Underinsurance

Underinsurance 

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When you take out a commercial business insurance policy one of the most important things to get right is your “Sums Insured”, which specify the total amount you’ll be insured for across the various ‘parts’ (sections) of your policy.

As the Compass team work on a ‘non advised’ basis, we’re not allowed to tell you if your Sum Insured amount is accurate or not. This means it’s up to you to make sure your Sums Insured are adequate.

Here’s some useful things to consider when doing your Sums Insured calculations:

• Costs vs values – Add up all replacement/rebuilding costs, including any materials and labour. This amount may be different than the ‘value’ of the buildings/structures.

• Annual cost increases – The Royal Institute of Chartered Surveyors (RICS) estimates that the rebuild costs of buildings/ structures increase by 3% – 7% each year. This means you should review your Sums Insured as a part of every renewal.

• Stock levels – The amount of stock you hold may fluctuate through the year, especially during the peak months. While the Compass commercial business policy contains some provision for seasonal fluctuations, you may need to consider making a mid-term adjustment to your cover if your stock levels rise significantly during busy times. In any event, it’d be
sensible to base your stock. Sums Insured amount on your highest, rather than lowest, stock levels.

• Turnover – Your turnover needs to be forward-looking and should be based on a reasonable estimate. For the purposes of most claims, we look at the most recent equivalent trading period, so that will be a good starting point.

• Wages – Does your wage roll reflect any seasonal changes through the year? Have you considered all your employees?

If you need to make a claim, the level of cover you have in place will be crucial. One of the first things a loss adjuster/claims handler will check is
Your Sums Insured amounts. If it’s found that you’re underinsured, your claims payment may be reduced. In recent months Compass has seen this
happen to some of our park businesses.

A reduction in a claims payment due to underinsurance always comes as a blow to the park owner/manager, who will usually have to make up the shortfall out of their hard-earned profits.
The majority won’t have realised they were under-insured. And those that had deliberately underinsured to save on premium always end up wishing they hadn’t.

Here’s an example of how it works:

If you insure a building for £50,000 but the Sum Insured amount should be
£100,000 then your building is 50% underinsured.
So, if you made a £10,000 claim for damage to the building, it would be settled at 50% = £5,000.

Compass will be happy to support you by providing details of businesses that can help you with valuation services and replacement costs for aspects such as buildings, structures, infrastructure etc.

Your Regional Account Manager will be able to give you more information, or you can contact the office team on 0344 274 0276.