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Underinsurance is a frequently used term in insurance and often associated with ‘Average’ although the two should not be confused. The potential impact of underinsurance in the event of a claim should not be underestimated.

The following statistics published by Barrett Corp Harrington for 2007/11 indicate the extent of the problem: • 85% of cases reviewed contained an element of underinsurance • The average increase was in excess of 60% What is underinsurance? Underinsurance is the failure of the insured to set adequate sums insured or fully cover their potential losses. Examples include: • Setting the Material Damage sum insured (Buildings, Contents, Machinery/Plant etc.) below the full cost of replacement • Selecting a Business Interruption Indemnity Period that is too short for the time required for a business to fully recover Insurance policies we will never pay more than the Sum Insured or Limit of Indemnity. If you insure your office contents for £25,000 and they are all damaged and they cost £50,000 to replace, an insurer will never pay more than the £25,000 sum insured. It will therefore be appreciated that if we were dealing with a £50m building instead, the consequences of underinsurance would be catastrophic.  

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