The growing problem of underinsurance.

As we surface out of this pandemic the theme of the British Insurance Brokers Association 2021 manifesto is all about resilience and why proper insurance protection placed by professional insurance brokers is key to making the UK a more resilient economy post-pandemic say’s BIBA’s Alistair Blundell.

Under insurance is not a new problem but it has been accelerated with businesses looking to save costs where possible and, in some cases, diversifying to maintain their business in a new environment.

Being underinsured is essentially not having the right level of insurance and this, coupled with not having the right insurance is a growing problem. Insurance valuation specialists Barrett Corp & Harrington found 77% of the properties they surveyed were underinsured by 45%, a level of underinsurance which could be catastrophic in the event of a claim.

Six reasons why businesses have the wrong level of insurance:

  1. Not having a proper current valuation of assets. Research by Aviva suggests that the last time an SME took an insurance valuation was on average two and a half years ago.
  2. Not knowing how to calculate the sums of risk. A common mistake is to insure a building for its market value.
  3. Stockpiling products because of anticipated issues with supplies coming in from the EU or due to additional stock because of the pandemic could mean that even the best assumptions of sums insured are incorrect and brokers not informed.
  4. Misunderstanding of business interruption cover, especially confusion over the term ‘gross profit’.
  5. Complexities of getting business up and running again post pandemic meaning their indemnity period could be inadequate.
  6. Turnover and wages estimated or under evaluated due to the possible decline during the pandemic and simply based on final-year figures.

Underinsurance does not just mean your business is not insured to the correct amount, for example: if the cost to rebuild or replace your property or contents is £200,000 but you only have cover for £100,000 you are underinsured by 50%, therefore you will be subject to what is known as ‘average’ and any claim you make will be reduced by 50%. If you are significantly underinsured your insurer may even void your cover altogether.

Closely linked to this problem of underinsurance is that businesses just don’t have the right insurance. During the pandemic many business owners found they needed to rethink their business model in order to survive.

Pivoting became the new buzzword and for those who persisted this is exactly what they did, however in changing the way a business is run means the type of insurance required may also change, unbeknown to many business owners. Aviva say that 90% of businesses who adapted the way they were working have not made the appropriate changes to their insurance.

For example, when shifting to an online business this means you are more open to cyber threats rather than physical threats, therefore your insurance is needed to reflect this. If you do not tell your insurance provider of changes then you risk claims being reduced or declined.

When making any changes to your business it is important to tell your insurance provider immediately to ensure that you have the correct level and type of insurance.

Insurance is an incredibly complex purchase, using a professional insurance broker who understands your business and its needs to advise on the best level and right insurance, can guard against the threat of underinsurance. 

It is our priority to look after you throughout the term of your policy. To discuss your current insurance or discuss a new policy, please get in touch call our specialist team of consultants on 01905 21681 or alternative email Enquiries@sutcliffeinsurance.co.uk.