On average, properties are insured for just 68% of what they should be. Here, we discuss the severity of not accurately calculating your sums insured and explain how you can avoid it. Now is the best time to ask yourself “is my property insured correctly”?
Buildings should always be insured for the amount it would cost to rebuild them, not the amount they are ‘worth’. However, recent data from RebuildCostASSESSMENT.com has reported that on average, buildings are covered for just 68% of the amount they should be*. In addition to this though, it is feared that with rebuild costs rising, the underinsurance issue could be even more severe.
Another worrying statistic is that, in November 2020, Towergate estimated 9 out of 10 commercial properties were insured for the wrong amount, with 79% of these cases suffering from underinsurance**. Whilst these statistics make for concerning reading, this is not a new issue; in 2013, Zurich also reported that a staggering 80% of commercial properties were underinsured*** Given how widespread this issue is, it is vital to ensure your buildings are adequately insured – if they are not, you will likely suffer in the event of a claim.
Read more about underinsurance.
How can I prevent underinsurance?
To give you confidence that you have your sums insured, i.e. the rebuild value of your properties, accurately noted on your insurance policy, it is advised that you obtain a RICS approved valuation for your property. This will give you peace of mind that you have a professionally calculated and accurate valuation for the rebuild cost of your property, allowing you to provide an accurate figure to your insurance provider.
We can help you to identify a suitable building surveyor for your property to ensure you do not suffer from underinsurance. There are also options now for desktop valuations (from companies like RebuildCostASSESSMENT.com), which avoids the need for a face-to-face meeting. This may provide a more convenient option for you and may come cheaper than you might think.
What happens if I am underinsured?
As we have seen, underestimating your sums insured is a common mistake – however, it is important to recognise that it is also a very costly one; this is due to the ‘condition of average’ clause.
This clause is the insurance term used when calculating the settlement for a claim where the policy undervalues the actual value of what is insured. In the event of a loss, the amount paid out for a claim will be in the same proportion as the value of the underinsurance.
The below shows how a payout is calculated by insurers.
Payout = Claim x Sum Insured/Actual Value
Payout = 100,000 x 100,000/200,000
Payout = 50,000
Here, the property has been insured for just £100,000 (half of the actual value of the property). With the condition of average clause at play here, the settlement is halved by the insurer, leaving just a £50,000 payout for a £200,000 (the actual value of the property) loss. Learn more about how the condition of average clause works.
Is your property insured correctly? McClarrons can help.
Given the statistics, it is highly likely you are either paying too much or, more likely, too little for the insurance for your property. By getting the right advice, this is an avoidable issue with a simple solution. If you don’t believe your property is insured correctly, speak to McClarrons today. If you are concerned about your sums insured we will be very happy to help.
You can contact our Commercial Team on 01653 609151 or at commercial@mcclarroninsurance.com.
SOURCES:
*https://www.rebuildcostassessment.com/single-post/underinsurance-made-worse-by-rising-construction-costs
**https://www.insurancetimes.co.uk/news/uk-commercial-properties-underinsured-by-325bn/1435659.article
***https://insider.zurich.co.uk/industry-spotlight/the-hidden-perils-of-underinsurance/
