UNDERINSURANCE DON’T RISK IT
What Is Underinsurance?
Underinsurance and, in particular, buildings under insurance is becoming a growing problem with statistics provided by RebuildCostASSESSMENT.com, suggesting that a staggering 79% of properties surveyed are underinsured and with the average level of underinsurance being 31%. The total estimated underinsurance of all UK commercial properties is around £325 billion!
Simply put, underinsurance occurs when your sum insured is less than your actual value at risk. In the event of a claim, insurers will apply the condition of average and this could mean that any payment will be reduced proportionately.
Here’s a basic example; Tony owns a building which is insured for £150,000 but, the actual cost to rebuild it is £250,000. So, any claim Tony makes is likely be reduced to 60% of the actual cost. Flood damage could cause £25,000 worth of repairs but, Tony will only be paid £15,000. This leaves him with £10,000 to find out of his own pocket!
How Does Underinsurance Happen?
Underinsurance can occur because of a variety of reasons. Valuations can be out of date; original estimates were not worked out exactly or mistakes were made in their calculation. The most important thing to remember is that values change so, even if you had a professional valuation done when you bought your property a few years ago, it may not be accurate today.
Why Has It Become More Of A Significant Problem?
Recent world events have led to significant supply chain disruption, increased material costs and severe skills shortages, which have in turn resulted in hyper-inflation in the construction industry, raising prices and incurring long delays in getting work done.
How Can You Avoid Underinsurance?
- There are some easy steps you can take to avoid underinsurance and its consequences.
Make sure you have a recent, expert valuation for your property. Bear in mind that standard Royal Institute of Chartered Surveyors (RICS) surveys can exclude VAT so you might need to add 20% on. We have teamed up with our friends at CPA Valuations to help make this easy for you. You can access a desktop valuation from CPA right now. This fixed cost online service can give you a virtual valuation to within 10% of your building value, all from the comfort of your armchair, no visits.
- Check your Business Interruption Indemnity Period. This is the length of time you’ve estimated that your business will be impacted by a major loss (often set at 12 or 24 months). Make sure that you’ve set a period which will give you time to get fully back to ‘Business as Usual’
- Take a look at your stock, contents and business equipment too. Costs are increasing across the board and it is taking longer to replace specialist equipment or machinery.
- Get advice from an insurance broker like one of the qualified brokers from FSB Insurance Service.
Talk to a qualified FSB insurance advisor to make sure you have the right cover for your business and protect yourself from being exposed should anything go wrong.