Know the risks your business is exposed to
Arranging insurance can be a time-consuming task. For some, it can often be seen as simply a checkbox exercise, with little thought put into the level of coverage when renewing year after year. However, making an informed decision can be vital.
Ultimately, the test of your insurance can come when you make a claim on your policy. If the scope of your insurance doesn’t cover the costs, it’s too late to go back and update your details.
What is underinsurance?
Underinsurance is when a policyholder has inadequate insurance cover for their needs. In the event of a claim, this could mean a claim amount exceeding the maximum limit that can be settled by the insurance company. This could result in a shortfall for the policyholder, potentially leading to a serious financial loss for their business. Areas impacted by underinsurance can include property, contents, equipment, business interruption, and cyber liability.
What can lead to being underinsured?
There are several reasons a policyholder may be underinsured. In many cases, it happens when valuations are out of date, roughly estimated, or incorrectly calculated. It can also be caused by insufficient limits in the policy.
While underinsurance may be due to an oversight by a policyholder, it may also reflect the action taken by the policyholder to reduce their premium by not declaring their sums insured accurately. Doing this not only increases the risk of financial loss but can also void insurance cover altogether.
Be aware of the Average Clause
Where a business is underinsured, insurers can apply the Average Clause in the event of a claim. This is a clause in the insurance policy stating that the policyholder must bear a proportion of any loss if assets were insured for less than their full replacement value.
If the insurer finds the business has taken out inadequate insurance, it can reduce the settlement by the same percentage the asset is underinsured by, so you may not get the payout you expect.
To avoid this, when reviewing your existing cover and deciding your up-to-date valuations, be cautious about relying on previous sums insured and ideally seek to independent professional valuations.
Insurance solutions from Gallagher
Partnered with Propertymark for over 35 years to provide specialist insurance solutions for estate and letting agents, including:
- Professional Indemnity Insurance
- Office Insurance
- Public and Employers’ Liability Insurance
- Directors’ and Officers’ Liability Insurance
- Cyber Insurance
- Cyber Defence Centre Risk Management Services
Contact Gallagher to discuss insurance options and find suitable cover for your property business.
Phone: 0800 138 7536
Email: propertymark@ajg.com
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
Propertymark Ltd is an Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited which is authorised and regulated by the Financial Conduct Authority (Reference number: 311786) and which is permitted to arrange general insurance contracts. Registered address: Arthur J. Gallagher Insurance Brokers Limited, Spectrum Building, 55 Blythswood Street, Glasgow G2 7AT.
Gallagher Professional Indemnity Insurance
Gallagher, Propertymark’s official insurance broking partner, has worked with the association for over 35 years to arrange specialist insurance for members.
