Against a backdrop of financial uncertainty, the charity sector is being challenged to address the looming risk of underinsurance to safeguard their mission and contributions to important causes.

Charity organisations in the UK and worldwide are fighting hard to weather the residual impact of the COVID-19 pandemic and subsequent global macroeconomic headwinds, including inflation and a cost of living crisis. Many charities quickly adapted to the emerging challenge by embracing digital technologies and introducing innovative fundraising strategies.

Despite this, many charitable organisations are struggling to overcome near-term fundraising challenges with 24% of charities1 in the UK reporting that they have discontinued some of their services.

Underinsurance is a recognised issue, particularly during a more challenging trading period where charities are under pressure to reduce operating costs. Board members need to re-evaluate the charity’s risk tolerance and ensure that current levels of insurance provides adequate cover for anticipated future challenges while enabling the charity to press forward with its strategic initiatives.

Charities are running out of options, forcing them to rely on their reserves and cut back on the services they provide. They are at the heart of our communities and are carrying the weight of the worst effects of the cost-of-living crisis.’ Neil Heslop OBE, Chief Executive of the Charities Aid Foundation2

Balancing risk management with insurance cover

What is underinsurance?

Underinsurance is when a policyholder has inadequate insurance coverage for their insured products. In underinsurance, the claim amount exceeds the maximum limit that the insurance company can settle. This could lead the policyholder to severe financial loss as the insurance payout may not be enough to cover replacement and repair costs for the asset damaged. Property, stock and contents, plant & equipment, business interruption, and cyber liability are often the subjects to underinsurance.

The Chartered Institute of Loss Adjusters says3 that more than 40% of all commercial claims exhibit varying degrees of underinsurance. The prolonged impact of the COVID-19 pandemic, a surge in global inflation and a cost-of-living crisis are driving a number of repercussions for charities which are often at the forefront of navigating the early shift in the economy.

Underinsurance risks

  1. Balance sheet exposure: In the event of an uninsured loss, a charity organisation would be responsible for covering the repair and replacement cost of essential assets such as vehicles, equipment and premises.

    Take a charity with a centre for homeless individuals, for example. Let's assume the market value of the property is £500,000 whereas the charity has set an insured value of £200,000. The centre suffers from a fire event that causes £400,000 of damage. Given that the charity has underinsured the property by 60%, in the event of a claim they would only receive £160,000 from the insurance company instead of the full market value leaving the charity facing the issue of finding the balance.

  2. Disruption of services: When a critical event such as a flood or power outage occurs, a charity may be faced with having to fund emergency repairs and alternate accommodation due to inadequate insurance coverage. Catastrophic events often damage the charity organisation's property and equipment, directly affecting its ability to restore normal business operations.

    Charities also face the risks of property damage, equipment theft, a sudden dip in donations4, volunteer accident/injury, and extreme weather events such as floods and storms. All have the potential to negatively impact standard business operations, beneficiaries, fund raising activities and potentially reputational damage if the organisation has inadequate or unsuitable insurance cover.

  3. Inflation: Inflationary pressures hit the charity sector in the second half of 2022. Falling income and rising operating costs are major obstacles for charities to continue their missions. According to Charities Aid Foundation (CAF)5 research, more than half of charities are worried about their survival due to the rising cost of living, increasing from over a third (35%) earlier in 2022. Ensuring property, stock and other asset valuations are kept up-to-date, and expected increases in construction material and labour costs are factored into coverage can help to offset the challenge of underinsurance.

  4. Limited risk management capabilities: A volunteer injuring themselves while working for the charity and being unable to work may lead to an employers' liability insurance claim, while an accident involving a visitor at a fundraising event resulting in a personal injury claim benefit from having a robust risk management response in place and appropriate training to identify and mitigate risks. However, unplanned events such as cyberattacks and other emergencies resulting in financial loss and reputational damage, can generally be remediated with adequate levels of insurance being in place. Without this, the charity could be left facing a hefty bill that was otherwise avoidable.

  5. Cyber liability risks: More than 40%6 of UK charities are raising money through online fundraising. Charities need to be aware of emerging and current cybersecurity threats including robust password management and authentication, and ensuring software is regularly patched and maintained. Assessing cyber insurance coverage to ensure it covers attack vectors including data breaches, password hacking and financial crime is now more critical than ever before, given the growing sophistication of the perpetrators.

    Cybersecurity training and risk awareness among charity leaders is also critically important. CAF reports7 that two in five charities are concerned about fraud, and only one in seven are undertaking required training to detect the attacks. In recent years, the cost of a data breach in the UK has jumped by 8.1%8. A Gallagher cyber insurance specialist can help with assessing current insurance levels to resolve underinsurance and risk exposure.

  6. Legal and compliance risk: If a charity fails to meet legal requirements and its contractual obligations, or is subject to an investigation by a regulatory body, it may end up facing legal action and significant financial penalties.

    Without proper insurance coverage, the financial burden of legal proceedings will be stressful for the organisation and might divert their funds and resources away from other important missions.

Charities need to act now to resolve insurance gaps and avoid undue risk exposure

  1. Charities in the UK have identified generating income, achieving financial sustainability (58%) and meeting demand for services (30%) as their top challenges9.
  2. 51% of charities in the UK reported that they had felt the need to use their reserves to cover core costs10.
  3. 93% of brokers believe underinsurance poses a major threat to UK businesses during ongoing economic turmoil11.

Similar to other industries and sectors, UK charities are navigating a mix of macroeconomic, technological, regulatory, operational, and environmental changes. Most charity leaders (80%)12 remain optimistic about their ability to deliver their longer-term plans, but uncertain about the short-term stability sector in general. Insurance is available to safeguard charitable organisations from emerging risks and support them through the claims process while they continue with important fundraising initiatives.

Understanding risks and presenting insurers with in-depth information can be a complex task. However, with guidance and a well-managed insurance program, charities can be better equipped to manage unplanned business interruptions and financial loss.

Gallagher CORE360® helps businesses to build a fully customised risk management program using sophisticated analytical tools. The service helps businesses redefine the total cost of risk and understand potential costs and strategic options to manage these costs. As a result, businesses build capabilities to know, control, and minimise risks. Gallagher also offers business continuity planning advice to protect business stability during disruption.


1. Charities fear for the future as cost- of-living forces many to cut services, Charities Aid Foundation, 30 November, 2022

2. Charities fear for the future as cost- of-living forces many to cut services, Charities Aid Foundation, 30 November, 2022

3. Bowers John, Inflation will create a paradigm shift for insurers in 2023, Global Banking & Finance Review

4. 4.9m fewer people donating to charity, Charities Aid Foundation

5. Charities fear for the future as cost- of-living forces many to cut services, Charities Aid Foundation, 30 November, 2022

6. Charity Landscape 2022 Report, Charities Aid Foundation

7. Taylor Alison, Trends that could impact the charity landscape in 2022, Charities Aid Foundation

8. Cost of a data breach 2022. IBM/Ponemon Institute

9. Charity Landscape 2022 Report, Charities Aid Foundation

10. Charities fear for the future as cost- of-living forces many to cut services, Charities Aid Foundation, 30 November, 2022

11. Cooper, Sophie, RSA survey reveals underinsurance concern among brokers, Insurance age, 11 October, 2022

12. Charity Landscape 2022 Report, Charities Aid Foundation



The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.