Underinsurance occurs when you have inadequate insurance cover so that the amount claimed exceeds the maximum that can be settled by the insurance policy. This could result in a serious financial loss – ask yourself could your organisation recover if there was a deficit that you had to fund?
Be certain that your club property is not underinsured
The cost of rebuilding or repairing your clubhouse may be more than you think. It can be a common mistake for businesses or property owners to use the market value or acquisition cost of the property, rather than the cost of reinstatement, as the basis for the sum insured. You should always provide a reinstatement figure as the sum insured for the clubhouse. Underinsurance is a critical issue. If you insure for the wrong amount you may not receive the full value of your loss if you make a claim. This is the case, even with a partial loss. If the sum insured is inadequate, insurers may apply an average. This means that it can reduce the claim settlement figure in proportion to the level of under reported insurance value.
There can be a number of additional errors that are commonly made when considering a sum insured for property:
- Labour rates, raw material costs, site clearance costs, professional fees are often forgotten and their variability not considered.
- The age of the building and its construction type may not be taken in to account.
- Specialist circumstances such as listed status, known asbestos and the cost of removal, rare materials used.
- Failure to take in to account a new outbuilding or extensions.
- No consideration given to the limited accessibility of a Club to construction and site clearance plant and machinery.
- No consideration given to regulatory requirements such as energy saving status/compliance or improving access/facilities for the disabled.
How to ensure you have the right values
Gallagher recommends that you have a professional valuation of buildings carried out every three to five years by a RICS qualified valuer. Professional valuers should consider all of the above and will normally advise on what is necessary to reflect price increases during a rebuild period.
Make sure you aren’t underinsured for Business Interruption
A fire, flood or structural collapse of a Clubhouse or premise can seriously threaten the on-going viability of a Club or Training Centre. Between 2016-2017 it was discovered in a survey conducted by the Chartered Institute of Loss Adjusters that 44% of Business Interruption policies were underinsured*. In the aftermath of an event like a flood or fire, a Club or Training Centre could rely on insurance to pay the bills, for lost membership subscriptions and to help it get back on its feet.
Problems can arise when the insurance fails or does not respond, for example:
- The indemnity period is insufficient so the money stops before the business is back up and running.
- Revenue has been under represented.
- There is an extension to cover missing, such as Additional Increased Cost of Working, that could have provided cover. The physical threats of weather, fire and accident are ever present.
Underinsurance is more common than you might think and can certainly be problematic. The good news is that at Gallagher we are experienced in the provision of insurance to clubs and have designed a bespoke product to suit individual requirements. If you are in any doubt about the appropriateness of your cover you should contact us. Whilst a professional valuation is recommended to determine appropriate building sums insured our team can help you to make appropriate amendments to your cover and provide advice on business interruption covers and wherever else it is appropriate for us to do so.
Would you like to talk?
If you would like to discuss underinsurance in more detail or have queries related to your insurance needs, contact Ben Bennett at Gallagher Insurance.
T: +44 (0)1384 500283
Find books for your course at the RYA Shop
Our handy guide shows the books & DVDs that go with your course!