Is Your Business at Risk?
Ensuring adequate protection against damage or loss is a paramount issue for any business. Knowing you are insured correctly provides great peace of mind, unfortunately underinsurance is a widespread and persistent problem which is leaving businesses vulnerable to complete destruction. Mike Dickinson, Sales & Marketing Director at Russell Scanlan, discusses why underinsurance occurs and what you can do about it.
Underinsurance is inadequate insurance coverage which, in the event of a claim, will lead to a financial loss if the claim exceeds the maximum amount that could be paid out by the insurance policy. Put simply, if you own a property with a rebuilding value of £5million and are only insured for £2.5million, the full worth of the property would not be reflected in the amount paid out in event of a claim.
Comprehensive cover provided by a tailored policy selected by your broker ought to ensure you are entitled to claim fully, but we still see plenty of clients who are underinsured for their commercial and personal property portfolios – and wouldn’t have realised they were underinsured if they hadn’t come to us. Businesses can be underinsured for many reasons; the four most common areas of underinsurance are:
Research by reinstatement valuation experts RebuildCostASSESSMENT.com found that more than a third of businesses are using market value to set their buildings sum insured – the amount the property would currently sell for – rather than the cost to rebuild from scratch. Even more concerning was that one in five are thought to simply guess!
It’s no surprise therefore that according to the Building Cost Information Service, up to 80% of UK commercial properties are thought to be underinsured. In some cases, a valuation figure is historic and has simply not been adjusted. Sometimes older buildings have been redeveloped and extended which add value to the property. Another common mistake is for property owners to buy a property in order to redevelop it, but insure it for the original purchase price.
Factors such as if the building is listed, was constructed prior to 1920, is finished to a significantly higher specification than normal or has a number of eco features; will all significantly affect the rebuilding costs. It’s also important to factor in costs for outbuildings, car parks, driveways and boundary walls which are easy to overlook.
To make sure you’re covered for all eventualities in terms of loss or damage to your property, you need an up-to-date insurance valuation, known as a reinstatement cost assessment. The Royal Institute of Chartered Surveyors suggests this is reviewed every three years.
Stock and assets
If you are carrying more stock (even if temporary/ seasonal) than when you took out the policy or have purchased additional plant, equipment, tools or machinery it’s important to advise your broker. Stock sums insured should include raw materials, work in progress and finished goods. Keeping an inventory/ register of your contents will help you keep an eye on how additional assets add up.
Being unable to maintain your business operations following a crisis can be devastating. Check that ALL of your costs are included in your sums insured, including any professional fees, site clearance or access costs occurred as a result of a claim. The indemnity period on your business interruption policy should also be a minimum of 24 months.
One of the most common causes of underinsurance is that businesses forget that a single incident can often have multiple claimants. Ensure you are covered for every scenario.
If you haven’t done so already, now is a great time to take stock and evaluate your business insurance needs. Don’t rely on guesswork or out of date information. You need to be confident that your business cover is sufficient to cover all your assets should the worse happen. A broker will help ensure your business is adequately insured and that your policies provide appropriate cover for your needs.
Please get in touch with one of our expert team members on 0115 947 0032 or visit http://russellscanlan.com/get-in-touch/contact