Insurance is essential protection for all businesses, but for insurance to fulfil its objectives, the cover you purchase needs to accurately reflect your business requirements.

Insuring assets for incorrect values, or setting cover limits too low, is likely to result in underinsurance. Underinsurance can lead to policies not operating as intended, delivering less indemnity than needed following a loss, and jeopardising an organisation’s ability to recover.

Underinsurance occurs when cover is set too low to adequately meet a policyholder’s needs. It is reported that 90% of properties are insured for wrong amount. More than 70% are underinsured, on average only covered for two thirds of correct rebuild cost. Almost 20% are over-insured, some by more than double the correct rebuild cost!

Property insurance aims to put you back in the same position you were in immediately before a loss. While slight nuances exist depending on the basis of cover, this remains the central principle.

When approaching valuations, it is important to consider how this happens in practice following a loss, factoring in all associated costs to your sums insured. For example, if you need to replace an office computer system, it is not just the cost of purchasing new equipment. Additional expenses may include IT consultancy fees, freight and installation.

It is important to avoid simply using balance sheet values or historical purchase prices to inform sums insured, as these are often significantly different to an item’s actual value for insurance purposes.

For independent business insurance advice please contact GPS Insurance Brokers on 020 8207 7385

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