Ways to combat underinsurance for businesses

31 January 2023

Insurance is a key purchase for businesses and getting the right amount of cover is critical.

Finding out at the point of claim that cover is insufficient and that they are underinsured, can have devastating consequences.

The Bank of England expect the rate of inflation to remain above 10% for the next few months – raising awareness of underinsurance is more important than ever. If a business isn’t insured adequately then a loss may become a financial burden to the business.

The following should be considered to avoid being underinsured.

  • Regular property valuations

    With the price of construction materials in the UK having increased significantly in the past year, it’s important to have regular professional valuations to ensure the sums insured are accurate and that additional expenses are accounted for. This is because the current inflationary levels are likely to outstrip the value of sums insured, which may leave a business exposed at the point of claim.

  • Rebuilding costs

    Make sure that sums insured for buildings are based on the cost of rebuilding the property and not the market value. This may include cost of materials, labour costs, professional fees and site clearance.

  • Indemnity periods for business interruption

    When calculating indemnity periods, bear in mind that 24 months could be the minimum period needed for a business to fully recover after an event.

    A recent survey showed that on average respondents expect it would take just over nine months to get their business back and running to its current level if their property were to incur fire damage.

    When setting indemnity periods, businesses need to take into account the higher energy prices, increase in material costs, current price inflation and shortage of skilled tradespeople to ensure that they are covered appropriately if things go wrong.

  • Business continuity plans

    Given the uncertain times many businesses have faced over the past few years, it’s important for them to regularly assess their limits of liability and develop a business continuity plan.

    Creating a plan can help identify gaps in cover and identify emerging risks such as cyber, which businesses must think about.

  • Check stock values

    The stock sum insured should reflect the cost of the insured to replace the items, not at the retail price. When setting the sum insured, businesses need to consider the maximum value at risk during seasonal or other peak trading periods.

  • New purchases

    Businesses should make their Insurers aware of any new purchases that may impact the overall sums insured, so that they can be added to the policy, otherwise they may find themselves underinsured.


WTJ Insurance

Landmark House, 556 Leeds Road,
Outwood, Wakefield, WF1 2DX

Call: 01924 871 111