Commercial property owners need to review insurance
Commercial property owners are putting their investments at risk from underinsurance by failing to maintain their sum insured at adequate levels, according to Aviva, with the problem set to rise as the country exits the recession.
The sum insured is the amount it would cost to completely rebuild the property and should include the costs of removing debris as well as architects' and surveyors' fees. The insurance premium charged is linked to the sum insured.
Mark Dunham, commercial property underwriting manager at Aviva, said: "Although the recession has led to significant reductions in the market values of buildings in terms of what they can be bought and sold for, rebuilding costs have not reduced to the same degree. In fact, as we come out of the recession, the cost of reinstating a building is anticipated to increase as the demand for raw materials, energy and labour rise.
"We have seen an increase in the number of properties that are underinsured during the recession but when money is tight and companies need to reduce costs it's important that this is not at the expense of their insurance cover."
Martyn Barrett, director at specialist insurance valuer Barrett Corp and Harrington, working with Aviva, added: "Over 77% of all the buildings we value are found to be underinsured with an average increase to sum insured required of about 55%. The average increase required is even more dramatic where the insurer or broker believes that there might be a case of underinsurance in advance of a valuation; then, it is closer to 90%.
"Either way, in a major claims scenario, this degree of underinsurance can be devastating, especially as the majority of businesses never recover from a major loss such as a fire."
Mark Dunham continued: "As insurers, we sell peace of mind should the worst happen and having accurate sums insured on a property allows us to focus on putting things right for our customers. The last time you want to discover that your sum insured is inadequate is when you need to make a claim as you may not receive sufficient money to make good the damage. It is vital to guarantee receiving the full amount in the event of a claim.
"If the sum insured is too low, the policy may not provide enough money to rebuild the property. In the current economic climate, it could prove very difficult and costly to borrow the money you need to cover the shortfall thus putting the finances of the business under increased pressure.
"Moreover, directors, trustees and others who are responsible for arranging insurance cover may find that they are liable if they have not taken steps to arrange and maintain adequate cover.
"Property owners who have not updated their sum insured figures for some time should consider a valuation immediately as they may not have sufficient reserves to deal with the consequences of underinsurance," warned Dunham.
"Having a professional valuation carried out on a property will ensure it is valued for the correct amount. Most often valuations are undertaken for bank or sale purposes but these may not be suitable for insurance purposes as they do not always accurately reflect the total cost of rebuilding a property.
"When assessing the amount needed to adequately insure buildings, it is also important to understand what is included in the insurance policy definition as this may include a wide range of ancillary items such as walls, gates, fences, garages and other outbuildings. These items are frequently forgotten but must be taken into consideration when calculating sums insured."