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Tackling Under Insurance

What is Under Insurance and why should I think about it?


We have a link to a free comprehensive guide about under insurance produced with the British Insurance Brokers Association, so please take a look if you have concerns about under insurance.


What is under insurance?


The premiums for most insurance policies are based on the value of the items insured (e.g. the value of a shop building), often referred to as the “sum insured”.  Although lower sums insurer often equals lower premiums, getting the sum insured right is important to ensure that in the event of a claim you get the full amount paid by the insurer.

Policyholders must give their insurer “a fair representation of the risk” that they are insuring, and this I includes the sums insured.  If the sum insured is under estimated then often an insurer will reduce the amount of any claim by the proportion of the under insurance – a process called “average”.  So it is important to ensure you take care to insure for the correct sums.


Potential causes of under-insurance


There are a few potential causes of being under insured.

  • Your property or assets haven’t been properly valued in the last few years, or at all. Relying on internet calculators, last year’s valuation or estimating the cost is one the most common potential causes.
  • The cost of rebuilding, replacement or relocation is wrongly established.
  • The cost of your business being interrupted are miscalculated or ignored (see below).

Having an up to date professional valuation and if you are a business ensuring that you have adequate business interruption cover goes a long way in helping you not to fall foul of under-insurance.


Business interruption insurance (loss of profits insurance)


Business Interruption Insurance’ is a form of insurance that replaces business income lost (generally gross profit) as a result of an event that interrupts the operations of the business, such as fire or a natural disaster.

Business insurance policies can normally include this cover at a cost, but often it is not automatically included so you should check if your policy covers it (feel free to call us and check yours).

How would your business cope after a major issue (e.g. a fire)?

How much income might your business lose as a result?  Things to consider:

  • How long might it take to get the business back to full operating income? This is often under estimated.  Business policies generally offer business interruption cover for up to 12, 24 or sometimes 36 months.
  • How much income or gross profit might you lose in a 12 month period? Policies often let you chose the amount of cover you require.  Remember you may also have increased costs (e.g. perhaps renting new premises temporarily while yours is being fixed).

If you don’t have business interruption insurance and you think you may need it or are not sure, please call us.