Underinsurance: The hidden insurance gap  

Many of us put insurance to the back of our minds once it has been taken out…which is exactly how it should work. Insurance should be invisible until you need it. 

But what happens when disaster strikes, and your claim payout isn’t what you expected? In fact, it only covers a fraction of your actual costs.  

This growing problem is affecting businesses across multiple sectors. When business owners experience an incident, they file their claim and expect the insurer to payout the full amount to cover their losses. Many are then shocked to only receive partial compensation. 

 This issue is particularly rife in the world of property insurance, where companies are discovering, at the worst possible time, that they’re significantly underinsured. This then leaves them responsible for covering the financial shortfall.  

Construction and labour costs  

One of the key issues contributing to underinsurance lies with the cost of labour and construction materials. As these prices have escalated in recent years, property values have increased in conjunction.  

While property appreciation is normally considered a positive thing for property owners, it becomes a problem when your insurance policy doesn’t reflect your building’s current value.  

For example, a property valued and insured in 2017 would likely be worth considerably more today. This means that, without regularly updating its rebuild cost, the payout for any current claim (including any reductions due to inadequate cover) would be calculated based on the outdated valuation provided to your insurer. This could potentially resulting in a considerable financial shortfall. 

How big is the problem?  

Research indicates a concerning 80% of commercial properties are underinsured, with these buildings typically covered for just 63% of their actual replacement value. 

Overinsurance exists as well, though less frequently, with approximately 15% of buildings overinsured at an average of 122% of their value.* 

Most frequently underinsured properties 

Research shows these property types face the highest underinsurance risk: 

– Sports and recreation facilities 

– Hospices 

– Pubs, hotels, and hospitality venues 

– Nursing and care facilities 

– Golf clubhouses 

– Automotive showrooms 

– Youth centres and nursery schools 

– Funeral homes 

– Retail warehousing 

– Dental practices 

Avoiding underinsurance  

To ensure your business or residential property is insured for the right amount, it’s important to review its true rebuild cost upon renewal. You should also review it following any changes to the building, like an extension or renovation. Want to know more? Call our team now on 0161 728 8050.