As businesses grow and change, so too do their insurance needs. If they don’t refresh their insurance cover to keep up with their own growth – and evolving market conditions – then they risk facing underinsurance.
Underinsurance is worryingly common among businesses of all sizes. If a firm doesn’t have the right level of cover protecting their buildings, stock, machinery and assets, and need to make an insurance claim, then it can pose a significant threat to their financial health.
The values set for buildings, contents and business interruption cover are often the most likely to fall short of what a business actually needs. This is often because values are not regularly reviewed or set based on professional advice, which risks leaving businesses exposed in the event of a major loss.
Common misconceptions which lead to underinsurance:
Sums being set at build cost: expenses including debris removal and professional fees mean reinstating a building often costs more than the basic build price.
Using market value as the sum insured: market sale or purchase prices fluctuate with economic conditions and are unlikely to reflect the true cost to rebuild a property.
Relying on the standard renewal uplift to offset inflation: annual policy increase allowances don’t always keep pace with actual construction cost inflation or reflect individual situations.
The impact of underinsurance after a loss:
Put simply, without sufficient insurance in place, the business may have to pay towards repairs or the reinstatement of a building or other essential assets. This can place additional pressure on cash flow at a time when operations may already be disrupted.
Warning signs of business underinsurance:
The lack of a professional valuation for a number of years, if at all.
You have recently acquired new technology and/or items of machinery.
Recent expansions, changes in risk or increases in turnover.
The property is not of standard construction or is of historic interest.
Business interruption cover is limited to 12 months – many complex reinstatements require longer.
If you think your business may be underinsured, contact NFU Mutual Tunbridge Wells, where our Managing Partner, Shaun Joubert can help you assess the risks that your business is exposed to, and construct a policy to meet the needs of your business now, and in the future.
Call – 01892 337488
Email – Tunbridge_wells@nfumutual.co.uk
Or pop in and see us on the High Street.
