As a commercial property owner, one of the primary responsibilities is to have adequate insurance coverage to protect your investment in the event of an unexpected disaster or loss. However, despite the importance of sufficient coverage, many property owners are underinsured, leaving themselves vulnerable to costly financial losses. In this blog post, we’ll explore what underinsurance is, why it’s prevalent in commercial property, and what steps business leaders can take to mitigate risks associated with underinsurance.
What is underinsurance?
Underinsurance occurs when a commercial property owner’s insurance coverage is insufficient to cover the total cost of the loss or damage incurred. This means that in the event of a claim, the amount paid out by the insurer will not cover the full cost of rebuilding, repairing, or replacing the property, leading to additional expenses not covered by the policy. This is a problem that is becoming increasingly prevalent among commercial property owners, with rising construction and labour costs making it even more crucial to ensure adequate builders insurance coverage.
Why is underinsurance prevalent in commercial property?
According to recent statistics, about four in ten (40%) UK commercial properties are underinsured. This is due to various reasons, including a lack of understanding of the property’s actual value, assuming that the basic policy covers all expenses, and failing to update the policy frequently as the property value increases.
Additionally, two-thirds of business owners who own their property say they haven’t reviewed their insurance policy in the last year, increasing the likelihood of failing to adjust coverage as the property’s value increases.
What can business leaders do?
The best way to prevent underinsurance is through developing a robust risk management strategy, and this can be achieved through routine reviews of your policy to adjust your coverage consistently as your property’s value fluctuates. By enlisting the help of an experienced insurance broker, businesses can gain insight into what coverage they need based on their property’s value and other specific circumstances. Business owners need to report any changes or upgrades in their property to their insurer, as this will ensure that the insurance provider is still accurately covering the property’s full value.
Equally, it’s also vital to keep comprehensive records of all business assets, including performing regular valuations of the property to ensure that the policy’s coverage is always up-to-date. Business owners should also familiarise themselves with their policies and ensure that they understand any exclusions or conditions that may limit coverage.
Underinsurance is a significant risk for commercial property owners, with two in five properties currently underinsured in the UK. By taking proactive steps to ensure adequate coverage, business owners can prevent potentially disastrous financial losses and protect their commercial property investment for the long term. To mitigate the risks associated with underinsurance, business leaders should develop a comprehensive risk management strategy, such as seeking advice from insurance brokers, updating the policy frequently, and keeping track of all business assets.