The risks of underinsurance

Don't get caught out by underinsurance, when did you last review your cover?

Finding suitable insurance includes more than just reading a list of risks covered by a policy. The amount you’re covered for is also important. Would you know if your organisation’s assets, including the buildings, are underinsured?

Gallagher, our official commercial insurance partner, has highlighted the importance of a regular insurance review to help ensure clubs and training centres are protected.

Economic changes can lead to underinsurance - are you still suitably protected?

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

Whilst the rate of inflation has reduced, it’s important to consider inflation over the last 2-3 years, especially if an insurance review or professional valuation hasn’t happened in the last 12 months.

How does underinsurance happen? 

Underinsurance happens when the sums insured don’t reflect the true value of an organisation’s assets (e.g. the club or training centre buildings and contents, stock, and 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When it comes to property underinsurance, this typically occurs when buildings valuations are out of date or incorrectly valued and the insurance purchased does not reflect the total rebuild cost.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 building materials and labour costs can constantly change. 

What are the implications of underinsurance? 

If you are underinsured, your insurer may refer to an average clause in the policy when resolving a claim. For example, if you take out buildings and contents insurance that will cover you for 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 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 suitable cover?

Have a professional property rebuild valuation – a Reinstatement Cost Assessment (RCA) - carried out by a RICS qualified valuation surveyor to determine your actual rebuild costs. It’s also vital that you regularly assess 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. The options to perform a reinstatement cost assessment include:

• An onsite assessment
• An onsite sampling exercise of typical properties within a portfolio
• A desktop assessment
• A combination of the above

Desktop solutions can be cost effective where:

• The footprint of the building is easily identified using digital mapping tools
• The property is not listed or not a complex construction
• Buildings that don’t have basements, cellars or underground car parks

Tips to reduce your risk of underinsurance

Take time to fully evaluate risk exposure, ensuring that cover is up to date and sums insured are adequate - many organisations don’t realise they’re underinsured until it’s too late.

Here are some actions clubs and training centres 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 is experienced in the provision of insurance to RYA-affiliated clubs and RTCs, having developed a bespoke product to suit individual requirements.

Whilst a professional valuation is recommended to determine suitable building sums insured values, the Gallagher team can help you to make 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 Aug 2024.