Business Leaders Are Risking Everything By Underinsuring

Wales has the highest number of commercial business buildings in Great Britain that are underinsured – with 80%* not having adequate insurance to cover their rebuild costs. Not only that, but 17% are over insured, meaning that some landlords and business owners are paying more than they should for their insurance cover.

I believe that these statistics are incredibly alarming, yet despite the insurance industry raising this as a regular concern, supported by these statistics, the sheer amount of underinsurance suggests that policyholders are overlooking this vital area of concern. As an industry, we highlight this issue every year as one that is key for businesses big and small to consider. But still it is something that, as the Claims Manager at Thomas Carroll Group, I come across day in, day out.

For many companies, their building is their business, whether they are a manufacturer, retailer, warehouse operator or motor trader. Without their premises they do not have a business and without the machinery or stock within it, they have nothing to make or sell. Therefore, when the worst happens and those buildings are damaged or ruined and they are waiting patiently for their claim to be processed, it comes as a shock that they are not adequately covered and will be left significantly out of pocket.

This is the reason we urge our customers and are imploring all Welsh companies to thoroughly assess their business insurance, the reinstatement and replacement cost of their assets and the sums at risk. Since the pandemic and Brexit, building supplies and labour costs have skyrocketed and so the rebuild costs of a business premises might be vastly different to what they were a decade ago when they first took out business insurance.

It is imperative that company directors and owners give an accurate rebuild valuation for their business premises to ensure they are fully covered. It is recommended that this is reviewed by a professional surveyor every three years.

It is also important to keep an up-to-date track of business assets – machinery, stock, laptops, computer equipment, memorabilia. All assets that are owned (or you have the legal responsibility for) should be accounted for to make sure they form part of the overall sum insured – reflecting the cost to replace the items with a new equivalent.

Getting this wrong can cost dearly if the worst happens and a policyholder needs to make a claim. The first thing an insurer will do when a business makes a claim is review the sum insured (the valuation of the cost to replace the building and business assets) on the policy. If

there is disparity between the actual cost and the sum insured, the insurer will only pay out a percentage and invoke something called the “average” clause, or even void the policy entirely. In practical terms, if a business owner has only been paying for a policy for a property insured for £300,000, but the actual rebuild value is £400,000, insurers will only pay a proportion of the claim based on the level of underinsurance. This means the policyholder would be left with a significant shortfall.

There is also the issue that 17% of Welsh businesses are paying too much for their insurance. Paying more for cover that they do not require is an unnecessary expense that could be reinvested into the business.

Getting a precise valuation of a business premises and assets need not be costly. As an insurance claims expert, I believe that paying the initial outlay on an accurate valuation will give peace of mind, comfort and certainty should you need to make a claim. There are many companies that can help to value a premises and business assets, including stock, machinery, plant, IT equipment, as well as general contents. There are surveyors who will visit a site and conduct a thorough report, whilst there are other companies that can use Google Maps and other desk-based technology to assess the value of buildings.

The key for me as someone who works in this industry is that company directors need to consider the sums insured carefully and take expert guidance on setting rebuild valuations for buildings insurance. Business owners understand their own business better than anyone and the same is true for expert surveyors when it comes to establishing an accurate rebuild valuation.

Getting this wrong can be a costly, and in some cases, a business-critical error. With 80% of Welsh businesses not being adequately insured, many will be at a serious financial detriment and possibly out of business should they need to make a claim.

*According to Rebuildcostassessment.com