Back to basics: What is underinsurance?

In the insurance world, there are certain words and phrases you don’t mind hearing when, as a client, you need to submit or chase up a claim, such as “Your claim has been successful” or “Your claim has been paid.” Both of which suggest all was well with cover, which takes away some of the sting and anxiety of having to make a claim in the first place.

But what if your first communication after property theft or damage, or a case accident, is something along the lines of “It seems you were underinsured”. That’s never the start of good news.

In upcoming blogs, we’ll be revisiting and updating what are the consequences of underinsurance for various areas like property, business, and contents, while also answering some of your most common queries on some newer, but completely related topics.

But first of all, here’s an essential definition and some initial advice on how to avoid hearing or reading that horrible line.

Underinsurance is not taking out insurance to the right level. Or put another way, taking out insurance at a level that’s simply not enough to cover what you wanted it to.

So, if for example there was a fire at your business premises, without the right level of insurance cover prior to the incident, it’s unlikely that you’ll get anywhere near the pay-out required. You have no building, most of your stock is destroyed or damaged, and you still need to pay staff and suppliers. That’s not just a fire, that’s probably the end of your business.

In monetary terms we can explain it this way. If you take out buildings insurance for your business for £500,000, but the real rebuild cost is closer to £1,000,000, in the event of a fire, you’ll not only be dealing with the anxiety of the burglary, but your claim may also be null and void.

And here’s the thing… even if you were to put in a claim for say £100,000 – much less than the value – you’re still in trouble as you won’t have been paying the right amount of premium and therefore insurers will adjust your claim accordingly.

Discover more about how underinsurance affects property and how Howden can help here.

This applies across the insurance spectrum, whether it’s for a house, motor fleet, or multinational corporation.

So, to avoid underinsurance – make sure your sums and indemnity periods at the outset add up and you’ve been advised correctly by an insurance specialist on the right level of premium and cover.

At Howden, we understand that underinsurance happens a lot – even with the savviest of CEO’s and ops directors at the decision-making helm. This is often down to a combination of confusion as to what is supposed to be included in the first place. There is another common factor – reliance on outdated valuations.

But rather than just pointing out the scary stuff, our risk management packages are all about having contingency plans in place for every event and circumstance. And that includes working with you to establish the correct levels of insurance cover, whether this is helping you understand your true rebuild cost on your buildings or correct reinstatement value on your plant and machinery or the right indemnity period under your business interruption insurance cover.

At Howden, we believe that your insurance cover should provide you with certainty of outcome and we’re here to ensure that this happens.

We’ll return shortly to the broader topic of underinsurance in the next few weeks (including unmissable insight and interviews with some of our insurance experts), but if you have any concerns or questions regarding your current cover, talk to our specialist team today at [email protected] or come here to request a quote.