Plan Insurance Blog

Protection Against The Threat of Underinsurance

Data recently released by leading insurer Aviva estimated that nearly half of all SME’s are underinsured. The country continues to face exceptional levels of inflation. So it is more important than ever that your insurance intermediary ensure that you are provided with the right level of support, guidance and, perhaps most crucially, cover.

Insurance isn’t supposed to be complicated but, undoubtedly, it’s not always a simple topic to navigate. At Plan our insurance brokers will provide you with clear cut advice and arrange the right cover at the most competitive rates.

That essentially is what we get paid to do; assist you in protecting your assets along with your bottom line and reputation.

Plan Insurance can accommodate your Construction & Contractors Insurance needs. Just fill in our short call back form, and our professional brokers will be in contact to arrange your insurance.

What can Plan Insurance do to help you avoid the risk of being underinsured?

Our aim is to ensure that every business we work with, we protect them in the most suitable manner. All relevant factors must be taken into account and appropriate cover options presented for consideration.

The best way we can do our job as an insurance broker is by undertaking a full, in-depth review of your existing insurance arrangements. That will provide a rounded picture of what you do and how to best to protect your firm against all the potential risks you face

We will always ensure that you are fully aware of the protection available and what it means for you should you opt not to take them out. That may mean we bring to your attention newer products such as cyber insurance or potential cover extensions to existing policies that you’ve not been informed of before.

Are You Reliant On Index Linking?

Given the exceptional levels of inflation impacting the UK economy, it is vital to review your business’s cover levels. Escalating prices may leave you with a risk of underinsurance should the worst occur.

Though insurers do use Index linking as a tool to help prevent your stated sums insured from falling behind the rate of inflation. However, it’s worth noting insurer’s do not index link based on the average rate of inflation in the economy. Increases are specific to the risk at hand. For example, when it comes to rebuilding a property, index linking will relate to the rising prices of materials, human resources, waste disposal, auxiliary services and other relevant factors. When costs are broken down like that it’s easier to see how a buildings sum insured may fall well behind current real-world values without regular reviews. Yet, without scrutiny there’s a chance insurers may over-estimate a blanket increase in costs which could possibly impose higher than necessary premiums on your business.

Unexpected Costs of Underinsurance Clauses

Inflation also has potential consequences for the limits on other sections of cover and policies you might have. The additional risk of an underinsurance restriction clause being applied exists. Your business may not be fully indemnified against a claim that exceeds the policy cover limits.

Most policy wordings will include what is called an average or underinsurance clause. This enables an insurer to reduce the sum they are required to payout. When a claim occurs the accuracy of declared values are retrospectively assessed. It will be determined if the original value stated at the inception of cover by the policyholder was correct. If the values are found to be inadequate, then the insurer can reduce their claims payment. The reduction will be on a proportional basis, taking the difference between the insured amount and the actual value of the damaged/lost asset. This can result in a significant shortfall.

Is Your Business Interruption Coverage Still Sufficient?

When reviewing your business interruption cover, assessing the suitability of the indemnity period’s length is crucial. It is very likely your business interruption limit is between 12, 18, 24, 30, or 36 months.

Uninsured costs and additional lost profits may occur if your business has not been able to re-establish full trading within the limit of the indemnity period. Given the prevalence of ongoing labour shortages and supply chain issues, longer than expected delays may occur. These circumstances may result in the amount your business would anticipate needing to claim being insufficient to cover the losses incurred. Therefore the duration of your business interruption indemnity period should be reviewed before renewing. If necessary it can be extended.

A number of business interruption wordings will make provision during the indemnity period for up to a 33.33% increase in the forecasted gross profit. This helps guards against inflation to a large extent. Yet we’ve encountered rapidly growing and evolving businesses that have exceeded these uplifts. A quarterly review is a good risk manamagement strategy to protect your businesses through unpredictable times.

It’s also important to note that insurers will only pay business interruption losses following an insured event. You should be aware of the nature of any excluded perils.

What to do if you would like a free, impartial review of your commercial insurances

As an independent, impartial broker we pride ourselves on our market access, unrivalled service and unparalleled approach to insurance broking. Our aim is to ensure that we have done everything possible to protect you and to help you to Plan Ahead, pun intended.

If you would like to take advantage of our free, no-obligation, insurance review service and obtain a quotation for all the insurances you have, and the ones you don’t – get in touch with my team today. We will arrange a prompt, confidential review of your cover.

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