Business Insurance is one of the essentials when it comes to running your business (which is one of the reasons why, as an essential services provider, we offer it through our sister company The Insurance Octopus). But it doesn’t end when you have your cover in place.

There is an underlying risk when it comes to Business Insurance that could leave you with nothing in the event of a claim – and its name is under-insurance. Never heard of it? We’ve got the lowdown for you…

Understanding under-insurance

Under-insurance occurs when the sums insured on your policy are under the amount that you would actually need should the worst happen and can affect both Home and Business Insurance.

Here are a few common mistakes that business owners make, do they sound familiar?

  • Many use the market value of the property rather than calculating the cost of a complete rebuild.
  • When calculating business interruption cover, many under-estimate the amount of time it might take till the business can operate again. They also might leave out some costs or have an insufficient indemnity period.
  • In the event of an incident, it’s easy to think there would only be one claimant but there could actually be several – liability cover may not reflect this.

When under-insurance occurs

As mentioned above, if your business is under-insured and something happens where you need to make a claim your insurer would be within their right as per the Insurance Act 2015 to declare your policy void if they deem the misrepresentation to be deliberate. (Which could leave you with nothing.) Alternatively, their pay out would be relative to the amount that you were insured for, leaving you to foot the bill of the rest. Could you afford to repay any costs yourself?

Aviva is part of the specialist panel of insurers that our sister company The Insurance Octopus works with, and they have seen this happen first-hand:

A hairdresser was carrying more stock than they had told their insurer they had. The figure they had provided was used to calculate the insurance cover. So when the business suffered a theft of more than £1,900 worth of stock, the owner found that the claim was covered but was based on an ‘average clause’ – i.e. it was paid based on the percentage of cover that was taken out rather than what the cover should have been. This left the owner underinsured by £900 and needing to find that money elsewhere.1

And this is not the only case, for more real-life examples see here.

Protect your business from under-insurance

So, what can you do to protect your business? To start with, when taking out a Business Insurance policy, you need to be absolutely certain that the figures you are including in your quote are correct. Professional valuation services can help with this.

As you continue to run your business, things can change which can mean you become under-insured without even realising it so it’s important to have a review of your policy rather than renew to save yourself some time (though we know it is tempting!). Based on some advice from Aviva, here are 10 self-assessment questions you should ask yourself:

  1. Have you had your property professionally valued for insurance purposes in the last three years?
  2. Is your property exactly the same as when you insured it with no alterations or extensions?
  3. Did you base your insurance cover on the cost it would take to rebuild the property not than the market value?
  4. Did you factor in costs for gates, fences or car parking areas in your calculations?
  5. Is your property an unlisted building?
  6. Did you factor in costs of professional fees such as an architect or surveyor?
  7. Did you factor in costs such as site clearance or access – particularly where your business might need, for example, a crane or heavy plant to help with remedial work as a result of a claim? (This could also add time that needs to be taken into account for your business interruption cover.)
  8. Have your stock levels decreased compared to when you took out your insurance policy?
  9. Are you still not VAT registered?
  10. Did you tell your broker or insurer about all the plant or equipment that you have now?

We can help with under-insurance

If you answered no to any of the above, it’s likely that you are at risk of being under-insured. Why not find out for certain by speaking to one of the experts at The Insurance Octopus? As an independent insurance broker they are perfectly placed to source you the right cover, at the right price whilst also putting your mind at ease that you are no longer a potential victim of underlying under-insurance.

You might also like to check out their helpful guides on how to calculate your buildings, business interruption and stock and contents cover.

Speak to one of the team today on 0161 968 2041 to protect your business with help from The Insurance Octopus.

The legal stuff

1Source: https://broker.aviva.co.uk/documents/view/commercialunderinsurance.pdf