Business buildings insurance - don't risk underinsurance
Insurance can be summed up by “hoping for the best, preparing for the worst” and should the worst happen you want peace of mind you are protected.
With spiraling costs, small business owners are looking for cost savings at every opportunity, including their business and buildings insurance, but making cuts on your level of cover to get a better price may leave you at risk of being underinsured.
Buildings insurance is one area that often catches small business owners out. Read on to understand exactly what your building should be covered for and why.
What is buildings insurance?
Burst pipes, fire or storm damage can be devastating for independent businesses. Buildings insurance covers the cost of repairing or rebuilding your premises if damaged or destroyed.
Why might you be at risk?
A large proportion of business properties have inaccurate valuations, are undervalued, and therefore operate without adequate cover.
Many believe the market value of their business building and insurance value of their business building are the same, but this is not the case and the extent of this underinsurance in the UK property market continues to be a concern.
Research by the Building Cost Information Service (BCIS), part of the Royal Institution of Chartered Surveyors (RICS) details 80% of commercial properties in England and Wales are actually underinsured.
In simple terms, property owners are not increasing their rebuild costs in line with inflation and when it’s time to renew they are using out of date estimates.
Insurance Valuation
Insurance valuation refers to the cost of rebuilding the property against risks. For example, having to totally demolish and rebuild in the event of a devastating fire, or repairing damage following flood, accidental damage, subsidence. It also includes several additional costs that are not covered by a market valuation such as,
· Labour costs
· Building materials (supply chain costs increased)
· Electricity price increase
· Access to the site costs
· Rebuild value of the are surrounding the property (trees & outbuildings)
· Boarding-up costs
· Accidental damage to pipes that run from your building to the public mains underground cables
Always read and check your business buildings policy documents carefully to understand the conditions of insurance and what is and isn’t covered. For example,
· Wear and tear
· Premises that are left unattended for longer than a certain period of time
· Any excesses that apply, or warranties on things like electrical equipment, or flat roofs etc
How to minimise the risk of being underinsured?
The demand in construction post Covid, along with the effects on EU imports of building materials and the reduction in overseas workforce, have all contributed to the increase in construction costs.
With current inflation running between 10% and 20% on last year’s figures, even buildings accurately valued at time of policy inception, are at risk of underinsurance due to increases in rebuild costs, and worse for buildings that had inaccurate valuations from the start.
Business buildings owners should put aside quality time to review current policies, paying close attention to the accuracy of sums insured and rebuild costs. Remember the onus is on the property owner to make sure the calculations are correct but show caution when using online calculators or making your best guess at a valuation as this opens you up to the threat of insuring the property for less than its worth.
Look at arranging regular surveyor reassessments, should the unthinkable happen and you submit a claim, having an up-to-date valuation report by a professional will help towards the claim being settled in full.
Condition of Average
A common clause included in building insurance policies, allowing an insurer to reduce the settlement of the claim on underinsured buildings by the corresponding percentage, if the sum insured on your policy is less than the current up to date value of your building.
For example
After an insured incident, an owner of a building submits a claim of £100,000 for rebuild or repairs. The sum insured on the policy was £100,000, but the insurers find that the actual sum insured should have been set at £200,000 as the full rebuild costs are £200,000.
Therefore, only 50% of the property value is covered. Due to this gap of underinsurance the owner may only receive a settlement of £50,000, leaving them at risk to find the remaining amount.
If a building is found to be significantly underinsured, an insurer could void the policy as the property owner failed in their duty to ensure the valuations provided are accurate.
When calculating your building sum insured valuation factor in the costs for,
· Demolition
· Clearance of site
· Removal of debris
· Professionals’ fees – surveyors, architects etc
· Fencing & gates
· Driveways & parking for vehicles
· Extensions or improvements made to the building
· Planning & permissions
· Facilities and rates
In summary
As detailed by woodgate-clark “the forecast for 2022, and into 2023, is for costs to continue to rise due to fuel and power increases, adding to the Covid and Brexit influences and the industry skills shortage”.
There is no better time than now to look for the potential ‘flags’ you could be underinsured.
You have not had a professional valuation in the last 3 years
You have not factored in the rising costs for
Professionals’ fees – surveyors, architects etc
Demolition, clearance of site and removal of debris
Inflation in buildings materials and labour
Extensions or improvements have been made since the last valuation
No inclusion for outbuildings, driveways, fencing & gates, paving, boundary walls, lighting
Your property is listed
Building is constructed of a non-conventional building material
Alongside your business insurance Expression Insurance can offer tailored buildings cover to suit your individual needs. One renewal date, under one roof, giving you one less thing to worry about.
If you want to find out more about how Expression supports independent business owners who love their business visit www.expressioninsurance.co.uk