Is Your Insurance Keeping Pace With Inflation?

Natalie Cartmer, Account Executive, London

Running a hospitality business can be a rewarding venture, but it also comes with its fair share of risk.

If you rent the property you operate in, you know it’s crucial to have comprehensive cover for your tenants improvements and stock and contents.

However, what you might not know is how important it is to ensure that your insurance coverage keeps up with inflation to keep your business properly protected – especially in the current climate.

Let me explain…

The impact of inflation on tenants improvements

We all know that inflation refers to the general increase in prices over time, leading to a decrease in the purchasing power of money.

But did you know inflation can erode the value of your coverage, leaving you underinsured when a claim arises?

As costs rise due to inflation, the original coverage amount you purchased may no longer be sufficient to replace damaged or stolen property, cover liability claims, or protect against business interruptions.

So how can you ensure your insurance is keeping pace with inflation so you don’t get a nasty surprise if you need to make a claim?

Here’s a few things to consider:

1. Regular insurance reviews

To ensure your insurance remains adequate, regular reviews are essential. Begin by examining your current policy and its coverage limits. Determine whether these limits are still appropriate for the present cost of replacing or repairing your business assets. Inflation can impact not only the cost of physical assets but also labour and materials required for repairs or rebuilding.

Consider engaging with a reputable insurance broker who specialises in the hospitality industry. They can guide you through the review process, provide valuable insights, and suggest appropriate coverage adjustments to match inflation.

2. Conduct inventory assessments

Conducting a thorough inventory of your business assets is a vital step in maintaining proper tenants improvements and stock insured coverage. Update your inventory regularly, documenting new additions and removing items that are no longer in use. A detailed inventory will help you accurately estimate the value of your assets, ensuring that your coverage aligns with replacement costs.

Additionally, consider obtaining professional appraisals for high-value items, such as kitchen equipment or specialised technology. These appraisals provide documentation that supports your insurance claims and helps determine accurate coverage amounts.

3. Re-assess business interruption coverage limits

In the hospitality industry, business interruptions due to unforeseen events, such as fire or water damage, can be financially devastating. While your insurance policy may provide coverage for business interruptions, it is crucial to review this aspect regularly.

Evaluate your policy's coverage duration and its ability to sustain your business during extended downtime. Inflation can impact the cost of business interruption, including lost revenue, ongoing expenses, and additional costs associated with relocating or temporarily operating elsewhere. Adjust your coverage limits accordingly to ensure sufficient protection against potential financial losses.

Importance of business interruption indemnity periods

Recovering from a business interrupting event is much harder than you may think in 2023. The business interruption indemnity period therefore becomes crucial.

The business interruption indemnity period refers to the length of time for which an insurance policy will cover the loss of income and ongoing expenses resulting from a business interruption. It is essential to carefully evaluate and select an indemnity period that aligns with the specific needs of your hospitality business. While shorter indemnity periods may seem more cost-effective, they may not provide sufficient coverage to navigate extended disruptions.

To determine the appropriate indemnity period, consider factors such as the time required for repairs, restoration, or relocation, along with the potential time needed to regain customer trust and re-establish your business. Collaborate with your insurance broker to assess the potential risks and create a comprehensive plan that ensures adequate coverage during a disruption.

4. Maintain open communication with your insurer broker

Maintaining a strong relationship with your insurance broker is essential. Regularly communicate with them to discuss your business's evolving needs and keep them informed about any changes to your operations, inventory, or premises.

Share your concerns about inflation and inquire about policy updates or endorsements that can better protect your business against its impact. Your insurer may have options such as inflation guards or endorsement policies that automatically adjust your coverage limits to keep pace with inflation. Proactive planning and open communication will go a long way in providing a secure and prosperous future for your hospitality business.