Underinsurance – will you lose out?

A recent report from Questgate , a leading loss adjusting company, showed that up to 80% of properties are underinsured. There can be a variety of reasons for this, incuding:

• a general unawareness of the value of a client’s contents
• increase in building costs above inflation
• a misunderstanding of how to calculate the sum insured and that this should represent the full new replacement value of all property
• changes to the property or contents where there has been a failure to notify the insurers of all the increases
• a deliberate decision to reduce insurance costs which could have a devastating effect in the event of a claim

This affects both private individuals and commercial clients alike. The following was a case study from Questgate showing the consequences of underinsurance:

A small industrial estate was insured for a rebuilding cost of £11.9m. A fire destroyed two units on the estate costing £2.78m to demolish and rebuild. It was found that the true rebuilding cost was £15m. The claim was proportionally reduced costing the insured approximately £575,000 which he could not recover.

The same principal would apply to a private house and to commercial and personal contents.

How can you avoid having a claims payment reduced due to underinsurance?

For clients insuring their private houses
Luker Rowe can help in the following ways:

For buildings insurance – we have access to the RICS building costs which is generally accepted by all insurers. If you can provide us with the square footage/metreage of your house together with a few additional questions, we can provide a suggested sum insured. This will not be appropriate for listed buildings, large properties or properties with expensive fittings or unusual designs. We would suggest in these cases an individual valuation is arranged and we can provide suggested companies.

For contents insurance – we would suggest that the client starts with a room to room inventory. It is not necessary to list out all items, just do a walk around and calculate the cost to replace your contents. We can provide an inventory form which will provide assistance for this.

For more information for personal clients.

For commercial clients
Luker Rowe can help in the following ways:

For buildings insurance – due to the numerous types of construction on commercial properties, we would suggest obtaining a reinstatement valuation. We can provide details of companies that can provide this service.

For contents insurance -it is essential that you review the cost of renewing your contents as new. Figures from your accounts will be inaccurate as this will allow for depreciation. It will also not take into account the fact than new costs may vary from the original purchase cost. A full assessment of the contents is the only way to ensure an adequate figure.

For business interruption – insurance companies do use a different definition of gross profit than an accountant and we can therefore forward a calculation form to you to ensure that you have a correct sum insured. This will solely require you to extract a few items from your accounts.

Other advice for commercial clients

We would recommend that all clients have a Disaster Recovery Plan. This will ensure that in the event of a loss actions can be taken to get the business operative again as soon as possible.

We would recommend to clients that under their Business Interruption Insurance they have an indemnity period of at least 24 months. Whilst it is often thought that businesses can be up and running again within a 12 month period, in reality this does not always happen. 24 months after the Tottenham riots in 2011, many businesses had not even begun repairs let alone started trading again. It is also necessary to consider that, even when trading does start again, clients may be lost and turnover is likely to stay at a lower level for some considerable time.

Please do speak to us about how we can assist so as to ensure that in the event of a loss you do not suffer a payment reduction due to underinsurance.

If you’re an existing client or just looking for the best advice, here is how we can help