Towergate warns businesses that the drop in the pound could leave many underinsured. The financial market’s nervous reaction to the Brexit vote a year ago has led to the pound falling by around 15 per cent against the Euro.
This leaves businesses that import goods from overseas, priced in a foreign currency such as the Euro or Dollar, facing a far higher risk of being underinsured because the sum insured for those goods will be valued in Sterling.
Discovering the shortfall at the point of claiming for a loss can have a huge financial impact because the size of the claim settlement is likely to be reduced. For example, in 2015 a company purchasing machinery or stock costing EUR250,000 needed to insure it for approximately £172,000. Today that sum insured would need to be £217,000 – a hike of £45,000.
Underinsurance affects a number of UK businesses each year – if they are underinsured for either their physical assets or for the impact to business interruption, the size of any claim settlement is likely to be reduced.
Justin Newton, Managing Director of CCV Cardiff Insurance Brokers part of the Towergate Group said:
“Underinsurance can have a devastating effect on businesses if they need to make a claim, and business owners may not have considered this additional risk posed by the substantial fall in the value of the pound.
“During this period of volatility we would strongly urge businesses to check sums insured and limits of liability so that adequate cover is always in place.”
Here’s what Justin advises to avoid underinsurance:
- Regularly review to keep asset sums insured in line with reality, the pound and inflation
- Getting the numbers right when you buy your insurance policy will help avoid any inadequate sums insured becoming even less suitable year-on-year
- Sums insured for buildings should be based on the cost of rebuilding not the market value – particular features of your premises might affect the cost of reconstruction
- With business interruption cover, make sure your gross profit assessment matches the policy. Accountants and insurers have different ways of measuring gross profit
- If you buy a simple online package policy check that the liability limits of indemnity, business interruption indemnity periods and other standard policy limits are sufficient