Under-insurance could spell disaster

Business already struggling in the wake of covid-19 face another invisible threat in the form of under-insurance.

The latest data reveals a massive shortfall in cover among UK commercial properties.
The insurance valuation providers estimate that buildings occupied by businesses in Britain are under-insured by a massive £325 billion.*

What this means is that hotels, shops, factories, warehouses, and many other types of commercial buildings across the country may be woefully under-protected in the event of damage.

With businesses already struggling financially, many would not currently survive the consequences of under-insurance, which unfortunately many property owners and small firms in particular are unaware of. Subject to average…
When insuring a property, it is most important to understand the insurers’ subject to average clause included in most policies. If the sums insured declared on an insurance schedule is subject to average, and the insured value is less than this at the time of a loss, the claim will be subject to average.

Example of average applying to a claim…
In this example we have a scenario where a building is insured for a declared value of £1,000,000. At the time a major fire caused £250,000 of damage to the property, the insurers surveyor calculated that the rebuild value of the building was £1,100,000. The result was an amount of under-insurance at the time of the loss, in this case 10%. The average condition would therefore apply, so the amount of the settlement would be reduced by the same percentage – again 10%, making the payment £225,000 less any policy excess.

To ensure our clients are correctly insured we work closely with, who prepare professional rebuild valuations.

*Source: November 2020

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