Could your property be at risk of underinsurance?

Author: Darren Ross


Why are claims costs rising?

Supply chain disruption and a shortage of skilled labour in the construction industry have seen building repair costs and delays to the completion of work increase significantly. This is having a knock-on effect on the cost of property damage claims, which can increase further in cases where repair works lead to prolonged business interruption.

What is underinsurance?

Underinsurance is when a policyholder has inadequate insurance cover for their needs. In the event of a claim on the policy, it could mean the claim amount exceeds the maximum limit that can be settled by the insurer. In many cases, underinsurance happens when valuations are out of date, roughly estimated, or incorrectly calculated.

What are the consequences of being underinsured?

Allowing your property valuations to become outdated and inaccurate could have negative implications for your cover. If your building’s insurance does not cover the total reinstatement cost, and you need to make a claim, you may not get the pay-out you were expecting—however large or small your claim amount. This is because the percentage you are underinsured by can be deducted from your pay-out, under the ‘average clause’ in the policy.

Tips to help ensure adequate cover

  • Get an up-to-date property valuation—do not rely on simply applying a nominal increase in value at renewal.
  • Your valuation should reflect the total rebuild cost of the property, not its market value.
  • Building’s insurance reinstatement cost valuations should be carried out by a qualified Institution of Chartered Surveyors (RICS) building surveyor.
  • Consider whether your business interruption indemnity periods are still sufficient, given the potential for longer delays to building repair projects.

How can Gallagher help?

We can help ensure you have adequate cover that will respond as you expect it to in the event of a property claim. We can conduct an insurance review to identify any potential gaps in cover or areas of underinsurance and then build a policy to suit your specific requirements. We also offer surveys and valuation services whereby we can provide buildings replacement sum insured values through our partnership with a RICS-approved company.

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