Underinsurance

Knowledge Centre

No business wants to find itself underinsured in the event of a loss, as this can lead to a temporary or even permanent halt in operations. Insurers and brokers can play a significant role in helping customers to mitigate the risk of underinsurance.

Recognising the importance of this issue, we have put together some resources which contain some practical steps that can help address this risk.

What is underinsurance?

When the cover in place doesn't fully protect the value of assets or potential losses, either because the sum insured is too low or because the indemnity period is too short. How prevalent is it? Why would a business find itself short of cover?

How to combat underinsurance?

Help your customers avoid underinsurance. From index linking to business continuity plans, we explain the basics to ensure you have the right cover.

Support from our preferred suppliers

A professionally qualified valuation is the most effective way to calculate the rebuild value of your customer’s property.

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Keeping sums insured up to date

It is important for customers to have the correct sums insured so they are fully protected in the event of a loss or damage. The individual circumstances for each customer will vary; however, our guide covers most customer needs.

SME 513 KB

Real Estate 47 KB

Commercial Property 49 KB

What does underinsurance look like in practice?

SME example

A small business declared values for its buildings, contents, and stock totalling £1.6m, which we adjusted by 15% to account for potential rises in costs and inflation. When a fire caused a total loss, the actual rebuild cost was £2.75m. As the claim settlement was based only on the sums insured, this resulted in a £940,000 shortfall compared to the real asset values, leaving the company with a financial gap to cover.

Mid-market example

A company declared asset values totalling £9 million. However, the true asset value at the start of the policy was £14m, meaning only ~65% of the real value was insured. After flood damage, the company claimed £4m for repairs and stock replacement. Due to the average condition applied to underinsured buildings, contents and stock, they received only £2.95 million, proportional to the declared value for each of the insured elements. This resulted in a £1,050,000 shortfall.

What is index linking?

Index linking is the amount applied to insurance policies by insurers, designed to safeguard the sum insured against changes in the economic environment. Reflecting inflationary changes and the cost of living, index linking helps to protect against underinsurance.

Avoiding underinsurance in construction

Underinsurance in the construction sector can pose significant risks, leaving projects vulnerable to financial losses in the event of unforeseen events such as natural disasters or accidents.

Exploring underinsurance - finding the balance

In today's evolving economic environment, with adjustments in taxes and legislative updates, business owners are navigating a range of new dynamics. Against these conditions, it’s more important than ever to ensure the business has the right insurance in place.

Underinsurance: The risk and realities for SMEs

In this episode, Vanessa Baffoe is joined by Alastair Blundell, head of general insurance at BIBA, and Alex Ktenidis, director of digital trading and legal at Allianz UK, to delve into the pressing issue of underinsurance among small to medium enterprises (SMEs).

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The implications of being underinsured

Becky Rogers, Head of Property Strategy at Allianz Holdings and Nicola Shailer, Major Loss Claims Specialist, discuss the latest underinsurance trends and the financial implications of being underinsured.

How brokers can guide customers setting the right indemnity periods and sums insured, and how we support them in the event of a claim.

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