During these challenging times, it’s easy to overlook the value and security that your business insurance provides. Having the right policies in place and providing accurate and up-to-date information to your insurer could, be vital to preventing costly damage to your business.
What is underinsurance?
Underinsurance occurs when a policyholder insures below the reinstatement or replacement price of the insured asset.
What happens when you claim?
If you make a claim for a damaged asset, such as business premises that had a rebuild value of £1 million, if the rebuild value had been underinsured for £800,000 and £100,000 worth of damage was caused, then the insurance company would pay 80% of that claim. In this case, amounting to £80,000.
Some reasons why underinsurance takes place
Incorrect valuations
If you undervalue an asset due to an inaccurate valuation because whoever valued it did so inaccurately, if you insure it at that value and it is worth more, that asset will be underinsured.
The cost of your insured asset increases in value
With the cost of material energy and transport costs increasing, some machinery or equipment replacement costs will increase. It could be that the demand or supply for your asset has increased significantly, pushing the value or placemat cost upwards.
Your business has grown
If your business is thriving and growing, you will more than likely increase your turnover. Deciding to re-invest in more equipment and stock means that you will need to inform your insurance company of these increases. It could be that your insurance already has ample room for expansion, but it’s always best to check.
Trying to cut costs
During these tough times, it’s easy to become tempted to reduce your level of insurance cover. Choosing not to renew certain policies leaves your business open to more risks, which could destroy it.
How to prevent being underinsured
Here are a few questions to ask when considering whether your business is underinsured or if it has undergone any changes.
- Has your business’s premises undergone any extensions, renovations, or alterations?
- How much stock do you carry, and have you increased the amount of stock?
- Are all valuations of your business’s assets accurate and up-to-date?
- Do you employ more people or changed the roles of your team?
- Have you developed any new products?
- Have you made any changes to your IT systems?
- Have you identified any new threats to your business that could affect your business interruption policy?
- Have you invested in any new or additional equipment?
- Do you offer any additional or new services to your clients or customers?
A good broker can help
Talking to your broker and explaining the potential risks to your business is always a good start to getting the right level of cover. Having access to a vast number of insurers with thousands of products means they will get you the best deal. Whatever your business is going through, whether it is expanding or going through changes, you need specialist cover that could reduce your premium by finding the insurer that best suits your industry.
Browse our website to find the insurance cover that best protects your business.