Underinsurance – the rising threat

We’re living through a difficult period in our country’s economic history. The cost-of-living crisis comes at a time when we’re still dealing with the lasting effects of Covid-19, Brexit and the ongoing war in Ukraine.

At the same time, we’re seeing inflation rising, increasing fuel and energy prices and this is having a significant impact across everything including building materials and supply chain issues. All of this is impacting the prices we pay and how long it takes for goods and materials to get to where they’re needed. So, what does this all mean for insurance and how can you look to mitigate the threat to your business?

In this article, Chris Andrews, Director of Risk Management Solutions, Aviva, discusses the stark reality of underinsurance in today’s market and what you can do to protect your business.

What the data is saying

“From our own modelled data, we estimate that 50% of UK businesses are underinsured to some degree, and 40% of policies with buildings have at least one premises suspected to be underinsured by 20%1.

And it’s not just us seeing it. A number of our Specialist Partners are also reporting worrying statistics. From over 4,800 property surveys that Barrett Corp Harrington (BCH) have carried out this year, over 75% have been underinsured, with an average increase suggested at 53%2. Sedgwick reported similar data for the period January 2021 to July 2022 with 85.5% of Commercial Properties viewed being underinsured with an average percentage increase of 28.4%3. Cardinus findings are similar with 80% of properties being underinsured by an average of over £750,0004. In addition, Charterfields note that 42% of plant and machinery locations are being underinsured by more than 50%5.

The risks of underinsurance aren't always clear but, put simply, having incorrect building and property values declared as part of an insurance policy and subsequently suffering a loss, may result in a property being considered as underinsured.

This isn’t a new topic.

However, if the current global situation continues then more and more businesses may find themselves underinsured or with incorrect business interruption periods based on the time taken to rebuild property or replace critical machinery. This has the potential to create a severe exposure to the future of their business if an incident occurs, at a time when they'll need all the help they can get to make sure the business continues to survive."

Helping to protect businesses

"At Aviva, we’re actively looking to help protect you and your business from the increased risk of underinsurance in the market today.

From an underwriting perspective, we have the ability to accurately identify those that are most at risk from buildings underinsurance and where Business Interruption periods aren’t high enough – in some cases, our underwriters can be confident enough to suggest limits based on what we know.

However, for some businesses, knowing how much you need to be covered for can be really difficult especially during periods of change and uncertainty.

Making sure that values and rebuilding periods are accurate and that up-to-date valuations are completed underpins the basis of risk assessments and any risk transfer mechanisms, such as insurance. It helps with evaluating and setting indemnity and maximum indemnity periods. It also helps address the exposures created to an organisation of underinsurance and over-insurance, when declared values are incorrect.

We recommend that formal valuations for buildings, plant, machinery, and contents are regularly undertaken and this is increasingly important in the times we currently find ourselves in. Through our relationships with Specialist Partners such as Barret Corp & Harrington (BCH), Cardinus and Sedgwick, you’re able to access professional reinstatement cost assessments (RCAs), as well as assessments of plant, equipment and contents from Charterfields, all at preferential Aviva customer rates.

Our Business Interruption: Rebuilding Period and Rebuilding Valuation Loss Prevention Standard provides more information on what needs to be considered. Reviewing sums insured needs to go further than property rebuilding costs and should consider other assets such as plant, machinery, contents and stock as these could also be affected."

More information and support

Aviva Risk Management Solutions offers access to a wide range of risk management products and services at preferential rates via Aviva’s network of Specialist Partners. These include:

  • Barrett Corp & Harrington (BCH) - Building reinstatement cost assessments - including site visit, e-Valuation and reporting.
  • Cardinus – On-site and desktop Reinstatement Cost Assessments of buildings, Fire Risk Assessments, Health and Safety Assessments and consultancy.
  • Charterfields - Insurance cost assessment to thoroughly understand and report values for any type of asset category including plant, machinery and contents.
  • Sedgwick - Building reinstatement cost assessments including site visit and reporting.

For more information and support, please visit Aviva Risk Management solutions.

1 Based on Aviva’s SME modelled data, excluding Fleet, August 2022

2 Based on survey data from Barrett Corp Harrington (BCH) across commercial and residential properties. 4,813 surveys conducted between Jan – July 2022

3 Based on survey data from Sedgwick across commercial properties for the period January 2021 to July 2022

4 Based on aggregated data from on-site reinstatement cost assessments conducted in the UK in 2021 where existing declared values were known by Cardinus

5 Based on assessment data from Charterfields. Aggregated data based on UK assessments over the last 7 years, where existing declared values were known by Charterfields