Underinsured? Your business may be at more risk than you think

This has been a recurring problem since the pandemic. In early 2020, many business owners reduced their contents insurance when employees took equipment home instead of keeping it in the office. Instead, businesses should have discussed re-rating their insurance with their broker, as this equipment is stored in homes, cars and hotels and is therefore still needed. While businesses have resumed operations on their premises, many have not yet changed their policies accordingly and are therefore likely to be under-insured.

insurance is calculated according to the “new for old” principle, which basically means that even if companies have the same equipment as last year, the market value has increased and so they have to adjust their force its police force accordingly.

According to a report by Aviva, 44% of UK businesses said they had made significant changes to how they operated during the pandemic, but only 20% had updated their insurance. They estimate that as a result, up to 50% of businesses in the UK are now uninsured to some extent.

Effects of under-insurance

It is important that customers insure their building and contents for the full value. If this does not happen, they risk not receiving full settlement in the event of a claim.

For example, if a company insures its belongings for £20,000 and it is actually worth £40,000, the insurer will apply the average, resulting in a reduced payout of 10,000 pounds.Many businesses neglect to adequately insure their IT equipment because they believe that only one device can be damaged at a time. However, if a fire occurs in the building and all its contents are destroyed, the cover will clearly not be enough.

Some organizations do not take into account recovery costs, which can be damaging when you consider the dramatic impact of inflation on anything that needs to be insured.
Brokers are increasingly concerned about companies being selective in what they tell their insurance advisors. An advisor cannot properly perform his or her role and provide quality insurance coverage if the client does not provide all the necessary information. Insurance advisors can work with clients to determine which risks they want to handle themselves to reduce costs, but they need all the facts.

Real case

If a business needs to make a claim but their policy does not accurately reflect the current rebuild value of the building, the insurer will reapply the average , which significantly reduces the payment amount.

At Stanmore Insurance, we always recommend that customers have a rebuild valuation every three years to ensure the building has the correct amount of cover.Unfortunately, there have been times when this has not been researched or the client has informed them of the market valuation, which is very different from a rebuild. In one particular case, after a fire, the client’s building was 50% under-insured because they quoted a market value figure instead of an insured amount for rebuilding and , Although claims are settled in cash, claims are not easily settled. handle. .

Underinsured for business owners

So how do you know if you are underinsured? The first step is to assess the rehabilitation value of your building and do so regularly. Your insurance broker will advise you on what is required for the recovery value to be accurate and may also recommend a provider who values ​​specific buildings for insurance purposes.Due to serious problems of inflation and lack of valuation reconstruction, the accumulation of
unfortunate insurance amounts is becoming a major concern.

It is important to note that if you are not VAT registered then VAT must be included in the building insurance amount. As VAT is 20%, this is a significant amount which can be overlooked and again will affect the settlement of the claim.
Underinsurance for rented businesses
For any business that rents a building, building insurance is usually paid for by the owner. However, you may be surprised to learn that you need to review your lease contract when purchasing insurance.

For example, if you have renovated the building you live in, such as adding partitions or adding a new kitchen, you are most likely responsible for this coverage. You are also generally responsible for any redecoration within the building you are renting.

All of the above are covered by tenant improvement insurance, so first check your lease and understand your obligations.Then check to see if this is part of your insurance portfolio. If this is not included, there will be a major gap in your coverage.

We recommend that you ask the landlord when the property was last assessed on a refurbished basis. If it happened a few years ago, chances are the building was not fully insured. If disaster strikes, you could find yourself without a building for a significant period of time, which could significantly impact your business.

Prevent underinsurance

All businesses should regularly update their insurance policies as the business grows and changes with the economy. It is important to contact your insurance broker if any changes occur such as the addition of new assets/machinery or the addition of new business so that your policy can be renewed. adjusted accordingly.

On the other hand, if your business is struggling, your income may be set too high by the policy and can be adjusted to help reduce costs. As your business grows and adapts, your insurance policy must evolve with it.

We recommend that you review your insurance policy at least once a year to ensure it remains accurate.You may only need to make one small adjustment each year, but this change can ensure you’re protected in the worst-case scenario.

By Jackie Hyde, Owner and CEO of Stanmore Insurance and dot2dot Insurance

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