With rising labour costs and building materials costs going through the roof, now more than ever we are finding property owners that have underinsured their commercial premises.
Your commercial property is often your highest value asset and yet many property owners undervalue the cost of rebuilding and then underinsure them. It may not only be at the point you want to make a claim that underinsurance becomes a problem.
RebuildCostASSESSMENT found that around two thirds of commercial properties are underinsured and are normally covered for just two thirds of their correct rebuild cost. Is your commercial property one of them?
In this blog, we’ll cover the risks associated with underinsurance and how to safeguard your commercial property and make sure it is adequately insured.
What is underinsurance?
Put quite simply, being underinsured means you’re not covered for the total cost of rebuilding your property which can hit your business hard should the worse happen. Underinsurance can leave you having to cover the shortfall yourself or could put the survival of your whole business at risk.
Why do people end up being underinsured?
Often people don’t even realise they are underinsured. The reason you may be underinsured can be:
- The value of the property or the rebuild costs have increased significantly.
- The property has been improved or extended and the sum insured hasn’t been increased. Often changes can happen to the property mid-way through your policy, so it’s important to notify your insurer straight away to ensure your adequately covered for the rest of the policy term.
- Insurance has been taken out for the ‘market value’ of the property rather than the cost of both demolition and rebuild costs. The policy cover should also take into account the costs of demolition, site clearance, architects costs, survey costs, legal and planning fees, builders costs and the cost of labour and materials.
- The basic cover has been taken out to save money and this isn’t adequate to cover all costs should the worse happen.
- There are specific factors in the building lease that require certain levels of cover to be taken out and these haven’t been met.
- There are special features to the building that will cost a lot more to rebuild or reinstate.
- An automatic renewal has happened and levels of cover haven’t been reviewed at renewal.
- People use index linking on their cover. Index linking often won’t accurately reflect a true rebuild cost as it won’t consider regional trends or spikes in property prices.
What is 'Average Clause'?
The average clause is a little-known condition of insurance policies when a customer claims on their policy and has under-valued the rebuild cost. Should a property be underinsured, the insurers are not obligated to pay the full costs of reinstating the building. Instead, they will apply the Condition of Average Clause.
At the point the customer makes the claim, the insurer checks the rebuild value and if it is found the customer is underinsured by a specified amount on the policy, the insurer will reduce the payout by the same percentage.
For example, your property is insured for £1,000,000, but the actual cost to rebuild should be £2,000,000. Any insurance claim you make for the property could be reduced by 50%. In this example you would need to find £1,000,000 of your own money to cover the cost of rebuilding your property following a major incident, such as a fire that completely destroys your building. Such a large sum of money could mean a significant financial impact to your business or worse your business failing.
What is a Rebuild Cost Assessment?
A Rebuild Cost Assessment(RCA) provides comprehensive information on how much a property would cost to rebuild from scratch if it was completely destroyed.
Getting your commercial building properly insured
Here at Harborough Portas, we recommend and advise all our clients to regularly get their commercial buildings revalued to avoid being underinsured.
We recommend a third party who offer a low-cost online service to provide you with a comprehensive RebuildCost Assessment (RCA) report. They also offer on-site assessments as a premium service. Nearly all the UK's major insurers will remove the Average Clause from your policy if you insure for the amount recommend in the RCA report. Doing this could save you tens of thousands of pounds or even the risk of your business failing should you make a claim and be underinsured.
Here at Harborough Portas,we cover all types of commercial premise from factories, warehouses, offices to shops and car showrooms and we know from experience that no two business premises and their rebuild costs are ever exactly the same. So, having an accurate Rebuild Cost Assessment is crucial to ensure you take out adequate commercial building insurance. It will give you peace of mind to know that you are properly insured should the worse happen.
How can Harborough Portas help if you are underinsured?
In the current economic environment we see more property owners working within tighter budget constraints. But with building costs having risen dramatically in the past few years, now is not the time to cut corners on your commercial property insurance. Underinsurance levels are at a record high.
As a chartered insurance broker, the team at Harborough Portas are here to help protect your property from underinsurance. As insurance experts, we help and advise you on your commercial insurance needs. We take time to get to know our clients and will look for any underinsurance risks and ensure that your Rebuild Cost Assessment is accurate and that your commercial insurance cover is comprehensive.
As an independent broker, we believe that a one-to-one approach is always the best way to do business. We demonstrate this by providing you with a fully qualified and experienced director of the business who will be your single contact point for everything.
Whatever your requirements,simply contact us or call our team of experts today on 0116 2600506
