What does it mean for your business?

What is underinsurance?

Your insurance premium is calculated based on your individual circumstances and the amount of cover you choose to take out to protect your business. Underinsurance occurs when you’ve not taken out the right amount of insurance cover for your needs and there will be a variety of factors to take into account when you assess how much insurance you need.

What does it mean if I am underinsured?

Taking our insufficient insurance cover will essentially mean any claim will be insufficiently covered. For example, if the cost to rebuild or replace your property or contents is £500k, but you have taken out insurance that will cover you for £250k then you would effectively be underinsured by £250k or 50%. Any claim you make will only be paid on the basis of the amount of cover you chose, based on what is called the ‘average clause’ – so in this example your insurer would only cover 50% of any claim, no matter the size of that claim. This would leave you needing to pay the remaining costs yourself which could be anything from hundreds, to thousands, to millions of pounds. ‘Average’ is a basic principle of insurance applied to commercial property insurances. It is intended to ensure that the insurer receives a fair premium for one risk and that adequately insured risks are not subsidising those uninsured.

How big is the problem?

Specialist valuer, Barrett Corp & Harrington, states that on average 77% of the properties they survey are underinsured by 45% of the correct insurance.*

Source: http://www.bch.uk.com/

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