Don’t Under Estimate The Impact Of Under Insurance

The cost of under insuring

Take the case of a business that has insured its premises for £800,000. When the building is damaged by fire, it is calculated during the claim process that the rebuild cost is actually £1,000,000. Based on this the client has only paid a premium for 80% of the risk so using an ‘average’ clause in the contract, the insured will only be covered for 80% of the repairs leaving the business with a large shortfall. The slight increase in the cost of the policy to ensure adequate cover was in place would have been a small price to pay, compared to the amount now required. Such scenarios are all too common, with the amount initially saved on the premium never equating to the consequences of a major loss.

So what can a business do to make sure the sum insured reflects reality?

There are a number of basic tips to follow:

1. Ignore the market value of the building
    Base your cover on how much it would cost to rebuild the property and clear debris from the site.

2. Keep up to date with the value of property and possessions
    Ensure you are insured for the replacement cost of items and not your net book value. If you purchase new equipment or you know the property value has gone up,
    revisit your policy to ensure it covers the increased value.

3. Monitor any stock fluctuations
    If your stock level fluctuates at different times of the year, such as Christmas, it could cause an upward spike in the required sum insure or introduce additional hazards.

Business interruption shouldn’t be forgotten

Business interruption is another key area that is often uninsured. If your building is destroyed and needs to be rebuilt, it may take longer than you think to return to business as usual, and you may need temporary premises during the rebuild. What happens if you have cover in place for 12 months, but it actually takes 3 years? Factors such as site clearance, use of cranes, availability of building contractor, inspections, unforeseen issues and re- stocking can all cause delays, which is why it’s essential to have the appropriate level of business interruption insurance in place.

Finally, you should also consider new and emerging risks, such as IT and connectivity failure, currency fluctuations and cyber attack. All could have a devastating effect on your business, which appropriate insurance could help to mitigate.

As your broker, it’s our job to assess your exposures and create a fair presentation of risk. With many years’ experience arranging business cover for SME’s and a full awareness of new and emerging risks, Mathews Comfort can ensure the policy we arrange adequately covers the value of your business. To find out more, talk to us today by calling 01865 208000 or email info@mathewscomfort.com.