The Perils of Underinsurance
“Up to 80% of properties are under-insured and 40% of businesses lack adequate business interruption cover”*
*Business Cost Information Service and Chartered Institute of Loss Adjusters
Committees often approach us because they are worried that the sum insured on the buildings of the hall might not be sufficient to rebuild the premises if they were to be damaged by an insured event – a fire or a flood, for example.
The Financial Conduct Authority have made under-insurance a major focus in 2017. They carried out a thematic review recently and discovered that, of the claims analysed, 22% of sums insured proved to be inadequate. In some cases the sums insured were less than 50% of the actual loss.
Our own findings support this. We have been offering low-cost rebuilding valuations to our Village Hall clients for many months now and we have seen that on average each client is 52% under-insured. This equates to an average shortfall of £280,000 – meaning in the event of a claim for a total loss the committee would have to make up the difference in order to rebuild their premises to the same standard.
It is important that you establish accurate rebuilding or replacement values for buildings and contents to avoid any claim payments being reduced due to the Condition of Average. In the event that you suffered a claim and the sum insured was below the replacement value, the claim would be reduced by the percentage of underinsurance. In other words, if the sum insured were to represent 9/10ths of the true value then you would be paid £9,000 for a claim of £10,000.
The buildings sum insured must be sufficient to rebuild the property in the event of a claim and it must allow for site clearance, architects’ fees and VAT, amongst other things. The contents figure should represent the cost of replacing all items in the Hall on a new-for-old basis – in other words, you must insure them for their replacement cost. Please see below for a full guide on what should be taken into account when determining these figures.
Another important consideration is how long it would take to get the Village Hall up and running again in the event of a loss. The policy includes cover for loss of income following an insured incident. Many insurers only provide this cover for up to 12 months and this can often prove to be insufficient time to repair or rebuild the property and start receiving revenue from hirers again. The Ansvar policy via Norris & Fisher now automatically provides loss of income cover for up to 24 months, so ensuring that you will not be left without funds whilst the Hall is rebuilt.
If there are circumstances in respect of your own Hall which suggest that 24 months would not be enough, please let us know as the period can easily be extended – usually at only a very small additional premium.
Should you have any concerns regarding your sums insured – or if you would simply like to ask any further questions then please get in touch.
To help establish the correct sums insured it is important to understand what needs to be considered. Please note the insurer’s definitions below
Buildings: landlord’s fixtures and fittings • fixed glass forming part of the buildings • piping • ducting • cabling • wiring and associated control gear • solar panels • wind turbines • tenant’s improvements • outbuildings • walls • gates • fences • decking • lychgates • monuments • notice boards • nameplates • signs • fixed garden seating • paths • drives • car parks and other paved areas • swimming pools • fixed outdoor playground equipment • artificial playing surfaces • inspection covers • fixed lighting • storage tanks • plant or equipment external to the building
Contents: furniture • fixtures • fittings • plant • machinery • appliances • documents • electronic data • consumable stock not for sale and well as all other contents used in connection with your activities and belonging to you or for which you are responsible