A recent study found a huge 84% of commercial properties are either over or underinsured. This is due to properties either being insured for market value, that doesn’t consider the associated cost of rebuild, or for an outdated sum altogether.
In the event of a disaster, fire or flood, it is vital that your insurance accurately reflects the costs associated with rebuilding your commercial property as it stands today and from start to finish. This includes costs outside of the build itself, such as demolition, water/waste removal, professional fees and contractors for example.
As with all insurances, the responsibility for establishing the level of cover you require lies with the policyholder and whilst sums insured are often “index linked” to protect against the inflationary impact on these values, there are many other factors that could impact the level of cover you require.
Furthermore, if you are aware the value of your property has changed and fail to notify your broker or insurance provider, the financial stability of your business could be seriously at risk.
Underinsurance is a growing problem; adequate insurance is the only solution.
A quarter of UK SMEs said that they would close if they had an unexpected bill of £50,000.
Underinsurance happens when businesses fail to accurately estimate the level of insurance cover required to protect all assets and costs associated with getting back up and running, including rebuilding premises.
An example: Insurers adopt an approach they call the “Average Clause”. If your commercial property is insured for £500,000 but the actual cost to rebuild in the event of a major incident is £1,000,000, any insurance claim you make for the property risks being reduced by the proportion of underinsurance – in this case 50%. In this example, you would have to find £500,000 of your own money to cover the costs associated with the rebuild. For some, a reduced claims payment stemming from underinsurance results in business closure.
Worse still, if insurers believe that the level of underinsurance is significant enough, they can cancel cover without paying the claim at all, or refunding any of the premium paid.
It should also be considered that under most commercial mortgage agreements, your lender will require you to ensure that buildings are insured for their full reinstatement value.
Whilst underinsurance can present serious difficulties, you don’t want to be overinsuring your business either. This will result in you paying an unnecessarily high premium that over time, adds up to a significant sum.
The simple solution is to insure your business and commercial property for the correct amount. You can do this by conducting regular Rebuild Cost Assessments and maintaining communication with us, updating your Account Executive when things change.
As insurance specialists, we have live access to existing and emerging risks and can help you ensure that your cover reflects your business requirements. This can be challenging to achieve alone, especially in unpredictable circumstances.
If you accurately disclose the value of your commercial property and business activity, we will be able to help you understand your risk exposure and achieve adequate insurance cover that protects your business, now and in the future.
There are a number of RICS surveyors you can use to supply a Rebuild Cost Assessment report. As insurers themselves will use RICS guidance when establishing the values of property at claims time, a recent RICS rebuild assessment will generally satisfy any potential concerns over the level of cover purchased and avoid underinsurance issues.
Alternatively, we have partnered with Rebuild Cost Assessment Ltd who are qualified surveyors and able to assist with all types of buildings and industries, including private dwellings. Typically, such a report can be provided at a fixed-fee of £140. If you wish to take advantage of this and protect your business against underinsurance, click here and use code TC20.
Ideally, such valuations should be taken every 3 years.