‘During Covid, when site visits weren’t allowed, many fell into the habit of carrying out reviews over the phone,’ says commercial director

Brokers should carry out physical valuations upon renewal with UK business owners and farmers, with warnings over the potentially devastating financial consequences of underinsurance.

Chris Clement, commercial director for north of England-based H&H Insurance Brokers, said the value of rebuilding costs may have doubled or tripled in recent months as building material supply chain disruptions and higher labour costs created a perfect storm.

H&H said that, with the price of materials increasing and the pressures of inflation, a growing number of customers were now unaware that their buildings may cost significantly more to rebuild than their insured value would cover.

The issue of underinsurance is having a significant impact across the UK, with many business owners losing out on payouts due to their insurance policy being undervalued, H&H added.

Aviva’s latest Risk Insights Report – published at the beginning of the year (20 January 2023) – estimated that half of SMEs in the UK could be underinsured, while 40% of buildings covered in policies were underinsured by 20 per cent.

Existing policies

Clement added: “Many businesses have existing insurance policies in place for their buildings, which they believe covers them for a full payout if anything does go wrong.

“But, with the way the prices of building materials have risen, the actual cost of rebuilding after any sort of damage may have doubled or even trebled in some instances.

“What [customers] are finding is that the value of the building has risen and the sum the insurer is paying out doesn’t cover the full amount of the rebuild.

“This is hitting a lot of businesses across the UK hard in their pockets and can be potentially devastating to businesses.”

However, Clement said that increasing awareness of effects of underinsurance would help to ensure brokers effectively tackled the issue with clients.

He added: “Seeing your building destroyed by a fire or partially damaged by strong winds is traumatic enough and learning that you will only get a certain percentage of the rebuild costs through the insurance payout is a stress you can really do without.

“Making sure you are correctly covered is paramount and it’s why your broker must ensure every detail of the policy is accounted for to avoid this disappointment.”

H&H said the most common reason for underinsurance was a failure to conduct regular valuations.

Clement explained: “When renewing policies, it is essential for your broker to visit the property and analyse the items that they’re looking to cover so they can get a more realistic and accurate picture of the level of cover required.

“During Covid, when site visits weren’t allowed, many fell into the habit of carrying out reviews over the phone but I recommend that this type of review is kept to a minimum.”