Tips for Avoiding Underinsurance
6 March 2023
While businesses may be all too aware of the impact of economic pressures on operations, many fail to appreciate the knock-on effect such economic burden is having on insurance cover. Specifically, high inflation is increasing the cost of products, materials and labour, making it more expensive to rebuild, repair or replace insured items. This could leave organisations vulnerable if they aren’t regularly reviewing policies. In fact, an estimated 50% of UK businesses are currently underinsured, according to Aviva’s 2023 Risk Insights report. Unfortunately, underinsurance leaves organisations exposed should disaster strike. The following tips may help organisations avoid the perils of underinsurance:
- Check rebuilding costs. Research by global insurance broker Gallagher found that 43% of UK commercial properties are already underinsured, and inflation could worsen this statistic. In fact, UK insurers are now looking at an increase of 9.4% to cover rebuild cost inflation, according to the Building Cost Information Service, making it essential to review sums insured. Organisations may avoid underinsurance pitfalls by scrutinising the rebuild cost of commercial properties. Better still, a professional valuation should be arranged.
- Assess indemnity periods. Following catastrophic losses, it’s easy to underestimate how long it could take to restart operations and regain usual productivity. Additionally, recent supply chain disruptions may impede repair works following claims. Assessing indemnity periods regularly and extending them as necessary can help organisations cope with potentially disastrous delays.
- Review policies frequently. A business rarely remains static; gaining or losing employees, updating processes and adopting new technology all give rise to potential risks. As such, organisations must ensure insurance cover remains adequate after any changes, and new purchases should be added to policies.
- Implement a business continuity plan. Given the uncertain economic climate, it’s essential to prepare for all possible outcomes. Employers should implement a business continuity plan to help identify and plan for emerging risks and spot any gaps in cover.
Underinsurance can leave organisations dangerously exposed following loss. However, by taking the time to make sure that policies provide sufficient cover, organisations can navigate tough times knowing they’re covered should the worst happen.
Contact us today for further risk mitigation strategies.