Of the 4.3 million small to medium enterprises (SMEs) currently operating in the UK, a whopping 80% are estimated to be underinsured.
It’s a shocking statistic.
Yet what’s even more frightening are the potentially devasting consequences of that shortfall and the impact being underinsured could have on the future success – and survival – of your business.
Want to know more about the risks involved and the importance of making sure your level of insurance matches your business needs? Then keep reading or contact the team at Rigby Financial today.
What is underinsurance?
A business is classed as underinsured if the sum insured fails to meet business requirements in the event of a claim.
The reality of this means that, even though you might have business insurance in place, it’s a false economy. Should you ever have to make a claim, it will fail to offer you the level of financial protection you need – putting your business at risk.
Why is it a particular issue at the moment?
Don’t get us wrong, under insurance has long been a problem. It’s an easy trap to fall into. As businesses evolve, policies get left behind and fail to reflect the current business needs or financial climate.
That said, there are several factors that have currently exacerbated the situation making underinsurance more of a risk than ever before. These include:
- Brexit
- the impact of Covid
- the war in Ukraine
- the current energy crisis
- inflationary pressures
All of these events have conspired to increase the cost of things such as materials, parts, and labour. Meaning that getting work done, how long it takes to complete, and the resulting costs are all impacted.
Worryingly, the effect of these combined issues has led to over half of the businesses questioned in a recent poll (51%) admitting to cutting back on at least one type of insurance cover – leaving businesses dangerously vulnerable.
As a result, there is now a market-wide push to ensure people are aware of the perils of being inadequately insured.
Consequences of being underinsured
The impact of being underinsured can have devastating and far-reaching consequences, including:
- loss of revenue
- loss of workforce
- cash flow problems
- production delays
- issues with supply chains
- customer dissatisfaction and reputational damage
- a detrimental impact on employee wellbeing
How to avoid being underinsured
According to research carried out for Aviva, 10% of SMEs (in context, that’s more than half a million UK businesses) don’t think they could survive if they had to pay up to £10,000 towards a claim because they weren’t sufficiently covered.
Could you?
The good news is there are things you can do to ensure you never have to find out.
– Start with a thorough valuation
There are costs associated with a property evaluation which can make this an unpopular point to try and drive home. Although a broker can usually secure a desktop survey by a fully qualified RICS surveyor for as little as £100 – and we guarantee it’s money well spent!
Fail to get the fundamental figures right and the problem will only get worse. Starting with a true and fair evaluation, from the get-go, will help to ensure your policy is accurate and stays on track.
– Don’t be too focused on market value
The value of your business premises is one thing, but the real issue is how much it would cost to rebuild.
Prices are never static and this sum – from the materials and labour to the time taken to get the work done – can have a real impact on over costs. And it’s this figure that needs to be reflected in your claim.
– Review regularly
This is a key point to remember – review your policy regularly!
Figures in a survey carried out by YouGov on behalf of Aviva show that 28% of SMEs haven’t reviewed their sums insured in the last 12 months!
It’s recommended to have an independent professional valuation at least every 3 years. These regular updates will help to ensure you don’t fall into the trap of being underinsured.
– Don’t ignore things
Don’t assume it won’t happen to you – it could! Sticking your head in the sand or putting ‘sort the insurance’ at the bottom of the to-do list is a risky strategy.
If anything changes – from diversifying your services to up- or down-sizing – it’s essential to contact your broker to ensure the sum insured is updated.
Even if things don’t appear to have changed at surface level, remember that seasonal changes can have a huge impact on the cost of stock and that prices for items like replacement machinery can quickly change.
– Factor in business interruption
Ensuring you’re fully covered is about more than just replacing the bricks and mortar. The time it takes to return to normal also needs to be considered.
The average time it takes to get back on your feet after a major loss – such as a flood or fire – is typically 12 months, often longer. So not only do you need to factor in the rebuild, but you also need to consider the loss of current and future business during that time – customers don’t always come back!
– Let your broker do the hard work for you
Don’t fret about whether you’re fully covered, have got your figures right, or thought about everything you need to – that’s what your broker is there to do.
Work with the team here at Rigby Financial and not only will we help to find you the best possible deal, with the best possible coverage, we’ll also make sure things stay that way. Facilitating access to expert valuers and helping to keep you on track with regular catchups and timely reviews to ensure you always have the right amount of cover.
Talk to the team
Worried you could be underinsured?
Don’t wait for the worst to happen before you find out!
Being underinsured puts your business at risk so make sure it’s fully protected with comprehensive business insurance through Rigby Financial.
To find out more, arrange a valuation, or discuss your business needs in more detail, contact the team and let’s safeguard the future of your business together.
You can call us on 01744 886077, email equiries@rigbyfinancial.co.uk or fill in our contact form and we’ll be back in touch soon.
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