Current forecasts indicate that a major El Niño event may influence global weather patterns into 2027. Although the precise impact on the UK remains uncertain, scientific assessments suggest an increased likelihood of wetter, windier and more unsettled conditions1.
Recent periods of prolonged hot and dry weather in parts of the UK have also highlighted another significant property risk: subsidence. Extended heat can cause soils to shrink as moisture levels fall, leading to ground movement beneath buildings.
These extreme weather events can place additional pressure on businesses by causing:
- Damage to buildings and infrastructure
- Increased flooding and water ingress risks
- Damage to plant, machinery and stock
- Disruption to supply chains and contractor availability
- Longer rebuilding and reinstatement periods
- Increased construction and material costs following widespread events
- Extended business interruption losses
While underinsurance has long been a concern, periods of increased weather instability can often expose inaccuracies in asset valuations that may have developed over time. If buildings or assets are insured below their true reinstatement value, the financial shortfall following a loss could be substantial. Insurers can choose to invoke the average clause, which could see a claims settlement reduced by the same percentage the asset is underinsured.
The cost of rebuilding continues to change
There are a number of reasons underinsurance may occur. Many businesses continue to rely on historic valuations, indexed sums insured or estimates prepared several years ago which are no longer accurate and can be affected by:
- Property alterations, extensions or improvements that haven't been reflected in insurance valuations
- Inflation increasing the cost of labour and materials
- Supply chain disruption affecting the availability of building materials and specialist equipment
- Changes in regulatory and construction requirements
- Increased professional and project management costs
Many of these factors can be aggravated following major weather events, when demand for repair and reconstruction services increases across affected regions. In these circumstances, the cost of labour, materials and specialist contractors can rise rapidly, further widening the gap between a property's declared sum insured and its actual reinstatement value.
A proactive risk management approach
The combination of persistent underinsurance across the UK and the growing frequency, severity and unpredictability of weather-related events highlights the importance of regularly reviewing your policy sums insured.
We would recommend that businesses:
- Review building and asset valuations frequently
- Consider obtaining a professional Reinstatement Cost Assessment
- Review business interruption sums insured and indemnity periods
- Check that policy limits reflect current replacement costs
- Discuss weather-related resilience and risk management strategies with their broker
Gain confidence in your sums insured
Whether the challenge comes from severe weather events, inflation or changing construction costs, ensuring accurate sums insured is one of the most effective steps a business can take to protect its balance sheet and improve operational resilience.
To ensure your assets are appropriately covered and secured, Gallagher offers specialist-led valuations and reinstatement cost assessments for surrounding buildings, industrial plant and machinery.
Contact us today and one of our specialists will be in touch to understand your market valuation risks and find an appropriate solution for your portfolio.
