5 Years ago, in 2012, a national survey by The Building Cost Information Service, part of the Royal Institution of Chartered Surveyors revealed that 80% of commercial property was underinsured. Regionally that rose to 96% across the East Midlands.
Practices have, of course, developed since then, but one of the big hopes from the 2015 Insurance Act, was that it’s new measures would help tackle what is an industry wide issue.
Now, 9 months since it came to effect, has it made any difference?
Often underinsurance can have a fairly simple cause, the policy isn’t suitable, or the sum insured is just wrong, but increasingly, it is the result of companies not regularly reviewing their requirements and it’s often linked with rising costs.
A recent example in the press, focused on a sports club who hadn’t fully appreciated the rise in building costs over recent years, and as such, when it came to the actual costs following a loss, the rebuild costs were 50% more than what was covered under their policy.
It’s a common story.
Whilst we would agree that the Insurance Act has helped to heighten awareness of the problem, more often than not, when we go and see a business, they are underinsured.
Knock on effect of underinsurance
Underinsurance doesn’t just effect a total loss claim. Irrespective of the claim amount, small or large, insurers may apply the average clause. To give you an example, a property insured for £500,000 but with a current rebuild value of £600,000 is 20% underinsured. Therefore, if a £10,000 claim was sustained, an insurer may apply the average clause and reduce the payment by £2,000, leaving this amount not insured, and you further out of pocket.
Even in today’s market, a big part of the problem is the annual nature of insurance. It’s only top of the agenda in the month before the policy expires and when the policy renewal is sent through from the broker. Thankfully, most companies go for years between claims, however that can just heighten the issues.
And this isn’t about scare mongering. For some businesses, this arrangement is perfectly acceptable, but for many however, checking that the right things are covered by the right values, once every 365 days, just doesn’t fit the modern and dynamic world in which they operate it.
You don’t need someone checking prices every week, but you do need to work with someone that has the experience and knowledge to regularly look at your policy and check it fits the criteria that it was set up to cover in the first place.
It again highlights a core belief of ours here at Anthony James, that you need to work with a broker and insurer that knows your business – There must be a relationship there. That way they can keep abreast of any relevant changes, and if something happens that is relevant to you, they can pick up the phone and have a conversation.
Fixing the problem.
In simple terms get help. The reality is that most business owners don’t truly understand the value of their property and assets, and as they have rarely had to look into it, they don’t have a good handle on how much it would cost to repair/replace them if the worst was to happen today.
Even in a slow economy, property prices often still rise, and with what seems likely to be an uncertain few years ahead for UK businesses, costs are almost certain to do the same. And as such, should the worst happen, replacement costs may be significantly more than the amount you have currently are insured for.
For a free insurance review, please contact a member of our team, on 01509 274000.