Under Insurance The impact of inflation on your business

What does this mean for business owners?

It is now more important than ever that close attention is paid to the replacement values declared to insurers. With no immediate end to the inflationary pressures continued price rises mean that you may be underinsured or in danger of becoming underinsured during your policy period.

With most insurance policies being subject to Average (the underinsurance clause), the financial consequences of underinsurance for a business can be devastating.

What is underinsurance and how could this affect you?

Underinsurance occurs when the Sums Insured on a policy (whether building or contents) are not adequate to cover the cost of repairing, replacing, or rebuilding in the event of a claim. If your business is underinsured following a claim, insurers could reduce the value of the settlement proportionately in line with the amount of underinsurance or in a worst-case scenario consider the underinsurance to be materially misleading and refuse to pay any of the claim.

As an example, if the cost to rebuild a property is £1,000,000 but the building sum insured is only £500,000, then the property would effectively be underinsured by £500,000 or 50% and an insurer would only cover 50% of any claim, no matter the size of the claim leaving the remaining rebuilding costs uninsured which could have a serious financial impact on a business.

It is therefore essential that Sums Insured are reviewed regularly to ensure to you are purchasing insurance that is adequate to protect your business.

In addition to the impact of inflation, common causes of underinsurance also include:

• Building sum insured mistakenly based on the market value of your property, or a mortgage valuation. For insurance purposes your building sum insured should always be based on the rebuilding cost.

• Where a property has never been professionally valued for insurance purposes or the valuation has not been reviewed in the past three years.

• You have altered or extended the property but not subsequently reviewed your buildings sum insured.

• You are not VAT registered but your building sum insured excludes VAT.

PIB Insurance Brokers provide specialist insurance support across a range of sectors helping to support the businesses in the region.

To find our more please get in touch on 01904 784141 or visit Pib-insurance.com