During an economic downturn, looking for ways to reduce premiums is prudent; however underinsurance can be a false economy if faced with the financial hardship of settling a loss below the cost of reinstatement.
Underinsurance is often caused through ignorance. Many customers are unaware how the insurance principle of 'average' works and how it affects the value of a future claim. Any shortfall in a buildings sum insured will be reflected in a proportionate shortfall in claim settlement in the event of an insurable loss. In simple terms, if your declared sum insured is only 50% of the true value of all the property, then insurers may only pay 50% of your total material damage claim.
Most policies have an index-linking clause which helps policy holders keep up with inflation. By automatically increasing your sum insured, your insurance will be maintained at a level where 'average' should not apply. However, this cannot be wholly relied upon for a number of reasons. Levels would be compounded if an under-valued sum insured is declared in the first place and this process of index-linking does not take into account improvements or extensions made to the property.
It is a misconception that the sum insured is the same as market value - there is no correlation between the two. Neither should it be based on developers' costs; most definitions include the rebuilding costs plus any additional costs such as architects' fees and demolition costs.
It is very difficult to accurately calculate the rebuilding costs of a property as factors such as size, age, type of property, location, whether the building is "listed", of an unusual design, a new build and construction details will impact a reinstatement valuation.
For further advice please do not hesitate to contact us on 0330 123 5357, or via email at firstname.lastname@example.org.
(i) Based on Gleeds-Durden data 2012 (ii) Based on Gleeds-Durden data compiled from building reinstatement values undertaken up to 2009
Nursery insurance can help to protect your business, staff and children and keep things running smoothly. For more information visit our dedicated nursery insurance page or call us on 0330 123 5357 to speak to a specialist adviser.
Carolyn Baker-Mellor is a respected industry leader with over 35 years' experience within the care insurance sector. She works across a wide spectrum of insurance product and policy development, delivery and optimisation for care industry clients, including managing global corporate accounts, working closely with trade associations, and helping clients in protecting their businesses and personal assets. Her areas of expertise within the sector include care homes, nurseries, domiciliary care, hospices and charities.
Carolyn currently works at Towergate as Head of Care Insurance. Towergate is the UK’s leading independent insurance broking platform and forms part of the Ardonagh Group, an international network of over 100 offices and 7,000 people which incorporates leading brands in both Lloyd’s of London and global markets.
She previously worked for 10 years at Aon as a director, client services leader and assistant director for claims.
Date: March 01, 2013
Category: Care and Medical