The Clear and Present Danger of Being Underinsured

Things can and do go wrong in any business, from mishaps to downright disasters like a fire, flood, theft, cyber hacking event or a roof collapse, but if you’re not adequately covered on your insurance an unfortunate event may only be the beginning of your troubles…

Underinsurance has never been more of a pressing issue or more prevalent amongst UK businesses. A 2012 survey by the Building Cost Information Service revealed that 80% of UK commercial properties were underinsured. An October 2014 survey of small and medium-sized UK businesses found that around 62% of respondents lacked adequate insurance coverage, either because they were missing business interruption insurance or were unaware if their policy included this type of cover.

Your business may only discover it is underinsured when it’s far too late – after a catastrophic event like a fire or a flood, or a huge cyber theft of invaluable data - and it’s time to put a claim in.

What does underinsurance mean?

It means you have policies for your business but what they cover you for falls short of the actual value of your business’s assets, be it your premises, machinery or stock. When a claim goes in, what you receive does not reflect the true value of what you have lost – leading to a painful shortfall and a huge hit to your pocket.

Underinsurance can also mean you have an insufficient indemnity period stated, for how long your business would take to recover should something go wrong.

In worst cases, an insurer may void your cover altogether because they consider the figures currently provided as misrepresentation - if they incorrectly reflect your revenue or undervalue your business premises.

Which policies are most likely to be underinsured?

• Buildings insurance - If their true value is not reflected

• Machinery and plant - If their values are not adjusted frequently enough

• Business interruption - If you do not have a continuity plan, the right payout plan or a long enough indemnity period to allow you to get back on your feet.

• Cyber - When unexpected data breaches can lead to huge losses

Why might your business be underinsured?

• Because the rebuild of a property may be more than its current value or what you originally paid for it

• Because your sums insured may have changed (did you know you can change this at any time and not just when your policy is up for renewal?)

• Because some businesses prefer to save on their premiums rather than adequately reflect exactly what needs insuring, a ‘penny wise and pound foolish’ strategy as should something go wrong and you need to make a claim, what you receive may fall far short of what you’ve lost.

• Because inflation, the highest it’s been for decades, has meant that the cost of everything has risen, from building materials to the labour of any tradesman. You cannot rely on index linking – some policies do, but it still won’t help you if your sums insured have been set too low. Reinstating a property to how it was before damage or disaster may exceed its Building Declared Value, and the values of contents or plant and machinery may be out of date. Your insurance may have been correct 12 or even 6 months ago, but not now.

• And some businesses simply believe nothing bad will ever happen to them – a very dangerous naivete especially in today’s climate, literally, of inclement weather, and the new technological climate of cyber hackers doing all they can to steal data. Very risky indeed!

What’s important is recognising you are underinsured and taking the right action!

 

So, what to do about underinsurance?

You need to be thorough in what you provide to your insurance company, detailing to them the exact sums needed to rebuild your property or to replace your stock or lost revenue. What is the current value of your premises, not what you paid for them, or the current market value? How long would your business need as an indemnity period after business interruption? You need to:

• Calculate your exact revenue
• Conduct regular valuations of your business and premises. Have a professional rebuild evaluation by a surveyor at least every 3 years.
• Increase your sum insured to reflect inflation.
• Contact Ascend!

We can help! Ascend is always on hand to arrange a market valuation of your business property, plant & machinery and stock. We can review your current insurance policies and every aspect of your business. If you have a policy and there are any changes to your business or circumstances, do let us know. And you don’t need to wait until your insurance policy is up for renewal – you can get in touch anytime!

We’re here to make sure you are covered, so contact us on 01245 449060, or email Matthew.Collins@ascendbroking.co.uk.

Don’t risk being underinsured – take action today!