Industry News

What if the insurance you have purchased fails to cover the value of a major loss?

Under-Insurance Leaves Businesses Exposed

February 2014

As a business, you buy insurance to cover yourself in the event of a loss with the belief that should the worst happen – a fire perhaps, or damage to vital machinery – your insurance will pay out and normal service will be resumed as soon as possible.

What if the insurance purchased fails to cover the value of the loss? For 40% of businesses that might well be the case. According to research from specialist valuers, Rushton International, 40% of clients surveyed were under-insured by an average of 20% for their plant and equipment as a result of inadequate valuations. The Chartered Institute of Loss Adjusters paints the same picture for business interruption cover with 40% of businesses under-insured by an average shortfall of 45%.

Why under-insurance occurs in the first place can be due to a multitude of factors; a building that has been destroyed or badly damaged may cost more to rebuild due to a discovery of asbestos for example, while rebuild costs can fluctuate significantly due to the changing value of construction materials such as steel. Currency fluctuations can impact the cost of replacement machinery which might have to be imported, while the costs of delivery and installation are often not factored in. Whatever the reason, the impact on your business’s bottom line can be significant.


The important step is to check sums insured by having a professional valuation. Typically this would happen at renewal of a business insurance policy and could also include a review of policy wordings to ensure the broadest possible coverage. The benefits of such a valuation include:

• Protection from the risks of over or under-insuring
• Independent evidence in the event of loss
• Provides independent verification of assets
• Ensures insurance premium can be calculated correctly.

It is critical that your business does not fall victim to under-insurance and we can help ensure you have the appropriate valuations for your buildings, plant and machinery as well as business interruption.