Don’t underestimate the effects of underinsurance

Don’t underestimate the effects of underinsurance

Without an in depth knowledge of risk assessment and how insurers and loss adjusters work, it’s very easy to miscalculate and often underestimate the level of insurance protection they need.

At C&M, we can work with your business to ensure you have the correct level of insurance protection in place, both now and in the future. Our professional advisors can help to review your existing cover to ensure the sums insured – for everything from building valuations to loss of revenue calculations – are set at the right level and you are not unduly exposed to risk.

Here are a few useful tips to remember to avoid falling into the trap of underinsurance:


  • Insure the rebuilding value, not the market value
  • Rebuilding valuations are best carried out every three years

Machinery and Plant

  • Maintain an up to date register of all plant, machinery and contents
  • Insurance is usually arranged on a ‘new for old’ basis and sums insured must reflect this

Business interruption

  • It’s important to note that the accounting definition of gross profit is different from the insurance definition, so it’s well worth asking an insurance professional to make the calculation on your behalf
  • A maximum indemnity period of 12 months or less will often be inadequate. This should reflect the maximum time needed for the business to fully recover trading following a loss
  • Ensure any estimates take into account business growth trends

Employers’ Liability & Public Liability

  • Ensure wage-roll and turnover estimates are up to date

Talk to the insurance professionals at C&M?

Whether you’re a new start-up business or have been trading for decades, it’s vital to ensure you have an adequate level of insurance protection in place.

It should be noted that most policies contain an average condition stating that if a property is found underinsured at the time of a claim then only a proportionate amount of the claim will be paid and those that do not, will contain a warranty limiting settlement in the event of underinsurance. Below is an example of the effect of underinsurance on a policy containing an average condition:

Full Value of Property (rebuild cost) £ 100,000
Insured Value (sum insured) £ 50,000
Amount of Claim £ 25,000

Insurer pays following under the “average condition”:
(£50,000 divided by £100,000) X £25,000 (amount of claim) = £12,500. Therefore whilst the amount of claim is £25,000 only £12,500 will be paid leaving you a shortfall of £12,500.

At C&M, we understand that you’ve got more important things to think about than insurance. After all, you’ve got a business to run. Our independent advisors can take care of the detail on your behalf to ensure you have the correct level of cover in place. Our trusted advisors are here to assist with all your commercial insurance requirements, including reviewing your cover at least annually to advise on any changes you may need.

To find out more about how we can help, call C&M on 01708 764 000