Businesses Remain Underinsured, Affirms Towergate
Towergate Insurance Brokers, a part of the Ardonagh Advisory insurance platform, is urging businesses and homeowners across the UK to carry out up-to-date property valuations in light of the rising risks of underinsurance.
According to a recent study by Towergate, more than 90% of properties are underinsured regarding rebuild costs, a concerning figure that highlights the need for proactive insurance planning.
The study revealed that common causes of underinsurance in businesses include outdated insurance coverage that no longer reflects increased replacement or repair costs, failure to disclose material changes such as unoccupancy or business operations alterations, and inadequate documentation of assets and risks. Market cost increases, such as labor and materials, often make previously adequate coverage insufficient, exposing businesses to significant gaps after disasters.
Operational changes were flagged by only 7% of businesses as a risk for underinsurance, while 35% admitted to failing to regularly review their insurance policies. Rising material costs were cited by 19% of businesses as a risk, and a lack of insurance knowledge was the most likely factor for underinsurance, according to 40% of businesses surveyed in 2023.
Johnny Thomson from RebuildCostASSESSMENT.com, also part of Ardonagh Advisory, stated that underinsurance is often due to businesses relying on outdated valuations or assuming insurance will automatically reflect changes. He emphasised the importance of regular reviews and updates to insurance coverage to reflect current market conditions, replacement costs, and evolving business risks.
Towergate is calling on business leaders to treat insurance planning as a critical strategic priority. They urge businesses to prioritise education, schedule regular policy reviews, and seek expert reassessments of building, asset, and business interruption values.
The consequences of underinsurance can be severe. Significant out-of-pocket expenses for repair or replacement after property damage, denial of insurance claims due to policy violations or late submissions, and prolonged business interruption leading to cash flow problems or even business closure are all potential outcomes. Underinsurance particularly impacts coverage for property damage and business interruption, risking financial instability during recovery periods.
To prevent underinsurance, businesses should:
- Regularly review and update their insurance coverage to reflect current market conditions, replacement costs, and evolving business risks.
- Conduct comprehensive risk assessments tailored to their specific industry and operations to identify relevant coverages and exposures.
- Maintain full transparency with insurers and brokers about changes in business use, occupancy, and operational conditions to ensure coverage terms remain valid.
- Keep thorough documentation of pre-loss assets and post-loss damage to support claims effectively.
- Meet all policy requirements and deadlines, such as proof of loss submissions, to avoid forfeiting claims.
Proactive engagement with knowledgeable insurance professionals who understand the business sector is also critical to ensure appropriate and sufficient insurance coverage is in place.
In addition, Towergate is urging businesses to check their cyber insurance to ensure adequate cover for ransomware attacks, as ransomware attacks on the rise since the start of 2023.
Underinsurance may not be apparent until a disaster occurs, highlighting the importance of adequate insurance coverage. Rebuild costs are substantially higher than property values for most properties, making it crucial for businesses to be adequately insured to cover the costs of rebuilding after a disaster.
In conclusion, Towergate's warnings serve as a reminder for businesses to prioritise insurance planning and regularly review their insurance coverage to ensure they are adequately protected against the risks of underinsurance.
- In light of the rising instances of ransomware attacks, it's essential for businesses to review their cyber insurance coverage to ensure they have adequate protection.
- Regular insurance policy reviews and up-to-date property valuations are crucial for businesses to mitigate financial risks associated with underinsurance in the face of evolving business risks, market cost increases, and industry-specific exposures.
