Don’t get caught out by underinsurance – top tips to stay on top of your cover
It goes without saying that insuring your business is important – but just as important is making sure it’s insured to the right value.
If you have insured your business you likely took everything into account – from your property and stock to your employees and vehicles to find cover that matched the value of your business. However when it comes to commercial insurance, a surprisingly large number of businesses are actually underinsured, something can cause all sorts of problems when it comes to making an insurance claim.
What’s wrong with being underinsured?
At a most basic level, being underinsured means that the full worth of your business will not be cover by your insurance cover. If your business is insured for £100,000 but is actually worth double that, you would likely not be able to fully rebuild if it were totally destroyed, even if you received a full payout from your insurer.
Of course, the chances of your business being completely destroyed are extremely slim but potentially devastating risks such a fires, flooding and theft are much more common and can still cause you considerable physical and financial damage. However, due to something know as the ‘average clause’ you could still find yourself left short, even in the event of a much smaller claim.
For example, if your £200,000 business is only insured to a value of £100,000 then it would effectively be underinsured by 50%. Because of this, any claim you make would only be paid out up to 50%, even if your claim if for a much smaller amount. In this case, under the average clause, you would only receive £20,000 for a £40,000 claim because your business is only insured for 50% of its value.
This is something that surprises many businesses owners and can catch them by surprise when they need to make a claim – which is when you least want to be surprised.
How common is being underinsured?
Underinsurance among businesses is extremely common. In their July 2014 report the BCIS (Building Cost Information Service), part of the Royal Institute of Chartered Surveyors (RCIS) estimated that almost 80% of commercial properties could be underinsured.
Similarly, in a recent report insurer Aviva stated that their specialist value, Barrett Corp & Harrington, has found that one average 77% of the properties they survey are underinsured by 45% of the correct value.
Why might you be underinsured?
It’s possible you might have intentionally underinsured your business to get a lower premium but it’s more likely that if you are underinsured you don’t yet realise it. This is because many people fail to take the full value of their business into account when taking out their insurance policy, or because the value of their business has changed since they took out their cover and the policy they bought no longer fully covers them.
Aviva recently outlined 10 quick questions all business owners should ask themselves in order to work out if they might be underinsured*:
- Have you had your property professionally valued in the last three years?
- Have you altered or extended the property?
- Has your insurance cover been based on the market value of the building, rather than what it would cost to rebuild?
- Have you factored in the costs of gates, fences, car parking areas and outbuildings?
- Is your property a listed building?
- Have you considered the costs of professional fees for architects and surveyors?
- Have you thought about costs such as site clearance or access?
- Are you carrying more stock now than when you took out your policy?
- Are you now VAT registered?
- Do you have new plant or equipment that you have not told your insurer about?
How can Insure Risk help?
At Insure Risk, our mission is to provide our clients with a high quality insurance service that exceeds their expectations and is underpinned by our Chartered Insurance broker status. As such, we’re able to help you correctly protect you business to ensure that your policy has you fully covered and is not leaving you underinsured.
To find out more about how we can help take care of your business’ insurance needs, call us on 0161 926 3634 or email us at email@example.com.
*For more information click here to download Aviva’s guide to underinsurance in the commercial market.