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Are you underinsured?

Whilst nobody wants to really think about what might go wrong in business the reality is that not being underinsured for events like fire, theft or flooding could be crucial to business survival if the worst was to happen.

Having a robust business insurance policy that accurately represents your club or business could also be key to minimising financial losses in such an event. All this and more are reasons to ensure that business insurance is up to date and reflects the values at which a business needs to effectively start again if needed.

Are you Underinsured?

Undervaluing the replacement value of property, premises or contents could put your business seriously at risk and could make all the difference when it comes to recovering from a business disruption.

It is reported that around 60% of businesses are underinsured for things like buildings, stock, tools and machinery. 40% of businesses fail to take into account how long it may take to get back up and running to full production. This makes getting a correct insurance valuation even more important. Your business could have a large financial deficit if it came to making a claim.

What does underinsurance mean?

When taking out a business insurance policy the premium paid will be determined by the level of sum insured that you specify. The premium may be an annual or monthly outlay. When someone finds themselves underinsured it basically means they haven’t taken out the correct levels of sums insured. For many Clubs this could spell disaster.

Planning for business interruption

As a business owner you might also find yourself underinsured if you fail to work out how long it will take your business to recover if something like a fire or flood causes significant damage to your premises. If as an example you estimate it might take 12 months to become operational after such an event but it actually takes longer, you will find Insurers will only pay up to the end of the indemnity period you have chosen, i.e. 12 months.

Always assuming your Sum Insured is correctly calculated, the short fall after 12 months up to the actual date it takes for the club to build back it’s income to the levels prior to the date of the loss.

Example :- Building insured for £500,000 after a fire loss of £300,000, it is found the correct building reinstatement sum insured should have been £800,000, insurers will only pay 5/8 of the £300,000 loss, i.e. £187,500.

Please note, the Courtprice Protector Club Insurance scheme has a minimum Indemnity period of 24 months.

How to know if you are at risk of being underinsured?

Like anyone taking out insurance it may not be easy to know where to start when it comes to finding an appropriate valuation. The instances below may indicate whether or not it is time to update your business policy to ensure you aren’t at risk of being underinsured.

You could find yourself at risk for the following reasons:

  • You have more stock now than when you first took out business insurance.
  • Your business premises haven’t been professionally valued for over 3 years.
  • You have extended the business premises or made structural changes that could alter the value of the property.
  • You haven’t taken into account any professional fees such as surveyors, architects etc.
  • Clearance fees and site removal costs haven’t been included – i.e. debris removal.
  • You haven’t informed your insurer about a club refurbishment or a new piece of equipment/machinery that you have purchased.
  • Your turnover and bar profits have increased.

Avoiding being underinsured

Finding out that you are underinsured is one thing but being able to do something about it might be quite another. If you are reading this as a business owner then it is hopefully not too late to do something about it. Having a good relationship with your insurance broker could be crucial to rectifying any potential deficit.

They may well direct you to a Chartered Surveyor for a professional valuation. It is important that you take some time to fully evaluate your club policy to make sure that the cover you have in place is adequate.

Going out of business is a very real risk for those that find themselves underinsured after a fire, flood or other business catastrophe and so you should take any concerns you have seriously and address them as soon as practicable.

A call to your insurance broker to help you to understand what is needed to avoid being underinsured could help you to get your business protected fully in the event of fire, flooding or other such factor that could seriously damage your club operations.

This entry was posted in Blog.
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