Underinsurance - Are you Covered?

Research recently carried out by a supplier of buildings reinstatement cost assessments, found that a staggering 77% of properties are underinsured, leaving owners to the risk of being left out of pocket after a loss.  

If it is discovered that you are underinsured, innocently or deliberately, your insurers may apply a condition of ‘average’ (unless there is an average exclusion on the policy).  

For example:

“The reinstatement value of your property is £200,000, however, you think the value is £100,000 and you insure for this amount.  A fire then breaks out, an assessor surveys the property and values the reinstatement cost at £200,000.  The insurers will then compare the sum insured and the valuation and note that it is underinsured by 50%, the insurers may then use average and only pay 50% of the policy sum insured, being £50,000, therefore leaving you £150,000 short”.

To avoid such circumstances above the ABI have created a calculator to help you work out the reinstatement value of your property to see this visit http://abi.bcis.co.uk/.

Underinsurance does not only relate to value of property, is also something to be taken into consideration in respect of Business Interruption Indemnity periods. 

Are you 100% certain that your indemnity period is adequate?
Are you 100% sure that your business will be up and running within your insured period?

Typical indemnity periods are 12, 24 and 36 months, but are these periods long enough? Has your current insurance provider discussed this important matter with you?

The period represents the time it takes you to get back in the position as if the event had not happened.  It covers costs of relocation, hire of staff and equipment and much more.  However, it will only pay for the duration of the indemnity period.  In these circumstances where the indemnity period is too short, you may for example only recover 90% of your losses leaving the remaining 10% to be funded by your profits which you would normally invest in the continuing growth of the business, you are then left with lack of investment which could mean issues for you in the future.

We at Woodward Markwell suggest consideration of the following important factors in relation to your indemnity period:-

• Realistic re-build times  - Consider:
  • Possible delays
  • Weather
  • Economic Downturn
  • Seasonality
• Machinery Replacement
  • Manufacture times
• Planning Regulations
  • Changes to
  • Planners time constraints
• Is the disaster unique/national/local
  • Affects availability of contractors & supplies
• Investigation times
  • Following a crime

If you would like to discuss this further please contact:-

Jennifer Baker, on 01473 408416 or bakerj@wmibl.co.uk for Personal Insurance or
David McGowan, on 01473 408428 or mcgowand@wmibl.co.uk for Business Insurance