Recent surveys have indicated that the average degree of buildings underinsurance remains high amongst businesses. It is estimated to be approximately 45%*, which can result in significant financial penalties being applied to the settlement of an insurance claim. Some 25%* of small to medium sized business owners recently surveyed, identified that an unexpected bill of 50,000 would result in the closure of their business.
Covid -19 affects rebuild costs
Costs of key building materials such as timber, steel and even cement have risen dramatically during the lockdown period with increases of 80%, 18% and 30%* respectively. These large increases are due to shortages in production and demand outstripping supply.
Labour costs and the availability of skilled labour have also been impacted, not to mention the increased costs due to the need to comply with new H&S requirements.
How can buildings underinsurance affect my business?
If a building is underinsured i.e., the sum insured is inadequate to meet the full cost of reinstatement; in the event of serious damage the policy of insurance is likely to have a penalty clause, known as a condition of average. The net result being that with a building insured for 50% of the value at risk, the policyholder will only be paid 50% of the claim value.
Underinsurance remains a huge problem, with up to 80%* of commercial premises being underinsured. To make matters worse, a building is normally identified as being underinsured at the time of a claim and at that point it is too late for the building owner!
The costs associated with repairing properties after an event such as a catastrophic fire, flood or burst pipes can spiral into tens of thousands of pounds. To then find that you are underinsured and be required to pay a proportion of the repairs that you expected to be covered by your policy can have a huge effect on businesses and property owners.
People buy insurance to secure peace of mind, so it is vital that they have the correct cover in place with an appropriate sum insured that represents the full value at risk.
Reasons for underinsurance
Some people simply do not understand what they should include within their value at risk. It should include the complete rebuilding of the property, allowing for demolition plus all necessary professional fees and peripheral features such as carparking and boundary walls etc.
Original development cost is often adopted, but this will rarely be adequate to meet the costs that apply following a catastrophic loss when the fundamentals are different, and speed is of the essence.
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For more information please contact your usual Towergate Adviser or email: TIB@towergate.co.uk
Courtesy of Towergate Insurance Brokers – 20/06/2021