Are you underinsured?
Data from RebuildCostASSESSMENT.com shows that, after assessing more than 2,000 commercial properties (from shops, hotels, offices and factories) that more than 85% of commercial properties are not insured for the right amount. The estimated underinsurance total for all UK commercial properties is £340 billion.
With recent rises in inflation, there has never been a more important time to assess the rebuild cost of your property to check if you’re underinsured.
What is underinsurance?
If your cover does not sufficiently meet your business requirements in the event of a claim, then you are underinsured. This can be due to setting cover limits too low or insuring assets for insufficient amounts.
While being overinsured is also a risk when you take out commercial building cover, underinsurance can have far more devastating consequences.
For example, if your property is covered for £1,000,000 but is only insured for £500,000, then the amount payable will be reduced by 50% because the building is underinsured by 50%.
This would mean that if you claim for only £10,000, despite being insured for £500,000 of your property, you are still 50% underinsured. The insurance company will only pay 50% on the £10,000, leaving you with a maximum of £5,000.
How does underinsurance affect you?
For property owners and investors, insurance offers a crucial safety net, protecting property assets against unforeseen events. The purpose of this is to cover the cost of repairs or rebuilding work after an insured event like fire or flood. If there is a gap between how much your property is insured for and how much is will realistically cost to rebuild it, this could have a significant financial impact should you need to make a claim.
If you’ve underinsured by half, then any partial claims you want to make on your home or contents policy will be half as well, meaning you’ll have to make up the shortfall yourself.
Whether you’re a homeowner or a landlord with commercial and/or residential properties, it’s important to get the calculations right.
Here are some top tips for getting your rebuild value sums correct:
Consider all the variables
It’s not just the size of your building which dictates its rebuild cost. Though this will impact the amount of materials used, you also need to consider what they are – is it constructed from any specific or unusual materials?
Consider the building’s style, quality and location. Include the cost of professional fees such as architects, demolition costs, and the cost of labour, which will depend on the size of the project and how long it would take to rebuild from scratch.
Adequacy of cover will also depend on the owner/insured party’s VAT status. If policy holders are unable to reclaim VAT on the various costs associated with repair or rebuild, allowance needs to be made within the total amount insured, as insurers would be expected to pay the VAT element.
Changes in UK building regulations and stricter environmental laws may well mean your buildings would cost more to rebuild today than when you first insured them. Other geographical factors also make a difference – rebuilding costs will differ in the north of the UK from in the south, for example.
Listed buildings, landmark buildings and those otherwise ‘outside the norm’ would need the attention of specialist construction workers and therefore need to be assessed on-site by experienced valuers.
How to avoid underinsurance
In normal circumstances, it’s good practice to have a full rebuild valuation on your property every three years. However, as we are currently seeing the highest level of inflation in some 40 years along with supply chain issues, there has never been a more important time to review your cover to ensure it remains sufficient.
You will also need to consider your reported turnover too. If this isn’t reported correctly, you may find that the payment falls short in a business interruption claim.
To ensure your cover is right, it’s worth having a conversation with your broker or insurance provider now if you haven’t already. To find out more about underinsurance and to have a no-obligation review of your current cover, get in touch with Gravity Risk Services today on 0121 270 5809, or drop us a line at email@example.com.
We know that the world of insurance can be confusing, so that’s why we have also created an essential ‘Underinsurance Jargon Buster’ for you, to make understanding the terminology involved as easy as possible. Check it out here: