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9 November 2016

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Tackling Underinsurance


Up to 80% of commercial lines businesses are underinsured on their buildings, many of these by up to 40%, according to the National Federation of Self-Employed & Small Business.

It’s a significant issue, especially for small to medium enterprises, which make up a huge proportion of the UK’s commercial businesses.

But what is underinsurance and how can it affect you?

Underinsurance occurs when an individual or a business hasn’t taken out the right amount of insurance cover for their needs. It’s often not until you need to make a claim that it becomes apparent. But it can result in serious consequences.

To understand the implications, imagine the following: The cost to rebuild or replace your property is £250,000 but you have taken out insurance that will cover you for £125,000, then you are underinsured by 50%. This means that your insurer will only cover 50% of any claim you make, no matter the size. This could mean you miss out on hundreds, thousands or perhaps even millions of pounds.

An aspect often overlooked is the cost of site removal and demolition costs. It’s not just the cost of rebuilding a property or replacing stock which could affect you.

It’s also important to be aware of the length of the indemnity period of your business interruption insurance. A standard indemnity period is 12 months but this is often not long enough to adequately a cover a business which has gone through a major event. If it takes longer than 12 months for the business to recover from a fire, for example, its loss of income won’t be covered for that period. This could also lead to job losses and even the closure of the business.

Centor, as your broker, has a responsibility to ensure you are not underinsured by:

  • explaining to you all your obligations to ensure you fairly present the information required by insurers
  • explaining the consequences of being underinsured and how you can avoid them
  • put you in contact with professionals who can advise on suitable sums insured

It’s important to note, however, that clients have a responsibility too. You should let us know:

  • about any changes that happen to your business such as an increase in staff, becoming VAT registered,  or buying extra stock
  • about any changes you make to your property
  • if you haven’t had your property professional valued for insurance purposes in the past three years

If you think you might be underinsured or if you have any other concerns, please call your Centor contact.