Are you underinsured?

As a business owner, your business is one of the most valuable assets you have – it makes sense to have it always protected to the highest level. The right level of insurance can make all the difference by helping to ensure your business continues to operate smoothly if the unexpected happens.

Being proactive in frequently assessing your insurance at renewal time or when changes happen is crucial in dealing with underinsurance (particularly during a growth phase) and therefore avoiding being penalised by your insurer at claim time.

Over the past 2 years, indexation levels have not kept pace with the recent and unprecedented growth in the value of insurable assets. The current spike in materials, labour, and reconstruction costs means sums insured should be reviewed and increased by 25%-40%.


If your policy contains an “Average/Co-Insurance Clause” you must insure the full value of the property. If you under-insure, your claim may be reduced in proportion to the amount of the under-insurance, for example:

                Full Value                                                                            $1,000,000

                Sum Insured                                                                      $   500,000

                You would be self-insured for 50% of the full value.

                Claim Amount                                                                   $100,000

The amount payable by Insurers as a result of the application of Average/Co-Insurance           $50,000      (being 50% of $100,000)

Risk of underinsurance

The attraction of low premiums without taking time to make sure the sums insured are sufficient and right to cover losses and expenses could prove very costly if unable to practice.

It’s also common to underestimate the replacement costs of your assets after a damaging event such as a fire or storm. It is therefore important that you insure your business assets for their most current replacement value to get back to business as quickly as possible after an event. Therefore, a regular check on your insurance coverage, especially in these challenging times, should be seen as a fundamental safeguard to your practice and its goodwill.

How do you know if you are underinsured?

Review your insurance cover regularly, particularly if your business is growing. You’re at risk of being underinsured if:

  • You haven’t updated your insurance cover to reflect the growth of your business.
  • Your insurance is based on an outdated replacement cost of your business assets.
  • You are covered for damage to your business premises but have not considered other forms of financial loss such as business interruption and management liability.

Time to review your house and vehicle

It’s worthwhile reviewing your house and vehicle insurance to make sure you are sufficiently covered on account of the factors discussed above.

The cover on your house may have been sufficient to meet costs when the policy was first taken out or renewed. However, construction costs have risen at a greater rate than annual increases leading to being underinsured over time.  

The same could apply to your vehicle insurance depending on the cover selected i.e. agreed value or market value. With rising costs of replacement parts and delays in securing these, opting for a cash settlement could leave you considerably underinsured.

Core Logic Software Tool

At Insurance House, we have access to a powerful measurement tool known as “core logic”. This tool can assist with providing a reinstatement cost appraisal. It is a great aid in assessing insurance cover and therefore helps in getting the right protection for your assets. This facility is available to all Insurance House policy holders. Speak to us today on how we can support your business.

How can we help?

We’ll do the hard work of reviewing your insurance strategy, adapting your cover as your business changes, and giving you peace of mind that your business and property are properly insured. To talk to an Insurance House Broker, fill out the below contact form or call us today.

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