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The cost of what really matters

“It is impossible, in this country, to talk about someone without mentioning their salary, the cost of their car, the value of their house,” wrote Jacques Monin of Britain in 2009. Given that we are a society seemingly obsessed with placing a financial value on things it is somewhat ironic that underinsurance is a risk faced by an estimated 80% of commercial property owners 1. A 2015 review by the Financial Conduct Authority (FCA) revealed that many SMEs have sums insured that, in the event of a claim, will leave them with a significant financial shortfall 2.

In the current economic climate many businesses are not prioritising the valuation of their assets, concerned that the exercise itself may be costly and would only result in higher premiums. While it may save a few pounds in the short term this approach can leave a business fighting for its very survival in the event of a claim.

This is best highlighted by the application of Policy condition of “Average”. For example, a business may insure its premises for £800,000 for material damage. A fire rips through the premises causing £750,000 damage, however it transpires the rebuilding cost of the premises is actually £1.2m. The result of the property being insured for only 66% of its true rebuilding cost in this instance is a claim shortfall of £250,000, which the business would have to bear.

In some instances the degree of underinsurance is so great insurers might seek remedy under the Insurance Act 2015, citing this as a deliberate or reckless breach of the duty of fair presentation; the policy may be void, all claims refused and any premiums paid not returned.

To avoid underinsurance it is imperative that the sum insured is calculated on the correct insurable basis. Whether the Insurance policy operates on a reinstatement or indemnity basis, will provide different insurable values, which must be considered to determine the correct sum insured under the contract of insurance, the policy.

Regular business valuations including reviews of contents, stock, machinery and plant should be undertaken to ensure the sums insured reflect any changes in the business, such as new computers, new carpets or an upgraded air conditioning system etc. - 63% of property underinsurance can be attributed to a failure to carry out regular valuations and assessments 3.

Finally, being aware of other factors which could influence property values and planning accordingly is critical. For example, approximately two thirds of construction materials are imported directly from the EU. Fluctuating exchange rates, could increase the cost of these materials and consequently lead to higher property rebuild costs or higher machinery replacement costs.

If you or your client, suffers a major loss, Hamilton Bond, a firm of expert claims consultants dedicated to achieving optimum claims settlement, can help.

Where underinsurance is present we pride ourselves on negotiating with insurers to deliver the optimum results, focusing on the recovery and ongoing success of any affected business.

1. clarkthomson.co.uk/underinsurance
2. fca.org.uk/publication
3. insider.zurich.co.uk/industry-spotlight


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