Know the risks your business is exposed to
Arranging insurance can be a time-consuming task, and is too often seen as simply a checkbox exercise, with little thought put into the level of coverage when renewing year after year. However, making an informed decision can be vital.
Ultimately, the test of an insurance policy comes when a claim is made. If the scope of the insurance doesn’t cover the costs a business has incurred, it’s too late to go back and update the details.
What is underinsurance?
Underinsurance is when a policyholder has inadequate insurance cover for their needs. This could mean that a claim exceeds the maximum limit that can be paid out by the insurance company, resulting in a shortfall for the policyholder and potentially leading to a serious financial loss for their business. Areas impacted by underinsurance can include property, contents, equipment, business interruption, and cyber liability.
What can lead to being underinsured?
There are several reasons a policyholder may be underinsured. In many cases, it happens when valuations are out of date, roughly estimated, or incorrectly calculated. It can also be caused by insufficient limits in the policy.
While underinsurance may be due to an oversight, it can also happen if the policyholder tries to reduce their premium by not declaring their sums insured accurately. Doing this not only increases the risk of financial loss but can also void insurance cover altogether.
Be aware of the Average Clause
When an underinsured business makes a claim, insurers can apply the Average Clause in the policy, which states that the policyholder must bear a proportion of any loss that isn’t covered for its full replacement value.
If the insurer finds the business has taken out inadequate insurance, it can reduce the settlement by the same percentage the asset is underinsured by, so you may not get the payout you expect.
To avoid this, when reviewing existing cover and deciding on up-to-date valuations, be cautious about relying on previous sums insured and ideally seek independent professional valuations.
Find suitable insurance with Gallagher
Contact Gallagher to discuss insurance options and find suitable cover for your property business.
Phone: 0800 288 4921
Email: [email protected]
Arthur J. Gallagher Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 55 Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909.
Gallagher: Insurance
Gallagher are Propertymark's official insurance broking partner, offering up to 20 per cent off professional indemnity insurance for members. If you would like advice on your insurance programme contact the dedicated Gallagher team.
