Overcoming the issue of underinsurance

Posted: 31 August 2021
Underinsurance infographic
Raising awareness of underinsurance and educating clients of the possible impact is more important than ever. Ensure your clients understand that if a business isn’t insured adequately then a loss may become a financial burden to the business.

Many small businesses are going online to buy insurance, but this misses the personalised advice from a broker and their insurance may not adequately cover their business.

It’s good for businesses to be able to talk through their insurance needs with a broker to make sure adequate cover is in place.

As a broker it’s also important to encourage clients to do regular professional valuations to ensure sums insured  are accurate and that additional expenses are accounted for. 

Given the uncertain times many businesses have faced, it’s important for them to regularly assess their limits of liability and develop a business continuity plan. 

Creating a plan in advance can help identify gaps in cover too. New risks emerge, for instance cyber risk which a business must think about. Or some businesses may be considering new ventures that will need additional cover. 

Recently, insurers have made changes to policy structures and wordings to simplify and remove jargon and improve the understanding of how sums insured or the remedy of average works. Business also need to be aware that accountancy and insurance policy definition of annual gross profit differ, so businesses need to make sure their sum insured is in line with policy wordings, expected costs and profits.

Brokers can also reflect this language by using clear terminology as well as, taking the time to explain to clients to reduce the issue of underinsurance.

Businesses use data now more than ever before, and it’s increasing at an incredible rate. 

In the medium and long term, insurers will be able to use data in new ways to gain a bigger picture of the risk each customer presents. 

This slowly removes the dependency on some more traditional exposure measures, which are the core of some of these underinsurance issues. For example, data can be used to compare a business’ sums insured and cover against other businesses to identify potential underinsurance and take the necessary action. 

Utilise data opportunities to understand your client business and insurance needs better.

Listen to our ‘Underinsurance’ episode of our Insurance Tomorrow podcast. Our host Steph McGovern is joined by Simon Parrish, Head of SME Underwriting and industry experts from the Federation of Small Businesses and BIBA.

You can find the episode on your usual podcast app 
Commentary and guidance in this article are provided for information purposes only and are not intended to amount to advice on which reliance should be placed.  Readers should seek further advice when dealing with their individual and particular situations. Allianz Insurance plc shall have no liability for any action taken as a result of and in reliance on the information contained in this article.