How much would it cost to rebuild your business in the event of a fire, flood or other unexpected disaster? That’s what your insurance cover is for, right? But can you say with total confidence that you have accurately valued the cost of rebuilding your business should the worse happen?
If a building or business has been undervalued, the cost to the business owner can be enormous. If there is any difference in the valuation figure and the actual cost of repairs, it’s often up to the owner to make up the shortfall. Money that most business owners will not have lying around.
And it’s not just total rebuilds that can leave business owners out of pocket. Even if a claim is made for damage to a property – say £100,000 worth – if the underwriter has been told a building is worth half its actual value, they will only be able to pay out half of the cost of the damage.
What is underinsurance?
Let’s be honest, insurance isn’t everyone’s idea of a fun topic. For many, it is simply a case of finding the cheapest and quickest way to cover the bare minimum within their business.
But it’s vital that all businesses understand what underinsurance means for them. Put simply, underinsurance is the term to describe when a business has an insurance policy that is inadequate should a claim have to be made. In practical terms, this could mean different things:· The company assets have been valued and insured at less than their true value
· The limit of indemnity is too low
· The maximum indemnity period is not long enough
· Something has changed within a business but the insurer has not been notified
· Newly-purchased expensive items (such as machinery or electronics) have not been added to the policy
Whatever the reasons, underinsurance creates a huge threat to the sustainability of businesses in the UK.
What is the extent of the underinsurance problem?
According to data from the Chartered Institute of Loss Adjusters (CILA), up to 43% of business interruption policies are underinsured
, with the average shortfall a sizable average of 53%.
Research by the Royal Institute of Chartered Surveyors and the Building Cost Information Service expands the picture further, suggesting that as much as 80% of businesses in England and Wales
have some element of underinsurance on their commercial properties. That research also showed that the sums insured regularly appear to fall short of valuations by 20%.
However you look at it, that’s a lot of businesses that could be losing out should they need to make a claim. Add to that research by Cytora
that says a quarter of SMEs would have to close if they were suddenly presented with a £50,000 bill, and the extent of the underinsurance problem becomes worryingly clear.
What are the most commonly underinsured commercial policies?
The truth is that any commercial insurance
policy can be underinsured, however certain areas are of greater concern than others. Here are the four most commonly underinsured commercial policies.· Buildings:
Business owners need to regularly reassess the value of the property and make the relevant adjustments to their commercial insurance
policy. Without these constant tweaks, a business can end up being underinsured and ill-prepared for even small losses.· Contents and equipment:
Unless there is a comprehensive list of business property assets on a policy or an insurer is given an accurate valuation of those items, there will be errors in the insurance amounts for a business’s contents and equipment. Be sure you have a frequently updated inventory of all on-site equipment and contents – this is the only way you can be sure you’ll be sufficiently covered should you have to make a claim.· Business interruption:
It is estimated that 40% of UK SME businesses lack adequate business interruption cover
. The reason for this is largely due to insufficient indemnity periods. By working out a realistic indemnity period that gives your business enough time to recover after a loss (anything between 18 and 24 months) you can ensure business continuity.· Cyber-liability:
According to government data, despite more than 30% of UK organisations having experienced a cyber-attack, just 11% are properly covered with cyber-insurance. A data breach has the potential to cause huge losses for a business, having robust cyber cover is the only way a business can protect itself against that risk.
How can I make sure my business is not underinsured?
Ever heard the saying: If you think education is expensive, try ignorance? Well, adapt it slightly and you get this: If you think commercial insurance
is expensive, try ignorance.
The best way to ensure your business does not get caught in the underinsurance trap, is by educating yourself. That way you can understand the bigger picture and make informed decisions about the risks. The last thing any business owner wants is to understand the importance of insurance just a little bit too late.
The first step is to make sure that when renewing your insurance policy you carry out a full assessment of requirements and take into account every factor and risk that you need to. Here are some elements you need to consider in that assessment:· Have any changes occurred to your business that your insurers should know about?
· Have you carried out any renovations or expanded the site in the past year?
· Have you invested in any new stock or premises?
· Is your asset valuation up to date?
· Has there been any changes to key personnel?
· Have you reviewed your business interruption policy over the last year?
Make sure your business is not underinsured
The best way you can be confident your commercial insurance
is giving your business the cover it needs is to be open and honest with your insurers. Fortunately, having the right commercial insurance
doesn’t have to mean spending a lot more money.
By speaking to the team of specialists at Insurance Choice, you can be sure you are getting the right cover for your business at a competitive price – and will never have to worry about being underinsured again.Get a quote today and we can find a package tailored to your business needs.