Over the last couple of years we have seen underinsurance becoming a more pressing issue for our clients.
The increasing costs and limited supply of labour and materials have led to Insurance Valuations failing to keep track with building cost inflation.
And research* has shown that around 80% of properties in the UK were not insured for the full cost of their reinstatement.
Those underinsured buildings were, on average, covered for just 66% of the actual required reinstatement value.
Where a property is underinsured, insurance policies will usually contain a clause which limits the amounts the insurer will have to pay out.
This ‘Average Clause’ means if your building is insured for too low an amount, the insurer can reduce the amount of their payout proportionately.
Average Clause example
- You insure your building for £500k.
- A fire causes £300k of damage.
- It is noted that the correct rebuild cost should have been £1m.
- The building is 50% underinsured.
- Average Clause is applied and the claims settlement is reduced by 50% to £150k.
- The policyholder must pay the remaining costs themselves, leaving them at least £150k out of pocket.
By ensuring that your building is insured for the appropriate amount, you can avoid the consequences of the Average Clause.
Graeme Robertson, HRIB UK Operations Director, said: “Should a claim be submitted where building sums insured have not kept up with cost-inflation, there is a risk of a substantial shortfall in claims payout. This could be catastrophic to a business or individual.
“We can help by working with you to help ensure that you have the right level of cover for your property.
“With a wide variety of factors to be considered when calculating sums insured, our guidance is for surveys to be regularly updated – at least every five years.”
Get in touch
We work with trusted surveyors who will provide an accredited reinstatement assessment. Prices start from just £160 for a remote “desktop” survey. Please contact us if you would like to have this arranged and avoid future underinsurance issues.
Please remember, building insurance is based on the reinstatement cost, not the building value.
* RCA Underinsurance Gap Widening as Costs increase article, 2022