Reviewing your sums insured - A guide for care operators

It is important you regularly review your sums insured to ensure you are adequately protected, to mitigate the risk of underinsurance. Having an incorrect rebuild value could result in overpayment of premium, or worse still, a major financial loss in the event of claim. 

UK construction costs remain historically high. Global economic shocks, ongoing labour shortages, and brittle supply chains are the perfect storm of reasons. Inflation of commodities, increased labour expenses, and supplier failures have resulted in a triple squeeze for the business. The cost of concrete, steel, insulation, and timber has increased dramatically, some by more than 60% since 2020.

The stress and financial impact of underinsurance can be avoided by ensuring you have taken the correct steps to request insurance at a sufficient level. Based on 15,000 building Reinstatement Valuations conducted by BCH for Howden clients in 2025, almost 60% were found to be underinsured prior to a Reinstatement Valuation taking place.

We can assist with a desktop indication of adequacy of your building sum insured.  

What is underinsurance?

Underinsurance is where you have not taken out adequate insurance to cover your needs. Taking out insufficient insurance will mean any claim will be insufficiently covered. Insurers will apply Average when adjusting a claim. This is the process by which insurers will reduce the claims settlement by the amount of underinsurance.

How could the application of average affect settlement in the event of a claim?

If you have insured your building for reinstatement at £2,500,000 but the correct reinstatement figure is £5,000,000, the building would be underinsured by 50%. Insurers would therefore only look to settle half of any claim made as would only respond to the percentage of cover that had been taken out. So as an example, if a water damage claim for £3000 was made, insurers would only look to pay £1500. 

The impact of increasing your sums insured on the annual premium

We understand the financial challenges of running a business. Increasing your sum insured could have an impact on your premium but being correctly insured is essential. Insurers could look to refuse paying claims in their entirety should they consider a policyholder to be knowingly underinsured in order to save on premium costs.

Points to think about when renewing your sums insured

Buildings

Check your policy wording to see what the definition of buildings is, it may need to cover more than you may think!

• Remember your reinstatement sum insured needs to include many costs aside from the building itself. Think about the cost of debris removal, architects/surveyors fees, outbuildings, carparks and other outside areas. It also needs to include the payment of VAT if you are unable to claim this back.
• Please don’t confuse a reinstatement valuation with the market value of the building, the market valuation is not used for insurance purposes.
• Has a professional buildings valuation for insurance purposes been carried out within the last three years? If not, how was the sum insured arrived at when a policy was first taken out? We would always recommend a professional valuation to ensure your reinstatement sum insured is correct.

Contents

• Imagine you had to replace every item of ‘machinery, plant and all other contents’ with brand new equipment. The Contents Sum insured needs to be adequate to do this.
• Many policies ask for a specific note of the sums insured for computers and other high value or theft attractive equipment. Your inventory should help in establishing this.
• Advise your broker of any items that need to be covered ‘away from the premises’ as this would need to be specifically arranged.

Business Interruption

A Care Operators Sum Insured for Business Interruption is based on the projected annual revenue, multiplied by the indemnity period.

• Ensure the revenue figure is carefully considered to take into account projections for growth during the indemnity period.
• The indemnity period is the period for which insurers would continue to pay for any reduction/loss of revenue following the material damage claim. It’s essential you consider how long it could take your business to fully recover following a loss (you can select a period from 12 months to 36 months, 12 months would rarely be sufficient). Consider the period of time from the day of an initial loss to the point your business is fully operational again. Imagine waiting for architects plans, local authority applications and approval, the rebuilding and refitting of the property followed by the process of refilling your home with new service users. The policy will continue to respond to your loss of income until you are back into the position you were in before the loss, as long as the indemnity period is sufficient.

• The indemnity period selected needs to allow for the current shortages of both labour and materials in the building trade. A repair or reinstatement may be delayed by many months as there may be no available contractors. Such delays need to be built into the chosen indemnity period.