Underinsurance, inflation and the importance of a professional property valuation for your restaurant or catering business

Australia is currently grappling with an inflation rate that recently reached historic highs, impacting all sectors of the economy including insurance. The consequence of this surge in inflation for hospitality business owners is that their current insurance coverage may not be sufficient to cover expenses when the unexpected strikes.

In this article, we explore how inflation is contributing to underinsurance and explain how a property insurance valuation can keep your restaurant or catering business safe.

Global economic volatility, the effects of extreme weather events, supply chain disruptions and the Ukraine-Russia war are all factors that have pushed up the cost of labour and ingredients.

In this type of economic climate, it is vital that you regularly review the insured value of your property and business assets to keep them in line with inflation.

Otherwise, if your property is damaged in an unforeseen event, your insurance claim payout will fall short of the cost required to repair, rebuild, restock or replace and you will be underinsured.

Not only will this leave you significantly out of pocket, it could lead to prolonged negotiations with insurers, force you to seek finance on an already stretched budget and expose you to legal actions by business partners and customers if you're unable to meet contractual obligations.

Professional insurance valuations are critical to avoid being underinsured

Engaging an insurance valuation expert for the valuation of your property and business assets such as plant and equipment is the most accurate way to determine values to declare on your insurance policy and avoid underinsurance.

These reports identify your full costs in the event of partial or total loss to your property and typically include the following components:

• the demolition and removal of debris of the original structure, including all associated consultant fees
• the cost of reconstructing a new building including revised or amended planning constraints and updated building codes
• consultant fees
• cost escalations for time taken to complete assessment, design, tender evaluations, construction periods and new policy renewal dates.
  

Insurance valuation traps to avoid

• Do not rely on last year's figures — you will be underinsured
• Simply increasing last year's figures by a small percentage is not advisable, nor is relying on market or book value
• Do not rely on a bank to provide a valuation because this is calculated on lender risk
• Do not rely on your real estate agent either as these values fluctuate
• If the business is an acquisition don't make the mistake of accepting the stated value of the assets.
  

The value of broker involvement in avoiding underinsurance

Involving an insurance broker who understands the restaurant and catering sector and the risks that are particular to your business will help you ensure you have the cover you need. We're here to help. Connect with one of our experts who can help you organise a professional insurance valuation and address underinsurance today.

Restaurant & Catering Association, 20^th February 2024