Inflationary pressures are affecting prices in all sectors of the economy. As a result, if you have a claim, replacement costs may be higher than expected, leaving some commercial insurance policyholders underinsured.
The COVID-19 pandemic and the Russian-Ukraine conflict are fuelling inflation. This is now expected to remain elevated for longer than previously predicted due to higher commodity costs and broader price pressures.
While none of us likes to pay more for insurance, the simple fact is that in the event of a fire, flood, or other major loss, underinsurance can be incredibly costly, with insurers penalising policyholders by the percentage they are underinsured. Often, policies include an ‘Average Clause’, which means the insurer can reduce its liability for a claim by applying for a proportionate settlement.
Deciding how much insurance is enough
So, how much should you be insured for?
The first thing to remember is that the sum you insure must be based on the Reinstatement Value, NOT the Market Value.
Any significant increase in the cost of property reinstatement raises the possibility of underinsurance, which could have serious consequences. Insurers can and do reduce property claim settlements proportionately if the sum insured is less than the actual cost of reinstating and your policy wording does not adequately account for the inflationary pressures, wording, and the presence of “Average” conditions.
That’s why it is so important to review your policy terms thoroughly each year and undertake an accurate business valuation assessment. Estimates are not acceptable because they are based on generalisations.
A Value at Risk (VAR) assessment will determine the true value of your business and its reinstatement. CMG’s team of insurance specialists has been carrying out VAR assessments for many years and will meet with your management team to undertake an onsite inspection and a complete analysis of your business.
A formal business valuation provides multiple facts and figures regarding the actual worth or value of a business in terms of market competition, asset values, and income values.
Once surveyed and recorded, the VAR is defined based on policy cover for buildings, contents, plant and machinery, fixtures and fittings, stock, computers, business interruption, and additional costs of working (ICOW Expenses). We can also advise on any policy conditions or warranties contained within your policy, as failure to comply with these can also have serious consequences in relation to any potential claim.
There are many benefits to having the correct insurance cover.
Sufficient cover for your business gives you peace of mind that, in the event of a claim, you can expect the full payout from your insurance company (with no average reduction adjustment).
It also means you will pay the correct premium with potential savings, and benefit from a current and accurate VAR valuation.
You can also rely on a cost-effective and efficient claims process, which will help your business get back on its feet faster.