As a commercial insurance broker, we arrange insurance for
clients in many sectors. When reviewing client’s insurance cover for the first
time, we often find they are underinsured.
This post will help you understand what this is and what it means for
your business.
What is underinsurance?
This is when the sum insured for your plant, machinery,
buildings etc is inadequate.
For example, the reinstatement value of your
buildings is £400k but they are insured for £200k. Now imagine there has been
damage to the tune of £100k and you now need to put a claim in for that amount
to make the necessary repairs. The insurer will reduce the claim by 50% because
you are underinsured by 50%. This is known as the average clause and it applies
to almost all insurance policies.
In this scenario, you will have to find the other £50k to
make the repairs. If you do not have access to this sum, you run the risk of
impacting the day to day running of your business because you can’t make the
repairs straight away. Even if you do have access to the amount required, this
means that there is less money to invest in your business. Or in the worst-case
scenario, your business can’t survive this loss.
Buying insurance is often a very cost-driven activity and if
we’re honest, it can feel like a bit of a chore. But it’s so important to
ensure you have the right level of cover should the worst happen. The saving
you might make by not having proper and adequate cover is marginal compared to
the potential cost of covering the insurance gap when you need to claim.
What happens if you
think you are underinsured?
Our advice is to speak to your broker and ask them to review
your policy with you. If you’re worried, we can conduct an independent audit of
your insurance to help you identify whether you may be underinsured and what
action you need to take. Find out more about our audit service.