In an ideal world you would never need to claim against your property insurance, but in reality we know all too well that things can and do go wrong with commercial properties. So, when it comes to protecting your portfolio, you need to be sure that your insurance securely guards your assets, and will compensate you in full if you make a claim.
However, if you’re in the unfortunate position of being underinsured, you are unlikely to be able to recoup the full value of your losses from your insurer.
Underinsurance is one of the major risks for commercial property owners in the UK. On average 77% of the properties surveyed were underinsured by 45% of the correct insurance value.*
To put this into context, UK insured losses amounted to £500m in 2014 and uninsured losses in this period reached £130m.** This is a vast sum of money which could have easily been saved – read on to find out how.
What Is Underinsurance?
Underinsurance happens when the amount you insure a property for is actually lower than the true cost to reinstate the property in its entirety if, for example, it were completely destroyed by fire.
If you are underinsured, you are potentially exposed to unforeseen losses in the event of a claim, as the insurer can reduce its liability for a claim by applying what is called a ‘proportionate approach’.
For instance, if you have arranged insurance for a property in your portfolio for the value of £1 million, but the property would actually cost £2 million to reinstate, insurers would consider the property to be 50% underinsured. That 50% underinsurance will impact every aspect of your property insurance and applies to any amount you attempt to make a claim for. Therefore if you made a claim regarding the same property for £200,000, the insurers would proportionally reduce their settlement and pay out just £100,000. As the owner, you would need to source the funds for the remaining £100,000 of uninsured losses yourself.
How Can I Avoid Underinsurance?
As a commercial property insurance specialist, Mulberry is in a position to give expert advice to help real estate owners avoid any underinsurance issues. All our policies are index-linked using the latest statistics to calculate the correct percentage change at each renewal, and also include a 30% inflation provision for each period of insurance.
After three decades of providing specialist commercial property insurance, we have the expert knowledge to identify and successfully resolve your underinsurance discrepancies. There are many factors that need to be considered when assessing the correct amount to insure a property for, including the age of the property, listed status, construction materials, height, site access, ground conditions, lease obligations, VAT status etc. We take all of these factors into consideration when assessing the cover for your commercial property, ensuring your assets are fully protected to their true value, and recommend regular reinstatement assessments to help you maintain the correct insured value. We can identify if your leases have the provision to pass the cost of such assessments to on to tenants via a service charge, or for larger risks we have an agreement with insurers for them to meet the cost of reinstatement.
The following case study provides an example of how we assisted a long-standing client to carry out reinstatement assessments across a large portfolio.
Case Study – Ackerman Group
Upon reviewing Ackerman Group’s property portfolio, we had concerns their portfolio was underinsured and arranged for insurers to meet the cost of carrying out independent reinstatement assessments for their portfolio of over 500 properties. Initially a small sample of 20 properties was assessed, and it was established the properties were an average of 32% underinsured.
Working closely with us, Ackerman agreed to amend the insurance values based on the surveyor’s findings, and the entire portfolio underwent reinstatement assessments. On completion, the surveyors advised the portfolio was on average 30% underinsured.
Following our recommendation, the insurers agreed to increase the sum insured until the next renewal without additional charge, and remove the average clause from the policy subject to re-assessment every 3 years.
Without this thorough review, Ackerman Group risked incurring significant costs across their 500 property portfolio due to underinsured claims, highlighting the importance of identifying and resolving underinsurance.
**Source: The Knowledge, The Insurance Times