The Moloney family have farmed their land for three generations. Billy Moloney had insured his commercial building for £300,000 and suffers £50,000 worth of damage when a water pipe bursts. His Insurers believe, with current material and labour costs, his building should have been insured for £400,000. The loss adjusters confirm the higher value for Billy’s building of £400,000 and only settle 75% of the claim, in this case, £37,500. Billy is left to find the balance of £12,500 to fix his building.
This is an example of underinsurance and Billy has unfortunately fallen foul of the ‘average’ clause, where an insurer pays out a settlement lower than the claim value. Billy is by no means alone with an estimated 4.5 million small or medium-sized enterprises (SMEs) worryingly underinsured in the UK.
The sizeable underinsurance problem has been amplified, in the last 2-3 years, by an unprecedented increase in material costs and wages, along with a labour skill shortage. This has resulted in a large increase in the cost to rebuild which is considerably higher than the rate of inflation. The current cost-of-living crisis, coupled with this, means we will see more and more businesses underinsured or with incorrect business interruption levels.
The consequence of being underinsured may not become evident until the point of claim. This could be catastrophic for businesses; the reduced claim payment means they would have to fund the additional costs, which many businesses simply cannot afford. Forcing many to close their doors for good. This is an outcome we are all trying to avoid.
What Platinum Insurance can do to help?
Getting the right levels of business insurance can seem like a daunting task, especially if you’re also juggling the day-to-day running of your business. That’s where Platinum Insurance can help.
With 20 years of local expertise behind us, we’re able to assess your business needs objectively and help you arrive at an accurate sum insured to cut the risk of underinsurance. As well as features including business interruption and cyber insurance, we can discuss additional liability covers, including professional indemnity, to further reduce any potential risks. What’s more, you can be confident that all our advice will be tailored to suit you and your business, ensuring you get the value and support you need for your peace of mind.
Property
For property owners who are unsure of the true value of their property, we can help arrange a revaluation to be undertaken by a member of the Royal Institute of Chartered Surveyors (RICS). We recommend that a Reinstatement Cost Assessment is undertaken every three years, or earlier if significant alterations are made to the insured property.
Contents
Imagine you had to replace every item of ‘machinery, plant and all other contents’ with brand new equipment. The Contents Sum insured needs to be adequate to do this.– Many policies ask for a specific note of the sums insured for computers and other high-value or theft attractive equipment. Your inventory should help in establishing this. Make sure to advise us of any items that need to be covered ‘away from the premises’ as this would need to be specifically arranged.
Business Interruption
Sum Insured for Business Interruption is based on the projected annual revenue, multiplied by the indemnity period. Ensure the revenue figure is carefully considered to take into account projections for growth during the indemnity period. The indemnity period is the period for which insurers would continue to pay for any reduction/loss of revenue following the material damage claim. It’s essential you consider how long it could take your business to fully recover following a loss (you can select a period from 12 months to 36 months, 12 months would rarely be sufficient). Imagine waiting for the architect’s plans, local authority applications and approval, the rebuilding and refitting of the property followed by the process of refilling your home with new service users.
