Underinsurance and Why it Remains a Problem

For homeowners or commercial property owners, knowing your property is insured correctly in the event of damage or loss provides great peace of mind. However, there are still a large number of property owners, both commercial and residential, whose properties have not been valued correctly. Our Operations Director, Andy Jenkins, discusses why underinsurance occurs and what you can do about it.

“Underinsurance is inadequate insurance coverage held by a policyholder 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. The outcome being you are likely to receive a payment in the event of a total loss of half of what the rebuilding value is.

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.

Building insurance valuation specialists Barrett Corp Harrington (BCH) have shared results which show that underinsurance still remains a problem. Of property assessed by BCH in 2018, £588million was added to sums insured and an increase to property value was recommended in 81 per cent of insurance valuation appraisals. The average increase in value of a commercial property was £1.9 million and for residential properties was £690,000.

But why does underinsurance happen? 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 an property in order to redevelop it, but insure it for the original purchase price.

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. Getting the right insurance policy and an up-to-date property value will ensure that a valid claim will be paid should the unthinkable happen.

If you have any concerns about your home or property portfolio, we are happy to discuss this with you. Please get in touch with one of our expert team members.”