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The Hidden Perils of Underinsurance

Not having appropriate sums insured is a common problem that can have serious financial repercussions

What is underinsurance?

Underinsurance occurs when you have not taken out the right amount of insurance cover for your needs. A report prepared by the Building Cost Information Service (BCIS) found that 80% of commercial properties are underinsured. There will be a variety of factors to take into account when you assess how much insurance you need and the calculations of appropriate sums insured can be complex however it is essential that this information is accurate. 


What does it mean if I am underinsured?

Taking out insufficient cover will essentially mean any claim will be insufficiently covered. 

For example, if the cost to rebuild or replace your property or contents is £100,000 but you have taken out insurance that will cover you for £50,000 then you will be underinsured by 50% and any  claim will be proportionately reduced by 50%. This is called the 'Average Clause'.

How do I prevent being underinsured? 

Make sure you let your broker know about any changes to your business. 

Ask them to help you understand how you should assess whether your cover is sufficient for your needs and what professional help may be available. 

Remember that some changes to your business might not just relate to contents or buildings insurance. For example if you have bought specialist equipment that takes time to replace, this will impact the amount of time it might take for you to get back on your feet after a major incident such as a flood. Therefore this could have an impact on the amount of business interruption insurance that you need.

The above is only a very brief summary of a common problem and we would be pleased to assist further. If you would like to discuss underinsurance further or require any additional assistance, please contact John Leaver or a member of our Commercial Team on 0151 236 4568.

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