Preventing Under Insurance

Under-insurance is a significant issue with serious consequences.

Why getting the right level of insurance cover is critical to your business

Insurers base their premiums on, among other things, the value of the risk they are insuring which is usually based on the information a policyholder provides. If, at the time of a claim, this amount is found to be lower than the assessed value at the time of the loss then the insurers (who will not have been paid enough premium) may seek a proportionate remedy to put them in the position they should have been in when accepting the risk. This might result in more premium being charged, different policy terms applied or a reduction in the claim payment (which in some policies is called a condition of average).

E G Murray are here to help

As insurance brokers we want to make sure that you buy the right insurance for your business and are able to provide advice on how to assess sums insured and can help you to buy insurance cover that meets your needs. We will help you to understand the basis of your insurances and how sums insured can be calculated to ensure you are properly covered.

Your obligations

Under the Insurance Act businesses have certain obligations when applying for their insurance. The requirements of the Act are designed to help you get fairer treatment from your insurer in the event of a claim. However, they also require you to be strictly honest about the nature of your risk. Remember, even though we can help you work through your insurance needs, you have all the information about your business which will need to be shared with your insurer.

Top tips

• Use professional evaluation services to help you decide on your sums insured. Regular valuations will help you ensure the sums insured are correctly assessed. Please contact us for assistance with this.
• Getting the numbers right when you buy your insurance policy will help avoid any inadequate sums insured becoming even less suitable year-on-year.
• Sums insured for buildings should be based on the cost of rebuilding or reinstatement, not the market value.
• For business interruption consider buying declaration-linked insurance because it provides an uplift of 33%, providing that the sum insured and period of indemnity are both correct initially and declarations are made when requested by insurers.
• When looking at business interruption insurance remember that accountancy and insurance policy definitions of annual gross profit are different.
• When thinking about an indemnity period for business interruption covers, remember that 24 months is likely to be the minimum period needed for a business to fully recover its trading level and to rebuild its customer base.

40% of businesses do not have enough business interruption cover to get them back on their feet

• Checking documentation is always a good idea; many insurers will make every effort to draw your attention to the important conditions of your policy but it is always important to check to make sure there are no errors.
• Disaster recovery or business continuity plans may help you recover after a loss.
• If you buy package policy (Shop & Salon, Office & Surgery, Tradesman & Professionals, Property Owners, etc.) check that the liability limits of indemnity, business interruption indemnity periods and other standard policy limits are sufficient.
• Liability policies are complex. Make sure that you have considered the risk of claims against you and check whether you have taken on any liabilities under your terms of business contracts.
• New risks sometimes emerge. Consider how the risks to your business change, including areas such as cyber risk (see below) or data protection.
• The costs of claims preparation, such as the costs of instructing an expert or an accountant to help with the claim are not usually included in your insurance cover and may be costly, discuss with us whether you need to buy additional insurance to cover this.

Cyber risks

Cyber insurance is now a vital consideration. The HM Government 2015 Information Security Breaches Survey stated 69% of large organisations and 38% of small businesses were attacked by an unauthorised outsider in the last year.

Cyber threats are a growing and rapidly changing threat to UK businesses of all types and sizes. Although hacks and data breaches of major companies sometimes make the headlines, in reality smaller companies are just as likely to be impacted by a cyber attack that might access confidential data steal funds or affect programming of essential equipment.

The Association of British Insurers’ provides an introduction guide for SMEs to the protection offered by cyber insurance:

Making sense of cyber insurance