Underinsurance

Is it time to review your cover?

A topic that continues to be prevalent relates to underinsurance and the question: ‘would you know if your organisation’s assets such as property are underinsured’?

Economic changes can lead to underinsurance—are you still protected?

The rates of inflation over recent years, the disruption to the supply chain and other external factors in the UK has had an impact on the property reinstatement costs.

Given this climate and the fact that the value of assets can fluctuate, Official Commercial Insurance Partner Gallagher wanted to again highlight the importance of a regular insurance review to help ensure clubs and training centres are sufficiently protected. 

Ben Bennett, RYA Account Manager, Gallagher stressed: "It is important for clubs and centres to take the time to fully evaluate the risk exposure ensuring that cover is up to date and sums insured are adequate. Many organisations do not realise they are underinsured until it is too late. Whilst the rate of inflation has reduced and is expected to continue to fall, it is important to take into account inflation over the last 2-3 years especially if an insurance review or professional valuation hasn’t happened in the last 12months".

How does underinsurance happen?

Underinsurance happens when the sums insured don’t reflect the true value of an organisations assets (i.e. Club or training centre buildings and contents, stock, business interruption…).
When it comes to property underinsurance, this typically occurs when buildings valuations are out of date or incorrectly valued and the insurance purchased does not reflect the total rebuild cost. This is a common area of underinsurance because property is constantly changing value. 

What are the implications of underinsurance? The Average Clause

If you take out buildings and contents insurance that will cover you up to £50,000 but it costs £100,000 to rebuild or replace your property or its contents, then you would be underinsured by £50,000 (or 50%). Therefore, any claims you make (no matter the size) would reflect this average and only pay out 50% of the claim, leaving you to fund the deficit. This could be financially catastrophic to a club or training centre.

How can I ensure my organisation has adequate cover?

Gallagher recommends that you have a professional property rebuild valuation carried out by a RICS qualified valuation surveyor to determine your actual rebuild costs. It is also vital that you regularly asses and update your contents/stock values and levels. Professional valuers should consider all factors and will normally advise on what is necessary to reflect price increases during a rebuild period. Valuation surveys can be obtained either by using a local RICS accredited surveyor who will usually provide an ‘on site’ survey/inspection, or via a more cost-effective ‘desktop’ survey for our clients, which Gallagher can arrange via a RICS accredited partner, with costs for this service starting at £183.50¹ – providing a professional view on adequate reinstatement values and also providing a steer on required reinstatement indemnity periods, from a BI perspective.

Tips to reduce your risk of underinsurance

Here are some actions every club and training centre can take to help avoid underinsurance:

• Regularly review your insurance, including your sums insured, and identify any other changes in the business that may impact your cover levels.
• Get an up-to-date buildings insurance reinstatement cost valuation. This should reflect the total rebuild cost of the property—not its market value— and we recommend these are carried out by a qualified professional. 
• Consider whether your business interruption indemnity periods are still sufficient, given the potential for longer delays to building repair projects.
• Speak to your insurance broker who will be able to review your cover in line with your actual risk. Some brokers, like Gallagher, can also arrange your buildings survey for you.  

Gallagher are experienced in the provision of insurance to RYA affiliated clubs and recognised training centres and have developed a bespoke product to suit individual requirements. If you are in any doubt about the appropriateness of your cover, you should contact the specialist RYA team. 

Whilst a professional valuation is recommended to determine appropriate building sums insured the Gallagher team can help you to make appropriate amendments to your cover and provide specialist advice on business interruption covers and wherever else it is appropriate for us to do so.

Please do contact your dedicated Gallagher RYA Account Handler should you have any questions and you are an existing Gallagher policyholder.  If you are not currently insured with Gallagher and wish to learn more please call 0800 062 2309 or email rya@ajg.com. 

Author: Ben Bennett, Gallagher RYA Account Manager. 

Information last updated Jan 2024. 

¹Price for the virtual desktop valuation. Subject to qualifying criteria.

These are brief product descriptions only. Please refer to the policy documentation paying particular attention to the terms and conditions, exclusions, warranties, subjectivities, excesses and any endorsements.

Royal Yachting Association is an Introducer Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 55 Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909. AR05-2024. Exp. 10.01.2025