40% of commercial properties ‘underinsured’, Gallagher says
New research from insurance broker Gallagher shows the effect of rising inflation on businesses in the UK, with two out of five (40%) commercial properties found to be ‘underinsured’.
Gallagher has found that, where a commercial premises is underinsured, the average shortfall against the rebuild value of the property was 43%. Where there is a gap, businesses are likely to be liable to pay for the difference, underlining the importance of continued coverage despite the pressures faced by many firms.
The company surveyed more than 100 claims managers with final responsibility for managing commercial buildings claims. Nearly all respondents (96%) reported seeing a rise in the number of properties being left underinsured in the past 12 months, with rapid inflation in the cost of building materials being cited as the primary motivating factor. If a commercial property sustained damage, this would leave businesses facing a shortfall in their insurance coverage.
In addition, over 60% of claims management experts said that more properties are being left underinsured due to rising labour costs, with 85% citing inflation is a driver for inflation and 77% saying that Brexit had lowered the availability of labour.
Gallagher also surveyed 500 board-level executives, finding that 65% of business leaders who own their premises have not reviewed their commercial property insurance during the past year despite the volatile economy. One in six (16%) business leaders say they have not reviewed their insurance at any point in the past five years – something Gallagher says “indicates that many could now be at risk”.
Property underinsurance ‘reaches record high’
Gallagher UK’s Gary Fletcher says: “Property underinsurance is at a record high currently because of issues such as inflation and the rising cost of materials, however business owners also often make the mistake that the valuation of the property is based on what it would sell for – and, as property prices haven’t changed a great deal over the last year, that the valuation is the same. In fact, the valuation is based on rebuild costs, which have unfortunately risen dramatically over the last year. As a broker we advise our clients on their insurance, and the need to review their cover when issues like this arise, but some businesses won’t necessarily realise the extent of the issue.”
According to Gallagher, the most prominent reason that business owners don’t check their property insurance is that they believe nothing has changed since the last time they checked. But, when it comes to rebuild value, this might not necessarily be true. As well as building materials making it more expensive to repair damage, the timescale of rebuilding work has also changed: commercial repairs are now taking a third longer to complete, Gallagher says.
Fletcher continues: “Business leaders have a range of increasing costs to cope with at the moment as inflation remains stubbornly high but the knock-on effect of inflation on commercial property and business interruption insurance shouldn’t be ignored. Your insurance broker can advise how to go about a valuation to ensure that cover is valid. With construction and labour costs as they are – and supply chain issues meaning businesses who need to repair or rebuild might be closed for longer than expected – it is currently very important to make sure you take time to check your cover.”
