’Clients need to be informed that market value and insured value can be two very different figures,’ says director

Insurers are being forced to adopt a tought stance with brokers as the underinsurance gap for commercial properties continues to increase.

That was according to Andrew Slevin, director at surveying practice Charterfields, who told Insurance Times that a recent study from the firm found that 77% of the premises it had surveyed were insured for less than the required value, with 40% of properties’ building cover covering half or less of the actual worth.

“It is a disturbing picture,” he said. “While you have to temper our findings with the fact that, all too often, if we have been asked to carry out a survey then an issue has been identified – we believe the figures are a good indication of where many businesses stand.”

Chesterfields’ figures also showed that the commercial contents picture was even worse, with 80% having insufficient contents cover and 45% having a limit equal to half or less of the value of the contents they owned.

In a particularly telling recent case, Slevin explained that the owner of a Grade Two listed former mill building in northern England had a £1.7m policy in place when actual rebuilding costs would actually have approached £33m.

“All too often, businesses are not aware of the value of the contents they have in their building and will assume that there are others who are responsible for parts of the property,” he added.

“For instance, many property owners do not realise they are responsible for the insurance of the building’s foundations and potentially external areas, such as car parks.”

Complex solutions

Slevin noted that the solution to persistent property underinsurance issue remains complex.

As a result, he said that he was noticing insurers adopting a tougher line with brokers amid concerns that underinsurance was giving rise to reputational risks for the insurance industry.

“We are seeing insurers becoming more focused on the issue,” he said.

“There are often cases where the underwriter clearly understands that the limits of the policy are not enough and will seek more details from the broker or client.

“Some will take matters into their own hands and simply increase the limits at renewal and, if the policyholder refuses the new limits, will consider whether they want to write the business given the potential for issues at the time of claim. Others will walk away or adjust the premiums.”

Slevin added: “There is no simple solution, but clients need to be informed that market value and insured value can be two very different figures.”