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Inflation and the increasing risk of your commercial property being underinsured

Inflation. A word we’re very familiar with and understand it to mean that everything costs more. But the impact goes beyond the higher costs of heating our homes and feeding our families.

The rising cost of building materials and labour is resulting in an even greater risk of properties being underinsured.

According to Rebuild Cost Assessment:

  • 83% of UK properties are underinsured – up from 80% in 20211
  • The estimated underinsurance total for all UK commercial properties has increased from £340billion to £375million2

So, what does that mean for your business?

If something happened to your business tomorrow – for example, a fire or flood that led to significant damage, how much would it cost to rebuild and reinstate your business?

Your sum insured needs to cover the cost of the bricks, mortar and labour to rebuild  – and the cost of replacing equipment, equipment and machinery.

It’s not just big companies with huge expensive properties that are at risk. Data from Aviva has shown that:

  • An estimated 42% of SMEs who insure their buildings with Aviva are underinsured3
  • Despite this, 91% of SMEs believe they have the right level of cover in place4
  • 10% of SMEs could not operate if they had to pay up to £10k due to underinsurance.4

If you think your insurance will cover the full amount of a claim – think again

Generally speaking, any claim will only be paid based on your chosen sum insured.

This is known as the “Average Clause” and here’s an example of how it works:

Your property is insured for £1million, but the actual cost to rebuild is calculated at £2million. This means that if a property insurance claim is made it could be reduced by 50%. If a fire were to completely destroy the building, you’d be left with a £1million shortfall to rebuild your business.

The “Average Clause” does not only apply to total loss situations and more information about how this can impact your business when making a claim is detailed in the video link provided below.

This handy video explains the Average Clause in more detail

Understanding the risks you’re exposed to is key to making the right decisions with your insurance arrangements.

What’s changed in your business since last year’s insurance renewal – or since the last time you had a proper discussion with your insurance adviser?

Do you know if the cover you have today is right for your business tomorrow?

When it comes to making sure your property is insured correctly, you need a trusted expert to complete a professional assessment – which can be both time-consuming and expensive.

If your commercial property is not insured for the amount it would cost to rebuild, you could either be paying too much for cover you don’t need – or suffer the more severe financial consequences if a claim is made and your property is found to be underinsured.

We have partnered with to provide you with a reliable low-cost service from a ‘Regulated by RICS’ (Royal Institution of Chartered Surveyors) organisation.

You’ll receive a comprehensive Rebuild Cost Assessment (RCA) report guiding you on how much you should insure your property for. It is a fantastic and affordable online service which can protect you and your business from the potentially severe consequences of underinsurance.

Request a RCA report for your commercial property today, or talk to us to find out more.

[1] Data derived from 26,861 Rebuild Cost Assessments completed between September 2021 and August 2022.[1] Estimate based on British Property Federation (BPF) data on UK commercial real estate[1] Based on Aviva’s modelled data on SME customers with buildings insurance, September 2022.[1] Figures relate to a survey of 502 micro, small and medium sized businesses, carried out by YouGov on behalf of Aviva in September 2022.