Is your business at risk of underinsurance?

What is underinsurance?

In simple terms, underinsurance is when you/ your business holds an insurance policy that is inadequate in the event of a potential claim. This could mean that company assets are valued and insured at less than their true value, the limit of indemnity is too low, or the maximum indemnity period is too short.

How could this impact my business?

Unfortunately, underinsurance is an issue which is not always evident until it’s too late. If you need to claim on your insurance policy and you are found to be underinsured, your business may not be able to claim for the full amount that has been lost. This could result in severe economic losses for the policyholder, as the claim would exceed the maximum amount that can be paid out by the insurance policy.

It’s likely that the initial cost of your business insurance premium will be low and therefore attractive as a product offering. However, the loss arising from a claim may be far greater than any initial savings made on the cost of the premium, if a case of underinsurance should arise. (N.B. If it looks too good to be true it probably is!)

What can I do to stop this from happening?

Firstly, don’t worry, underinsurance is a common problem throughout the UK, for example, it’s estimated that 80% of commercial properties are underinsured.

So that your business does not get caught out by underinsurance, it’s vital that in renewing your insurance policy(s) you/ your management team carry out a full assessment of your requirements and that you take a view of all of the factors and risks that need to be considered when deciding on the right policy for your business.

Here’s a list of just some of the areas that you should consider:

• Have any changes been made to your business in 2018 that could affect the parameters of your insurance policy?
• Have you expanded your site(s)or carried out any renovations in the past 12 months?
• Have you acquired any new buildings or stock?
• Has there been a change in the value of your machinery, equipment or vehicle or freight fleet? If you don’t know when was the last time that you carried out an asset valuation?
• Have there been any changes in key personnel?
• Have you reviewed your business interruption policy in the last 12 months?

If any such changes have taken place, make sure that you let your insurance provider know so that any changes can be incorporated into your new insurance contract to avoid underinsurance. Your provider should be able to guide you through the process and help you to assess whether your cover is sufficient for your business needs.

To summarise, know what you are dealing with; in the same way that we encourage our clients to know exactly what they are dealing with when procuring energy or telecoms, choosing an insurance policy is no different. If you can measure the full parameters of your requirements, we can help you to find the right contract to suit your needs.

For further guidance on how to avoid underinsurance and to be put in touch with our carefully selected supply chain partner, please get in touch on 03330 433 233.