Tuesday 17th September
Reducing the risks of commercial property underinsurance
Underinsurance continues to be a problem among property owners. Properties that have not had a professional valuation within the last three years run the risk of being underinsured. Recent research from Charterfields surveyors states that 80% of all business locations are underinsured, and 40% are insured for less than half of the actual reinstatement cost.
Why are properties underinsured?
Property insurance is calculated based on several factors, but the most important is the rebuild cost—how much it would cost to rebuild the entire property. Challenging economic conditions over the last few years have led to an increase in the price of materials and delays in the supply of building materials, which increases the rebuilding costs (and potentially the business interruption costs for commercial properties). If property valuations haven’t been updated recently, there’s a strong chance they’re underinsured.
Is your property insured for the right amount?
As we head into Autumn, the risk of costly weather-related damage and business interruption costs increases. Last Winter, the UK and Ireland were affected by 13-14 severe storms that led to severe floods and damage to properties and infrastructure. The Environment Agency estimates approximately 5.7 million properties are at risk of flooding in England, so having the correct insurance in place is vital. While saving on the cost of premiums helps reduce costs upfront, claims further down the line are likely to significantly outweigh those savings.
Rebuilding cost vs market value
Using a broker to calculate the rebuilding cost can help ensure your properties are insured for the correct rebuild value. Arranging the correct amount of cover can be a complex process depending on the number of properties you own and the surrounding land you are responsible for. A building may be worth £1m on the property market because of the land it stands on, but it might cost only £500,000 to rebuild. Other premises in a different location might be worth only £200,000 on the market, but because of particular special features, it might cost £350,000 or more to rebuild. Market value should not be used as a sum insured.
Underinsurance checklist
Your property may be underinsured if it:
- has not had a professional valuation within the last three years (or if your insurance isn’t index-linked).
- is in a remote location or with restricted access
- is made of non-standard construction materials or is listed
- is designed with a high-standard interior
- is a non-standard design, e.g. modern eco-friendly properties
Other considerations for commercial property owners include the cost of business interruption during property repairs should an incident occur. Kerry London’s Property Owners Insurance experts can provide guidance on the important things to include, such as outbuildings, car parks, boundary walls and fences, and lighting.
While many insurers cover the cost of rebuilding via index-linking buildings policies, and the contents sum insured at renewal, it’s essential to keep building surveys up to date and ensure they’re carried out by an approved professional such as a chartered surveyor.
Kerry London’s Property experts can provide a personalised assessment of your property insurance needs and check for underinsurance risks across your property portfolio. As Lloyd’s of London accredited brokers, we can access insurance that’s not widely available in the market and search the market for the most comprehensive and competitively priced cover.
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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.
Categories: Commercial Property, Property,
