The Growing Risk of Underinsurance in Today’s Economic Climate

Revisit replacement costs

An insured value that once seemed reasonable may no longer reflect the cost of rebuilding or replacing an asset. Labour, materials, freight and specialist equipment availability can change. A policy renewal is a useful checkpoint, but significant purchases or changes in the business also warrant a review.

For buildings, consider reinstatement rather than simply the sale price or the value recorded in your accounts. Demolition, professional fees and compliance work may need consideration under the relevant policy sections and limits. Qualified valuation help can be useful, particularly for complex premises or specialist assets.

Look beyond the building

Review stock at its likely peak, equipment replacement costs and any items stored elsewhere. Confirm the basis of settlement in the wording: replacement, repair and other valuation bases can produce different results. An asset register can help the discussion, but its accounting figures are not automatically suitable insurance values.

Business interruption needs a separate assessment. Insurance gross profit may be defined differently from ordinary accounting profit. Consider the time needed for approvals, replacement equipment, rebuilding, reopening and customer recovery. Dependencies on suppliers or key customers may require specific cover and should not be assumed to be included.

Understand underinsurance provisions

Some policies contain average or co-insurance provisions. Where applicable, inadequate insured values may reduce a claim payment, including for a partial loss. The operation of these provisions depends on the wording and any relevant allowances or conditions. Not every policy treats underinsurance in the same way.

Check the whole structure

Sums insured are only part of the picture. Sublimits, excluded events, excesses and the trigger for each section can leave gaps even where an overall value appears adequate. Reducing important values simply to lower the premium can change the protection you intended to arrange.

Ask CPC to help review your current schedules, values and recovery assumptions, and consider specialist valuation advice where useful. A broker review does not guarantee a valuation or full claim payment. This is general information; acceptance and any claim response depend on the insurer’s agreed terms, limits and exclusions.