Updated: 16 September 2025
FOR INTERMEDIARIES ONLY
10 ways to combat underinsurance
Insurance is a key purchase for businesses and getting the right amount of cover is critical for your customers. Finding out at the point of claim that cover is insufficient and that they are underinsured, can have devastating consequences.
Here are 10 things you could consider with your customers to help them avoid being underinsured.
1. Raise awareness
Raising awareness of underinsurance and educating customers of the possible impact in the event of claim. Ensure your customers understand that if a business isn’t insured adequately then a loss may become a financial burden to their business. What is Underinsurance? Read our guide to understanding underinsurance and the risks of being underinsured.
2. Encourage regular property valuations
While the sharp increase in construction material prices has slowed down, and 2025 has even seen slightly decreased costs for some materials, ongoing supply chain issues, global tensions and supply demand are still driving material cost inflation. It’s important to encourage customers to have regular professional valuations to ensure the sums insured are accurate and that additional expenses are accounted for. Not having updated valuations could leave customers exposed at the point of claim.
3. Check rebuilding costs
It is also important to make sure that your customers sums insured for buildings is based on the cost of rebuilding the property and not the market value. This may include cost of materials, labour costs, professional fees and site clearance. A recent Allianz survey* showed that 41% of SMEs didn’t use a professionally qualified valuation to calculate the rebuild value of their business property.
4. Got everything covered?
Remind your customers to include any fencing, walls, car ports and hard standing in any rebuild estimates.
5. Check the indemnity period is sufficient
When calculating indemnity periods, your customers should to bear in mind that 24 months is likely to be the minimum indemnity period needed from an insurance perspective for a business to fully recover after an event. An indemnity period of 12 months is insufficient.
An Allianz survey showed that on average business respondents expected that it might take them nine months to get their business back and running to its current level if their business property were to incur fire damage when typical post-fire experience shows it to be far longer - with 18 months the more likely time needed
When setting indemnity periods, customers need to take into account the higher energy prices, increase in material costs, current price inflation and shortage of skilled tradespeople to ensure that they are covered appropriately if things go wrong.
6. Encourage business continuity plans
Given the uncertain times many businesses have faced over the past few years, it’s important for them to regularly assess their limits of liability and develop a business continuity plan.
Creating a plan can help identify gaps in cover and identify risks such as cyber, which businesses must think about.
7. Explain sums insured
It’s important to encourage customers to have regular professional valuations to ensure the sums insured are accurate and that additional expenses are accounted for. We have put together detailed guidance notes for Sums Insured so that you can support your customers
8. Are customers aware of indexation and rate strength?
While both indexation and rate strength are factors that increase the cost of insurance for a customer, they’re applied for different reasons. Insurers apply rate change to reflect any changes in the cost of underwriting business from one year to the next, whereas indexation takes into account the change in the various costs associated with reinstating a business to the position they were in prior to any claims being made.
9. Check the value of stock
The stock sum insured should reflect the cost of the insured to replace the items, not at the retail price. When setting the sum insured, customers need to consider the maximum value at risk during seasonal or other peak trading periods.
10. New purchases
Customers should make their insurers aware of any new purchases that may impact the overall sums insured, so that they can be added to the policy. Otherwise customers may find themselves underinsured.
More information
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 on our Underinsurance page which contain some practical steps that can help address this risk.
