Businesses across the UK that are already struggling thanks to surging inflation and its knock-on effect on the cost of living, may not be able to survive the consequences of being underinsured.
Rapidly rising costs of building materials and labour are having a significant impact on the increase in rebuild costs, costs of demolition, architects’, surveyors’, and engineers’ fees.
Our insurance advisors regularly speak about this issue with clients, highlighting that shops, factories, warehouses and many other commercial buildings across the country are likely to be woefully under-protected in the event of a claim for damage. Never has this been more of a concern than it is today, where many businesses are already feeling one of the biggest squeezes on finances since the recession of the late 2000s.
It is estimated that 84% of commercial properties in the UK are insured for the wrong amount*. In the vast majority of these cases, this is due to underinsurance which means that when a claim is made, the pay-out for the damage can be severely reduced.
Due to such rapid inflation, even recently undertaken property revaluations may quickly become inaccurate and not adequate to cover the cost of reinstating buildings. Unwittingly, owners could find that they are now under-insured.
Why get a rebuild cost assessment?
Commercial Building Insurance requires an accurate ‘Buildings Sum Insured’ value, so that the full replacement of your property is covered if completely destroyed by fire, flood or subsidence, etc. Having inaccurate reported values can also effect ANY claim, even if a total loss hasn’t occurred, so it’s important to get this checked if you think anything has changed.
In the past, we recommended getting a full building revaluation every 3 years. We now believe that this service on its own is no longer sufficient to ensure that changing costs are accounted for. In addition, a yearly desktop survey should be undertaken to supplement full on-site surveys on commercial properties, ensuring valuations remain accurate to your exact needs.
As well as reviewing your Buildings Insurance annually, it’s important to review your insurance any time you make a significant change such as a renovation or, for commercial buildings, during times of peak stock levels. As your broker, we will ask you important questions like these at before your renewal so that we have all the correct information on file, giving you peace of mind.
Leaving it to chance could be catastrophic for your business
Having inaccurate sums insured can cause a myriad of problems when encountering a total loss claim. It can lead to a breach of loans for inadequate figures, or even paying higher than necessary premiums if you are over-insured (which can happen!). The financial consequences can be eye-watering and can cause huge headaches for businesses, some of which don’t always survive.
In fact, commercial property owners can risk breaching their landlords’ covenants within any lease which states that the landlord MUST insure the property for it’s Reinstatement Value. It’s worth checking the fine print to see if this applies to you.
There is financial incentive, too. Once your revaluation has been completed and reported to insurers, there is the potential that your average clause (the amount the insurer pays out for a claim when a property is insured for less that its worth) can be completely waived, meaning that they will always payout the rebuild value in full if the worst were to happen.
UK homes also under underinsurance threat
The concern of underinsurance isn’t exclusive to commercial properties. In fact, it is estimated that more than 90%^ of homes of significant value are also at increased risk of not being adequately protected – with the implications being seriously costly, perhaps even so costly homeowners could lose their homes.
At Gravity Risk Services, we work with trusted rebuild value assessors to offer our clients a comprehensive review to determine the true rebuild cost of their property. At a time when every penny counts, it is our duty as insurance advisors to ensure the protection you have in place is adequate and will respond as you would expect it to in the event of a claim needing to be made.
Want to find out more? Give us a call today on 0121 270 5809 or email us at firstname.lastname@example.org where one of our expert advisors will be available to get in touch with more information.
Unsure of your ‘average clause’ to your ‘index linking’? We created our Essential ‘Underinsurance Jargon Buster’ for you, to make understanding the terminology involved as easy as possible. Check it out here.
Every year RebuildCostASSESSMENT.com shares data with the insurance industry around the accuracy of building sums insured in the UK. These are their latest findings covering both commercial and residential properties.
Data derived from 26,861 Rebuild Cost Assessments completed between Sep 21 and Aug 22.
*www.rebuildcostassessment.com – based on valuations conducted on more than 2,000 commercial properties every year
^www.rebuildcostassessment.com – based on valuations conducted on more than 3,000 homes of significant value per year