How to avoid underinsurance

Are you underinsured? More than 9 out of 10 UK buildings are insured for the wrong amount* 

The subject of underinsurance is an increasingly hot topic within insurance. That’s because it is an industry wide issue and we’ve seen just how quickly these changes can happen overnight.  

Whether it be political, social or economic factors, as a nation we have experienced a lot of change over the last few years. We’ve experienced complications arising from Brexit, Covid-19, the war in Ukraine and most recently, the Cost of Living Crisis, all of which have pushed many businesses into completely changing the way they provide services and trade. 

You may look at this and wonder what has this got to do with underinsurance? 

Let’s look at some of the costs that have dramatically risen in the last few years due to these circumstances.


Increased labour costs and wage inflation 

Due to fewer qualified tradespeople being available, we are seeing that wages have risen. In 2023, The Federation of Master Builders members acknowledged that the shortage of skilled tradespeople has had an impact on their jobs. 12% of members reported the shortage has led to cancellation of jobs and nearly 59% of members reported a net increase in wages and salaries.** 


Materials cost increases 

In 2023, The Federation of Master Builders members also reported an upward trend in the prices they were charging for their services. Around 71% of these members reported a net increase in material costs. 


Materials supply shortages (including stock, machinery and plant) 

Furthermore, timber and plaster shortages continue to affect supply chains, delaying construction projects. 


Inflation increases 

It feels like every month we get more bad news around inflation. Recently it grew at its fastest rate in 30 years. Due to the uncertainty around inflation and pricing, some suppliers will now only hold their quotes for 24 hours. 


This brings us to the question of, are you underinsured? 

A recent study by RebuildCostASSESSMENT found that more than 9 out 10 UK building are insured for the wrong amount.** 

81% of these buildings are underinsured, being covered for just 63% of the amount they should be. If they were to make a claim, this can severely reduce the amount paid out to them. 

They also found that 14% of buildings were overinsured, paying and being covered for 122% of the amount they needed. 

Breaking this down further by property type, 80% of commercial properties are underinsured and 15% are overinsured, while 82% of residential properties are underinsured and 13% are overinsured. 


Properties most likely to be underinsured 

  1. Sports centres/recreation centres
  2. Hospices
  3. Public houses, licensed premises/Hotels
  4. Nursing homes/ Care homes
  5. Golf clubhouses
  6. Vehicle showrooms
  7. Youth clubs/ Nursery schools
  8. Undertakers
  9. Retail warehouses
  10. Dentist surgeries

Are you aware of the consequences of being underinsured? Read our upcoming articles on how this can affect you, and what we can do to help. 

At James and Lindsay, we pride ourselves on the personal service we offer. Our hands on approach means we get to know you personally, taking time with each individual policy. We work closely with a number of trusted insurers and have access to insurance solutions that may not be available elsewhere. 

*Data taken from 2023 Industry Infographic 

Data derived from 29,000 Rebuild Cost Assessments completed as of 31st August 2023. 

**Data taken from Federation of Master Builders State of Trade Survey Q3 2023. 


Don’t get caught out- the consequences of being underinsured 

In our previous article we touched on how quickly the market and costs of materials are changing, meaning covers and limits set even just 12 months ago may now be out of date. 

The result of this leaves the potential for properties to be exposed and vulnerable should they need to make a claim. 

You many think that a close estimate should do the job when taking out a policy, but if you don’t declare the right property building cost, or if you haven’t had your property professionally valued for insurance purposes, you may find that you are drastically underinsured should something go wrong. You can’t turn back the clock when it comes to an insurance policy, once the damage is done, it may be too late. You may find you need to subsidise any shortfall from your pocket which could be detrimental to you or your business. 


What is the ‘Average Clause’ and why is it important? 

The average clause determines how much your insurer will pay out when it comes to making a claim.  

Let’s break this down with an example: 

If you insure a property that would cost £600,000 to rebuild for only £300,000, you are underinsured by 50%. 

The average clause dictates that whenever you claim on your policy, your insurer will then only pay out a maximum of 50% of any claim you make. 

In some circumstances you could find that some insurers may not pay anything out at all if the underinsurance is significantly lower, making it vital to check. it vital to check. 


How to avoid underinsurance 

Next, we want to help you to avoid you being included in the 9 out of 10 underinsured. 

We recommend as well as reviewing your Buildings Insurance annually, it’s important to review your insurance any time you make a significant change such as renovations or in the case of commercial buildings, during times of peak stock levels. 


At James and Lindsay we work with to provide you with an accurate valuation of your property, at a discounted rate. 

In our next article we will give you tips on avoiding uninsurance, and how we as a business can help. 


Don’t be left out of pocket – how to avoid underinsurance! 

Underinsurance is common, but it doesn’t need to be. James and Lindsay have a specialist team on hand to navigate your policy and risks with you. 

When taking out insurance you should always consider the options available to you and what is most suited to your situation and needs. But what are these options and what do they mean? 


Index Linking  

Index linking of your sums insured is the method insurers use to annually increase your cover automatically in line with changes to inflation. This could mean you see your premiums increase because of a property’s replacement value increasing over time. 


Day One uplift 

Day one uplift covers the rebuilding cost of the property, stated as the declared value within your policy, with a percentage maximum uplift to cover expected inflation. This will usually be a set percentage attached to your policy to cover any predicted inflation.  


Other factors to consider when looking at property insurance 

Are you confident you have a recent, accurate figure for your property? 

Is the building construction listed correctly? Including the roof structure 

Is terrorism cover Included? (this is commonly removed as standard with most insurers) 

If you have any lifts in your building, do you have engineering inspection cover? 

These are just some of the factors the team can discuss with you to help you get the right cover for your property and needs. James and Lindsay are here to make sure you aren’t left out of pocket when it comes to property insurance.