Gallagher calculates 40% of commercial properties underinsured

The broker’s research amongst business owners and commercial property claims managers found that the shortfall of underinsured properties was an average of 43% against the rebuild value covered by their insurance.

The firm highlighted that where there is a gap, businesses are likely to be liable to pay the difference.

Almost all – 96% – of the claims managers involved in the research said there had been a rise in the number of properties that are underinsured in the past 12 months.

The managers cited that the root of the underinsurance problem was the rapid inflation in the cost of building materials.

In addition, 61% of claims management experts said that more properties are also underinsured in part due to rising labour costs.

Record high

The majority of business leaders who own their premises (65%) have not reviewed their commercial property insurance during the past year, Gallagher reported, with some have gone even longer without looking at their policy – 16% have not having reviewed their insurance at any point in the last five years.

Gary Fletcher, Gallagher’s managing director for the South in the UK said: “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.”

Concerns

A recent survey by RSA also detailed underinsurance concerns among brokers and Nick Hobbs, chief distribution and regions officer at Allianz Commercial has previously set out 10 actions to make sure customers have adequate protection.

Aviva’s new director of mid market, schemes & regional speciality Michael Yabantu, also highlighted the issue earlier last month arguing that efforts to raise the profile of the problem are getting through to brokers and end-customers.

Gallagher’s research continued that the most common reasons amongst business owners for not reviewing their property valuation was thinking nothing had changed since last time they checked (29%), trying to keep insurance costs down while inflation is causing budget constraints elsewhere (23%) and simply being too busy with other priorities (20%) to think about it.

Despite this, many who own their premises said that one or more of their properties had needed major repairs (18%) in the past 12 months.

Longer

According to Gallagher, claims managers said that it is taking longer for commercial property repairs to complete – an average of an additional 33% compared to this time 12 months ago – because of supply chain delays and the lack of available construction workers.

The overwhelming majority of claims managers (80%) stated that many businesses may have too short a term specified on their business interruption cover.

The vast majority (71%) of business leaders whose premises needed major repairs in the past 12 months reported that they had to close at least one of their buildings as result, Gallagher noted.

Stubborn

Fletcher concluded: “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.”

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