Briefing: Is now the right opportunity to address underinsurance?

Underinsurance has been a well publicised topic for many years, covered repeatedly within the commercial insurance market in particular.

Products most frequently cited as a concern in terms of underinsurance include commercial property, construction projects, cyber and business interruption.

Market research highlights worrying statistics on this topic. For example, statistics published by broker Gallagher in September 2024 reveal that 46% of commercial properties in the UK are underinsured, with an average shortfall in cover of 40%.

Increases in construction material costs and labour over recent years have exacerbated this situation, leaving businesses even more vulnerable in the event of a claim.

Cyber cover is another area that has hit headlines recently, with retailers Marks and Spencer and the Co-op experiencing significant disruption to their operations due to cyber attacks.

According to the government’s Cyber security breaches survey 2025, published on 10 April 2025, 43% of UK businesses experienced a cyber security breach or attack in the last 12 months – yet only 45% of British businesses are insured against cyber security risks in some way.

This threat is widespread and not just limited to larger businesses.

For example, the 2025 UK Commercial Insurance Broker Survey – published by GlobalData in May 2025 – found that only 40.2% of SMEs across the country currently hold cyber insurance.

Why does underinsurance persist?

There are a plethora of reasons why underinsurance continues to exist. This includes ignorance and the common belief from clients that ‘it won’t happen to me’.

This mentality underscores the importance of high quality advice – not only to ensure clients’ risks are properly protected, but also to mitigate brokers’ errors and omissions (E&O) exposure.

However, the main reason cited as driving underinsurance is often cost.

Against a backdrop of weak UK economic growth and general rate hardening in recent years, some clients have simply been unwilling to spend additional money on top of an already expensive core product – even when the risks are clearly explained.

But we are now entering a softening market, fuelled by increasing price competition from insurers looking to grow their gross written premium (GWP).

Specialist commercial insurers have been buoyed by strong operating results over the three years leading up to 2023/24, according to Insurance DataLab analysis, and have therefore begun to use this surplus to ‘buy in’ more GWP.

Moment in time to address underinsurance?

Logically, now is the ideal time to address underinsurance.

Many businesses are benefiting from lower premiums. Experienced account handlers should be using that price headroom to advise clients around improving limits, taking out cyber cover and undertaking more accurate Rebuild Cost Assessments (RCAs) – all key areas of concern when it comes to underinsurance.

This should result in some of the underinsurance gap closing over the next two years – or certainly for as long as the market remains soft.

But other factors may get in the way. I’d wager that when statistics on underinsurance are published in two years’ time, the picture will not show much difference to today’s figures.

Why? For a start, the macroeconomic outlook remains difficult for UK businesses.

Higher taxes – including April 2025’s national insurance contribution increase – rising operational costs and geopolitical uncertainties, such as the impact of the tariff regime in the US and ongoing difficulties trading with the European Union, have all contributed to sluggish growth.

The UK’s gross domestic product (GDP) is projected to grow by just 1% in 2025. Many companies are scrutinising their cost bases to offset weak top line growth and insurance remains one of the areas they target for savings.

Next is the issue of time pressure on account handlers.

While a softer market should – in theory – make renewal conversations easier, increased price competition from insurers means a greater proportion of renewals are being remarketed to defend business on price.

Renewal rates and premiums are under pressure. So, instead of renewals taking less time – with more time available to upsell, cross-sell, or pursue new business – client-facing staff often report that they are busier than ever simply managing renewals.

Creating the headroom to focus on advising clients about limits, cyber cover and RCAs is more important now than ever.

Client appetite and time are often cited as barriers to productive underinsurance conversations. While we can’t change the external market forces affecting client appetite, we can certainly improve our influence, if we have more time.

What’s the answer?

History tells us the market cycle or the economy won’t fix underinsurance any time soon.

For many brokers, the real opportunity lies within.

The key is operational efficiency, cutting out time consuming workflows and freeing up staff to do what they do best – advise, influence and protect clients.

With more time for the right conversations, we stand a much better chance of closing the underinsurance gap.