Don’t Get Caught Out: Make Sure Your Property Isn’t Underinsured

The Building Cost Information Service claims as many as 80% of commercial properties could be underinsured. Even if you have insured your property, making sure you have the right level of cover is crucial as underinsurance could have a huge effect on your ability to recover losses following a claim.

Most businesses realise the importance of insuring their commercial and residential rental properties but many don’t realise that the value of their property is in a state of constant flux, and that cover that may have once kept you protected may no longer be fit for purpose.

Even during periods of relative stability on the property market, a number of factors can affect the effectiveness of your insurance policy. In recent years the market value of commercial buildings has seen little rise but by contrast the ‘reinstatement value’ (total cost to rebuild/replace) has increased by an extraordinary amount. Increases in the cost of building materials, increasing environmental and safety regulations and an increase in the costs of labour are all aspects that could mean your commercial property becomes underinsured, even if the value of the property itself has not changed.

It’s these unseen changes that can cause problems in the event that you need to make a claim. The most obvious concern is that in the event of a total loss of your property, your insurance will no longer account for the full cost of a rebuild, leaving you significantly out of pocket. 

The total destruction of your property is unlikely but these factors can have a big impact, even if your claim is for only the fraction of your total insured sum. For example, if you have insured your property to the sum of £200,000 and your store room and stock is damaged in a flood to the tune of £60,000 you would assume that this would be fully covered. However, something known as the ‘Average Clause’ could affect the validity of your claim and the amount of money you receive from your insurer. If your property should actually be insured for £300,000 then as you are only covered for 2/3rds of the correct amount, you will only receive 2/3rds of the amount you claimed, which in this case would be £40,000. That means that being underinsured would leave you £20,000 short – even though your claim was well under £200,000.

With this in mind, it’s easy to see how important it is that your commercial property has the right level of cover, and that you regularly revalue your property to account for any changes in value. This is where an insurance surveyor comes in.  They can provide you with an independent insurance valuation, designed to let you know exactly where you stand when it comes to property insurance. They will evaluate your property and make any relevant recommendations so you can rest easy knowing your property is insured for the correct amount; or can take immediate action if it isn’t and save yourself a nasty surprise when you need to make a claim.

To find out more about commercial property insurance, or about how to arrange a property valuation, don’t hesitate to get in touch with me to discuss this