Marsh cites three major shortcomings in current insurance strategies

The firm calls for proactive steps toward partnership.

As prices of goods and services remain a hot topic, Marsh considers the possible threats that inflation can pose to insurance programmes.

“It is important to consider the adequacy of your current insurance program in terms of loss limits, indemnity periods, coverage extensions or limitations and the risk of underinsurance/over-insurance,” the Marsh insight titled “Three insurance program shortcomings to avoid during inflation” said.

First is insurers must evaluate their current insurance program to ensure it adequately covers direct and indirect cost impacts from inflation. Consider loss limits, indemnity periods, coverage extensions or limitations, and the risk of underinsurance or over-insurance.

With rising asset values, ensure that the insurance policy reflects the current replacement value. Underinsurance can occur when the insured amount is insufficient to cover the cost of rebuilding, repairing, or replacing assets after a claim.

Providers must also regularly review asset values to avoid underinsurance. Rising material costs can increase the cost of reinstating property beyond the declared amount in a policy.

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Secondly, the adequacy of indemnity periods in the Business Interruption policies. Given current conditions, longer periods may be necessary to cover lost earnings due to delays in reinstating business operations.

Lastly, identify and address uninsured losses in Business Interruption policies. This includes understanding how rising costs impact profitability and revenue.

What to do?

Marsh boasts of collaboration and transparency with insurers. Entities must communicate strategies and risk management protocols for mitigating inflation-related costs. Working closely with an insurance broker or advisor to articulate market changes and business needs will benefit in the long run.

Keep the insurance program up-to-date. Review asset values frequently and adjust coverage limits accordingly. Engage with an insurance advisor to ensure limits align with current market conditions.

By taking proactive steps to understand the impact of inflation on the insurance program and collaborating with stakeholders, businesses can effectively manage risks and ensure adequate coverage in a changing economic environment.