The subject of underinsurance is not a new one. There have been concerning statistics around levels of underinsurance for some years.

Why then is it even more important to act now?

Well, we are living through difficult times as the cost of living crisis comes when the country is dealing with the after effects of COVID-19, Brexit and the ongoing war in Ukraine.

All this is leading to unprecedented levels of inflation as fuel and energy costs are having an impact across building materials. On top we see supply chain issues. All this impacts on the prices we pay for goods and how long it takes to get those goods.

Currently, Royal Institute of Chartered Surveyors (RICS) index linking figures are running at + 9.5% on commercial buildings and + 18.9% on domestic buildings. Contents are running at over 10% for both.

The statistics around underinsurance levels are staggering.

AVIVA estimate that at least 50% of UK businesses are underinsured. Other sources quote much more concerning levels. Sedgewick, on data work to July 2022, reported 85.5% of commercial properties viewed being underinsured with an average percentage of 28.4%!

From wherever you take the data, it is a fact that underinsurance is now endemic.

The clarity around the widespread underinsurance problem and the fact that it is increasing means that insurance companies will not ignore the problem when a claim is made.

In simple terms, insurers may make a proportionate reduction in the claims payment by invoking the average clause in the policy.

You have a duty under the Insurance Act 2015 to make a fair presentation of risk. In the worst case scenario, if an underinsurance is found to be deliberate or reckless, an insurer has the right to void a policy.

Buildings and contents may be index linked in your policy but that doesn’t mean underinsurance is not present. Unless the correct sum insured was chosen originally, you may be sitting on a real problem. A survey by the insurer Allianz showed that 29% of those who owned a business property used its market value to calculate the cost of rebuilding – a potentially serious mistake.

Underinsurance can apply equally to your business interruption (BI)cover. Typically, businesses underestimate the time it will take to recover fully from a major loss and if your BI limit is not adequate you may not be able to cover the full estimated loss of earnings, leaving you vulnerable.

So, what should you do now?

If you have not had a recent professional valuation of your assets, then you should seriously consider having one carried out.

Many insurance companies have arrangements with valuers and have negotiated discounted rates. We ourselves have access to valuations, some of which can even be “desk topped”.

Please speak to your usual Prescott Jones contact about the options around valuations.

We can also talk you through a reassessment of the adequacy of your BI cover.

Thank you for taking the time to read this article. We hope you will consider the points raised in the context of your own protection.

A more in depth article report explaining underinsurance can be viewed here Aviva-Underinsurance-Guide-2022

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