VOICE FROM THE CHAIR:    THE DANGER OF UNDER INSURANCE

Insurance is intended to protect a business in the event of a loss but as we exit from recession there is a substantial risk to businesses who find themselves under insured.

Insurance is intended to protect a business in the event of a loss but as we exit from recession there is a substantial risk to businesses who find themselves under insured.  The cost of materials and labour have driven up construction rates whilst increased activity and better margins may affect loss of profits and business interruption sums insured and indemnity periods.

Last year, QuestGates Ltd carried out a study of 400 SME clients and some 86% were found to be under insured to the tune of £148M.  On average their sums insured were 40% below the true value.  The FCA are also concerned and have conducted a thematic review during which they highlighted that nearly a quarter of SME customers were under insured by 50%.  The real concern is the fact that not many businesses would recover if they only received 50% of a substantial loss.

MPW strongly recommend that insurance arrangements are regularly reviewed and that sums insured are carefully considered.  If there is doubt, it is possible and inexpensive to arrange valuations.  In the first instance I would urge clients to speak to their usual insurance contact to review the matter and agree the best course of action to ensure their interests are properly protected.

Valuations will not be necessary in many cases, but being under insured could represent the ultimate cost to an otherwise thriving business.

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