Insurance is there to protect you from the serious consequences of unexpected events that could impact your business, livelihood or wellbeing.
Having the right cover in place gives you the peace of mind that you can weather the tough times and avoid potentially devastating financial consequences.
One of the biggest risks businesses face is unknowingly operating with a dangerous gap in their cover, known as underinsurance. Rising inflation, supply chain issues and evolving business models have all contributed to this growing problem. In some cases, people only realise the risk when it’s too late and their insurance payout falls short after a fire, flood or storm.
Of course, the consequences aren’t just financial, they’re emotional and operational too. Imagine the trauma of seeing your barn destroyed by fire, only to discover your insurance doesn’t cover the rebuild.
I work closely with clients to ensure that’s exactly what doesn’t happen. By understanding their businesses and how they operate, I help make sure they have the right cover in place so they can rebuild and recover if the worst happens.
What is underinsurance?
Underinsurance occurs when the sum insured on a policy is less than the actual cost of rebuilding or replacing the insured property. In the event of a claim, this can result in a reduced payout. For example, if a building insured for £400,000 actually costs £600,000 to rebuild, the insurer may only pay out two-thirds of any claim, even for partial damage.
A common cause is failing to update your policy to reflect new ventures or assets. If you’ve added livestock, bought a new vehicle, or opened a campsite, it needs to be included in your cover.
With the cost of timber, steel and labour rising, it’s unwise to assume your original policy will still reflect current market values. Essentially, replacing like-for-like could be far more costly than you think.
Remember, it’s the cost of rebuilding, not market value or purchase price, that matters. The sum the building is insured for should cover the cost of demolition and site clearance, as well as planning, architect and other professional fees. For contents, insurers usually want the cost of replacing items as new.
How to protect yourself
Here are some simple steps to avoid underinsurance:
- Get a professional valuation
Ensure your buildings and property are valued based on current rebuild costs. Reassess annually or after major changes. - Review your policy regularly
Don’t rely on automatic renewals. Sit down with your broker and check that all new assets and activities are included. - Consider business interruption insurance
This optional cover protects your income if you’re forced to stop trading due to an insured event. It helps you pay bills and recover without serious financial impact.
With proactive planning, regular reviews and the right advice, underinsurance is entirely avoidable. That’s why I visit clients on-site to get an accurate picture of the cover they need and discuss any developments that may need to be accounted for in future policies.
By taking steps to prevent underinsurance, you can ensure your hard work is properly protected.