The effect of the UK’s decision to leave the EU just over a year ago was catastrophic for exchange rates – and with continued uncertainty surrounding the terms of Brexit, it’s unlikely that the pound will recover fully in the near future.
The invoking of Article 50 caused sterling to plummet once more – and though it has rallied since, it’s still nowhere near the heights of June 23rd 2016. This is bad news for businesses all over the UK. The issue of underinsurance is starting to bite, with many businesses discovering that their existing insurance policies are no longer enough to cover the costs of things like replacing machinery imported from the EU. Businesses must then dip into their own pockets to cover the difference, leaving a large dent in their finances for the year.
The problem with underinsurance
Being underinsured could be disastrous for UK businesses – especially SMEs. Data from the RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) has revealed that an unexpected bill of £50,000 would see more than a quarter of SMEs go out of business entirely. An accident or emergency which required replacement goods or machinery to be imported could mean the end of the road for thousands of businesses.
The RSA also found that just 14% of SMEs in the UK planned to increase their cover in the next twelve months, despite the fact that 88% of insurance brokers see underinsurance as a real problem for their SME clients. 43% of the businesses the RSA contacted as part of their survey had not reviewed their insurance policies for over a year.
The Financial Conduct Authority (FCA) reported ‘an alarming degree of under-insurance’ among UK businesses way back in 2015. It’s thought that Brexit, the invoking of Article 50 and the subsequently low exchange rate has exacerbated this problem even further. So what can you do to protect yourself against this issue?
Protect yourself against underinsurance
The British Insurance Brokers Association (BIBA) have produced an invaluable guide to help businesses navigate the issue of underinsurance. The document emphasises just how important it is to obtain regular, up-to-date valuations, as well as considering the additional cost of important products from the EU.
It’s also essential to audit the current insurance policies you have to ensure they’ll be sufficient in case of emergencies. Businesses can do this by analysing any limits they have agreed with their existing insurance providers. By converting it from pounds to euros and back again, businesses can see how the exchange rate affects the limit, as well as establishing whether the current limit is enough to protect them in case of emergency.
For more information about Brexit, underinsurance and how to ensure you’re getting the appropriate cover for your business, contact Simon Hammond at Morpheus Insurance today on 0800 276 1155.
This is an update of a post that was published on the Morpheus site in February read that original post here.