reflects what repair and replacement costs look like.”

“Review that sum insured and let us know right away if it needs to change. You don’t want to get caught short.”