Why being underinsured could be dangerous
It could be a costly exercise if you try to save money on the sum you insure for!
Research carried out by the Building Cost Information Service, part of the Royal Institution of Chartered Surveyors underlined the fact that 80% of Commercial Properties were underinsured and that the property market in general was shown to be underinsured.
In similar research, by the Chartered Institute of Loss Adjusters, found that there was an average shortfall of 45% on Business interruption policies.
Underinsurance has always been an issue when fixing a declared value for the risk to be insured within the Commercial property sector. You could lessen this risk by conducting regular valuations, which take into account the whole risk including walls, gates, fences, security lighting & cameras and all fire protection devices NOT just the building itself!
On average across all sectors the level of underinsurance is 20% but some businesses are underinsured by more than 50% !!
There are 2 types of insurance cover and businesses need to understand which they have in place. Reinstatement cover will replace old for new while Indemnity cover will only pay out the market value of the property at the time of the loss.
If it is found that you are underinsured at the time of a claim the insurers will apply the average clause, this works by reducing the amount of the claim by the equivalent amount of the underinsurance.
By way of example ‘if there is computer equipment that is insured for £5,000 and is subsequently stolen in a break in but the correct value of the equipment is £10,000, the insurers will consider that the client has only insured half of the risk. They would then reduce the payment by half, so the initial claim of £5,000 would be reduced to £2,500 less any policy excess…
To avoid the potential of this happening, businesses need to work closely with their chosen insurance provider.
TI Accountancy perform regular assessments with their clients to ensure that the sums insured are sufficient for their business needs.
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