In a word – yes! Let’s start by looking at how an insurer will approach a claim where the value of a property has been under declared. In the world of insurance, it is referred to as the “average clause” and it essentially means that any payout for a claim will be in proportion to the amount of underinsurance at play.

What does that look like in practice? Let’s assume you have insured your office for a rebuild value of £1M and fire causes damage requiring £500,000 of repair. If it transpires that the total rebuild cost should have been £2M it is assumed that you were 50% underinsured and using the rule of average, you will receive a settlement of only £250,000 less any excess.

How common is underinsurance in the UK?

Underinsurance is commonplace in many categories of insurance but it’s particularly prevalent when it comes to commercial property insurance. The last 5 years have witnessed a sustained inflationary environment in the construction sector with significant rises in both materials and labour. Estimates of average under insurance vary but all underwriters we work with are reporting that it’s a huge and growing problem.

Far less common, but a wasteful issue we do also come across, is over valuing property. This of course means you are paying more than you need.

How to deal with commercial property if you think it might be under insured

So, what should you do about it? We would recommend that good practice would be to have a valuation on your buildings every three years. This needn’t be expensive – for buildings under £7.5M and of fairly standard construction a desk top survey would probably be adequate. We use a company called BCH, who we find excellent, and at just over £100, why take an unnecessary chance? For more complex buildings, and once in a while for more straightforward ones, then a full site survey would be prudent.

What happens when you are underinsured?

Insurance is a strange product – you only find out how good it is when you need to make a claim. That’s sometimes when you find that the risk at play is not covered, you are under insured or that you are breaking a covenant of the policy rendering it invalid.

Tackling Underinsurance at Pelican Business Insurance

If you would like to work with a proactive broker who ensures you are comprehensively and appropriately covered or if you have any questions around your buildings insurance cover then please don’t hesitate to get in touch with the friendly, professional and knowledgeable team at Pelican – you can call us on 0333 0912730.