Author: Phil White
It is not uncommon for businesses to apply a ‘rule of thumb’ increase each year for their sums insured, however, this can lead to your asset valuations become outdated and inaccurate. In the current climate, out-of-date valuations could lead to a serious financial headache if you need to make a claim on your policy—unless the business can comfortably afford to cover the remaining costs.
Fleet underinsurance
Motor fleet claims can be complex, and current market conditions and supply chain issues are only adding to the challenges businesses are facing at claim time. The impact of Brexit, COVID-19, changes in legislation and emerging technologies are all factors that are contributing to the rise in claims costs. In the last two years, there have been significant increases in the costs of parts, labour, repairs and paint—and fluctuations in the value of sterling have increased the cost of imported parts and materials. The cost of vehicle panels, for example, has risen due to higher steel and aluminium costs, as well as the increased use of carbon fibre.
Both the price and—in some cases—scarcity of parts has meant that repair turnaround times are typically longer, as body shops may not have as many spare parts readily available. These repair delays are inflating both accidental damage claims and third-party costs due to the extended time required for the use of courtesy and hire vehicles.
The price of new vehicles has risen, largely due to microchip shortages slowing production, and this has also increased the demand for used vehicles, which is pushing up their value. Some commercial vehicles are even being sold for more than they cost new, which is increasing total loss settlement costs.
Property underinsurance
Sometimes, with a focus on protecting the fleet, the depots and other physical buildings of a transportation business may not get the same attention. However, there are many reasons why your building reinstatement costs may have risen significantly.
The UK is currently experiencing a shortage of building materials such as steel, cement and concrete which is significantly increasing prices, and the timber price index inflated by 35.4% year-on-year in 2021-2022.1 These rises are largely contributed to disruption caused by Brexit and COVID-19, and now trading implications of the Russia-Ukraine conflict are pushing up prices further. Adding to these challenges is the shortage of skilled labour in the construction industry, forcing up wages as firms compete for talent.
This ‘perfect storm’ had led to the increase in claims costs for property repair and reinstatement. This has the potential to place businesses into a situation where their total building sums insured no longer reflects the actual cost of rebuilding their property. Bearing in mind the current materials shortages and supply chain issues, claims have the potential to increase significantly in cases where delays in repair works lead to prolonged business interruption.
Another factor to consider is the increase in the frequency and severity of extreme weather events in the UK, particularly intense rainfall and storms. According to the Association of British Insurers (ABI), there were 1,500 commercial property claims due to flooding and 9,000 due to windstorm damage following Storms Ciara and Dennis in February 2020, totalling £146 million.2 Events such as these can only exacerbate the issue of claims inflation—as well as potentially increasing your risk of having to make a property repair claim.
If you have not had a buildings valuation recently, it may be beneficial to have one carried out. Gallagher offers surveys and valuations services whereby we can provide buildings replacement sum insured values through our partnership with a RICS-approved company, so if you would like us to arrange this please let us know.
Personal injury claims
As well as ensuring adequate cover for their assets, businesses should consider the implications of personal injury claims. This is because changes to the Ogden discount rate have driven considerable increases to the cost of catastrophic personal injury claims, alongside the 10% uplift already recommended for general damages by the Judicial College (JC) Guidelines.3 Therefore, it is important to review your public and employers’ liability insurance, and seek specialist advice if necessary, so that you can be confident your cover levels would be sufficient to protect your business financially in the event of a personal injury claim.
The importance of an insurance review
Discovering you’re underinsured at the point of making a claim could be catastrophic for your business, so it’s important to have an independent professional carry out an audit of your valuations and insurance cover to help close cover gaps and ensure you have adequate protection in place. If you have made significant changes to your property, fleet, assets or business activities, now is the time to consider an insurance review, even if your business insurance is not due for renewal.
How can Gallagher help?
Gallagher is the largest insurance broker for passenger transport in the UK, and we understand the specialist needs of bus and coach operators. Our Transportation team can provide advice on your buildings, motor and fleet insurance, public and employers’ liability, and any other covers, such as cyber liability, to help ensure your business has adequate insurance cover in this challenging climate.
