Whether you are a business owner or a property landlord, ensuring that your assets are insured for the full value should be a priority.
A recent article published by Aviva stated “Unsurprisingly, inflationary pressures are the driving force behind growing levels of underinsurance. We know that broker efforts to educate their clients on how inflation can impact their cover has been a success, with just 10% saying their clients don’t recognise this problem in relation to their sums insured. Despite this, 40% of brokers said their clients didn’t increase their sums insured at all, while 26% said clients are doing so but still not to an adequate level and only 24% said their clients had updated their policies to reflect rising costs. In addition, the article claimed that “73% of brokers are worried that some of their clients may be underinsured. Brokers ranked underinsurance second on a list of market challenges they are concerned about, only behind insurer service.”
The full Aviva article can be read here.
Insurance is often viewed as a formality and a begrudged purchase, but it is a fundamental safeguard that can prevent financial devastation after an unforeseen event. Sadly, underinsurance is high up on the list of reasons why insurance claims are only partially met by an insurer. When assets are insured for less than their full replacement costs, this can often lead to significant financial shortfalls in the event of a claim. Consider some causes of underinsurance below:
1. Inflation and Rising Construction Costs.
Over time, the costs of materials, labour, and compliance with new building legislation increases. If insurance coverage is not regularly updated to reflect these rising costs, the property can become underinsured.
2. Incorrect Valuations.
Building valuations might be based on outdated or incorrect information. Regular RICS valuations should be undertaken along with index linking to ensure sums insured remain adequate.
3. Policy Limitations.
Some insurance policies have limits on certain types of coverage, such as debris removal. These limitations can lead to significant out-of-pocket expenses for property owners.
4. Improvements to the Building or Change of Use.
Renovations, expansions, or changes in the use of a building can alter its value significantly. If these changes are not communicated to the insurer, the policy is unlikely to cover the increased value.
5. Misunderstanding Insurance Terms.
Landlords and business owners may not fully understand the terms of their policies or the difference between market value and replacement cost. If you are unsure, you should always seek the advice of your broker.
Buildings sums insured should be adequate to full reinstate the building as it currently stands. It should also include the costs for debris removal and the professional fees associated with the rebuild. Regular periodic building valuations conducted by RICS approved surveyors can assist policyholders with getting their buildings sums insured accurate. IFM Insurance Brokers recommend ‘Rebuild Cost Assessment’ who can conduct desktop valuations or complete site visits for more complex buildings, click here to see more about their offering.
We have also obtained a discount for our policyholders, if you would like to take advantage of this please contact your usual contact for more information.
