Underinsurance in the commercial market – what it means for your business

In simple terms, underinsurance occurs when you’ve not taken out the right amount of insurance cover for your needs. And the impact from being underinsured can be significant in the event of a claim.

For example, if the cost to rebuild or replace your property or contents is £100k but you have taken out insurance that will cover you for £50k, then you would effectively be underinsured by £50k or 50%. Any claim you make will only be paid on the basis of the amount of cover you chose, based on what is called the ‘average clause’ – so in this example your insurer would only cover 50% of any claim, no matter the size of that claim. This would leave you needing to pay the remaining costs yourself which could be anything from hundreds, to thousands, to millions of pounds.

This presentation from Aviva explains more about underinsurance, including a couple of case studies to help provide a greater understanding, along with some key tips on how to recognise that you’re underinsured.

For example, your insurance cover has been based on the market value of the building rather than the rebuild cost, or you are now VAT registered.

To find out more, take a look at Aviva’s presentation – Underinsurance in the commercial market.

If you think you’re at risk from being underinsured, talk to our team of experts.

We’re here to help you put the right insurance arrangements in place to suit your specific business needs. We’re able to carry out a full review and identify gaps in your cover, underinsurance and even being over insured or having duplicate cover where perhaps you’re paying for cover you don’t need.