The pandemic forced many businesses to change the way in which they operate. Many businesses may not fully appreciate the complexities that could delay getting their business up and running again after a loss, which leads us onto ‘underinsurance’. Although underinsurance can affect a business of any size, given the economic factors that make underinsurance more likely, some sectors are more at risk than others.

What is underinsurance?

Your premium is calculated based on your individual circumstances and the amount of cover you choose to take out to protect your business.

Underinsurance occurs when you’ve not taken out the right amount of insurance cover for your needs. There will be a variety of factors to take into account when you assess how much insurance you need.

How do I know if my business is underinsured?

The following points cover the impact on property and/or business interruption insurance.

You could be underinsured when:

• You haven’t had your property professionally valued for insurance purposes in the last 3 years
• You have altered or extended the property
• Your insurance cover has been based on the market value of the building when it should be based on what it would cost to rebuild your property
• You haven’t factored in costs for gates, fences or car parking areas in your calculations
• Your property is a listed building – the time and cost of repairs/rebuilds are likely to be far greater than for an unlisted building, impacting your business interruption cover
• You haven’t factored in the costs of professional fees such as an architect or surveyor
• You haven’t factored in costs such as site clearance or access – particularly where your business might need, for example, a crane or heavy plant to help with remedial work as a result of a claim. This could also add time that needs to be taken into account for your business interruption cover
• You are carrying more stock now than when you took out your insurance policy
• You are now VAT registered
• You have some new plant or equipment that you haven’t told your broker/insurer about. This could impact both the machinery cover you have and the business interruption you need – depending on how long it would take to source a replacement, if necessary

Make sure your sums insured are accurate

Make sure you keep an up-to-date account of all business contents which can help set the right sum insured. This should reflect peak stock levels, rather than the average.

Get a professional valuation

Research by our insurer partner Aviva indicates that the last time an SME undertook an insurance valuation is on average two and a half years ago.

As rebuild costs can be different to market values, it is worth having properties valued by a professional to ensure sums insured are accurate.

What does it mean if my business is underinsured?

Taking out insufficient insurance cover will essentially mean any claim will be insufficiently covered.

Remember that some changes to your business might not just relate to contents or building insurance.

If you are a GPS client, please make sure you let us know about any changes to your business.

If you have any questions please speak to one of the team today on 020 3907 7866 who will be delighted to help.