Though the long-term effects of the UK’s decision to leave the European Union are still yet to become totally clear, one effect is undeniable: the referendum which took place in June 2016 has had an enormous effect on exchange rates and underinsurance.
Since the day of the referendum result, the value of the pound has plunged, and further uncertainty surrounding the terms of the UK’s eventual departure indicates that it doesn’t look likely to strengthen anytime soon.
The fluctuation in currency value has meant that it’s more expensive to import goods from the EU – and it could also mean that many businesses are left underinsured. The drop in exchange rates between the pound and the euro means that the cost of replacing machinery or goods imported from the EU has risen, and some existing insurance policies may no longer be enough to cover the cost.
In the wake of an accident or emergency which calls for replacement goods shipped from the continent, it could be devastating for a small business to discover that their insurance policy isn’t sufficient. Indeed, data from the RSA has shown that being hit with an unexpected bill of £50,000 would see 28% SMEs go out of business.
The advice from insurance experts
BIBA recently released an essential guide to avoiding underinsurance. Their key strategies, which businesses can deploy to protect against underinsurance, include getting regular, up-to-date valuations, and always considering the cost of importing or replacing products from the EU.
If you’ve agreed a limit with your insurance provider and converted it to pounds, you may need to convert it back again to double-check the limit will be sufficient if the exchange rate remains this poor. The same goes for insuring overseas assets from the UK – you may need to change your limits to ensure the policy payout in pounds will be enough to cover the replacement cost in euros.
Underinsurance due to exchange rates is a problem – but not the biggest
Underinsurance is certainly a problem for small businesses, with the post-Brexit exchange rates exacerbating the issue. But making small business owners aware of their insurance obligations and ensuring they know which cover they need appear to be more pressing matters for the UK’s SMEs.
For more information about business insurance, speak to the team at Morpheus Insurance Solutions today.