In the last survey conducted by the Chartered Institute of Loss Adjusters, 40% of Business Interruption (BI) policies had inadequate sums insured declared when calculating premiums resulting in an average underinsured shortfall at of 45%(1).
What types of cover could be most at risk of underinsurance? Here are some of the most common reasons for underinsurance.
Buildings cover: Buildings should be insured for reinstatement cost. This can include costs such as labour, site clearance and professional fees. If in doubt a professional valuation by a RICS qualified valuer is an option.
Underestimating the value: Claimants often assume the current or second hand value will sufłce in the event of a loss. Yet many insurers may look to replace as new.
Business interruption: It can be easy to underestimate how long it’ll take for your business to get up and running again after an insured event. A common outcome is for the period of cover to be far shorter than the actual period of disruption leaving the business owner with ongoing losses after the insurer stops paying. To work properly, your policy requires a thorough Commercial Feature and up-to-date assessment of the interruption exposure.
Inflation: You should also remember to factor in inŃation over a period of time. Insuring for an outdated purchase price can prevent replacement for that same cost. It is important to consider midterm fluctuations in material costs through inflation or market forces. Certain types of goods are more subject to market forces than others with some having the potential to increase in value signiłcantly in a short space of time.
Regular reviews: Failing to review historical sums insured at policy anniversary can lead to large gaps. Acquiring new plant and machinery, adding a new computer system, or increasing stock volumes are not always quickly linked by customers to the need for an insurance conversation. It is best practice to undertake this annually but you should dełnitely not let longer than three years go by between updates.
If you would like to discuss your current cover limits simply contact Steve Fletcher on 0121 222 0721 or [email protected]. (
1) https://www.cii.co.uk/knowledge/resources/articles/business-interruption-insurance/7051