Underinsurance: a growing risk for UK property owners

UK businesses and homeowners face a significant silent threat that often doesn’t rear its head until it’s too late: underinsurance.

With continued economic pressures due to inflation and cost-of-living increases, many homeowners, landlords and property managers may be unaware that their insurance coverage falls short of the true rebuild cost of their property.

Commercial properties

According to industry data, approximately 84% of UK commercial properties are insured for incorrect amounts*. Most of these cases are due to underinsurance, which can result in dramatically reduced claim settlements when something goes wrong.

This means that commercial establishments including retail outlets, manufacturing facilities, and storage centres throughout Britain may be inadequately protected should they need to make a claim.

Residential properties

The underinsurance problem doesn’t just sit with commercial properties though. Industry estimates indicate that over 90% of high-value residential properties face similar levels of inadequate protection. The financial consequences could be devastating.

What causes underinsurance?

There are number of factors that can lead to underinsurance. The most common reason is that property owners renew their policies without reassessing the rebuild value of their property. As labour costs and materials remain high, it can be easy to underestimate the true rebuild cost without a professional valuation.

Others may attempt to reduce their premium costs by providing a deliberately misleading figure, without considering the impact of this decision should it come to actually making a claim.

It’s also important to consider changes to the property, like extensions or renovations. These often go unreported to the insurer, meaning their existing insurance no longer reflects the true rebuild cost of their property.

What if I’m only making a small claim?

Even if you’re making a smaller claim on your building insurance, if you’re underinsured, this will impact on every claim you make due to the average clause. This allows insurers to reduce any payout in proportion to the amount that you’re underinsured. For example, if the true rebuild cost of your property is £500,000 but you’re only insured for £250,000 – you would be underinsured by 50%. When the average clause is applied, this reduction of 50% will be applicable to any claim that you make – no matter how small.

Are you underinsured?

At Redwood, we can work with you to ensure that the rebuild value of your property is accurate when taking out your cover, so you can rest assured you’re properly protected should the worst happen. Want to know more? Get in touch on 01268 776277.