How to Avoid Underinsurance
Ensure you have the right amount of cover
Suitable insurance forms a vital part of business continuity planning – but how can you be sure that you are buying the right amount of cover? Below we share some top tips from How to avoid underinsurance – A guide for small and medium-sized businesses produced by the British Insurance Brokers’ Association.
- Use professional valuation services to help you decide on your sums insured – useful information can be provided by your broker or insurer, or via http://abi.bcis.co.uk or www.rics.org/bcis. Regular valuations will help ensure the sums insured are correctly assessed.
- Getting the numbers right when you buy your insurance policy will help avoid any inadequate sums insured becoming even less suitable year-on-year.
- Sums insured for buildings should be based on the cost of rebuilding not the market value – particular features of your premises might affect the cost of reconstruction.
- For business interruption consider buying declaration-linked insurance because it provides an uplift of 33%, providing that the sum insured and period of indemnity are both correct initially and declarations are made when requested by insurers.
- When looking at business interruption insurance remember that accountancy and insurance policy definitions of annual gross profit are different. Make sure your assessment of gross profit matches the one in your policy.
- When thinking about an indemnity period for business interruption covers, remember that 24 months is likely to be the minimum period needed for a business to fully recover its trading level and to rebuild its customer base.
- Checking documentation is always a good idea; many insurers will make every effort to draw your attention to the important conditions of your policy but it is always important to check to make sure there are no errors.
- Disaster recovery or business continuity plans may help you recover after a loss.
- If you buy a simple online package policy check that the liability limits of indemnity, business interruption indemnity periods and other standard policy limits are sufficient.
- Liability policies are complex. Make sure that you have considered the risk of claims against you and check whether you have taken on any liabilities under your terms of business contracts.
- New risks sometimes emerge. Consider how the risks to your business change, including areas such as cyber risk or data protection.
- The costs of claims preparation, such as the costs of instructing an expert or an accountant to help with the claim are not usually included in your insurance cover and may be costly; discuss with your broker whether you need to buy additional insurance to cover this.
As your broker, we can provide advice on how to assess sums insured and can help you to buy insurance cover that meets your needs. Download the guide for more information on avoiding underinsurance or contact us today with any questions.
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