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Small Business owners know their businesses well. So well that according to PWC, 74% of small businesses are ‘quite’ or ‘very confident in their business insurance needs. That makes sense, because as a small business owner you’re heavily involved in the day to day running of your business, and have a thorough understanding of your business’ risks and needs. Right?

According to the Royal Institute of Chartered Surveyors and separate research by the Building Cost Information Service, approximately 80% of businesses in England and Wales have an element of underinsurance in regard to their commercial properties. Also, the sums insured regularly appear to fall short of the correct value by as much as 20%.

Valuations are a tricky business. Most people when asked for the value of a property will naturally think they need to provide the market value, but when it comes to insurance the relevant figure is the rebuild cost. This is incredibly hard to get right if you’re not experience with this area. If 80% of businesses are underinsured, then that means you are more likely than not to be at risk of making a claim and only being able to recoup a portion of the total loss you’ve suffered.

What is Underinsurance and how can it affect my claim?

In short, the amount an insurer can pay out under a policy is limited to the sum insured, which is determined at the point of acquiring a quote when you declare the rebuild cost. If the actual rebuild cost ends up being more than was agreed when getting the quote, then the insurer will calculate the pay-out based on something known as a ‘condition of average’.

The ‘condition of average’ or ‘average’ clause declares that when a property is underinsured, you have effectively agreed to act as your own insurer for the remaining portion of the property, therefor the insurer is only responsible for the portion covered by the insurance policy. The insurer takes into account the percentage by which you’re underinsured, and pays the same portion of the loss that was covered.

For example, if your building is insured for £400k but the actual rebuild cost is £600k, any loss will be reduced by a third. A big fire might cause £90k worth of damage but, in this example, you would need to find £30k to pay for the damage yourself.

How can I make sure I’m not underinsured?

Calculating your own rebuild cost is incredibly difficult, and it’s nearly impossible if you have no experience doing so! However, commissioning a valuation can be frustrating if you then discover that actually your own estimate and the sum covered on your policy is correct (or even just very close).

FSB Insurance Service have set up an online commercial valuation indicator. As a registered member of FSB Insurance Service you can get a ‘traffic light’ indication on your property rebuild by filling out our form, which goes off to CPA valuations, who will send back an indication of how accurate your current sum insured is. If your indication is bad news, you will also get a special discounted rate for a CPA valuations surveyor to visit your property and give an accurate valuation.

This is an incredibly convenient and easy way of getting that peace of mind, and to get the indication is totally free to registered members of FSB Insurance Service. Just another way we’re helping deliver good value assistance to keep your business running smoothly.

Interested in getting a traffic light indication and beating the underinsurance odds? You can register as a member of FSB Insurance Service and your welcome pack email will contain a link to start your traffic light estimation.