Re/insurance broker Gallagher has reported that more than two in five commercial properties in the UK are currently underinsured due to rising inflation and cost of materials.
In research amongst business owners and commercial property claims managers, Gallagher found that the shortfall of underinsured properties was an average of 43% against the rebuild value covered by their insurance.
Almost all the claims managers Gallagher conducted the research amongst said there has been a rise in the number of properties that are underinsured in the past 12 months and the root of the underinsurance problem is 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.
When it comes to what’s causing construction labour cost rises, 85% cite inflation, and just over three-quarters (77%) say that Brexit is a major factor due to the decreased availability of labour.
What’s more Gallagher reports that the majority of business leaders who own their premises (65%) have not reviewed their commercial property insurance during the past year, indicating that many could now be at risk.
Some have gone even longer without looking at their policy, with one in six (16%) 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, commented: 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.”
“In fact, the valuation is based on rebuild costs which have unfortunately risen dramatically over the last year. As a broker we advise our clients on their insurance, and the need to review their cover when issues like this arise, but some businesses won’t necessarily realise the extent of the issue,” Fletcher continued.
“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. Your insurance broker can advise how to go about a valuation to ensure that cover is valid. With construction and labour costs as they are – and supply chain issues meaning businesses who need to repair or rebuild might be closed for longer than expected – it is currently very important to make sure you take time to check your cover.”
