Cheap insurance might be a costly mistake. You may think a lower premium is a savvy move. But if you end up not calculating the costs of potential damage correctly (even if it happens inadvertently), you could be at risk of being underinsured.
Perhaps you don’t know if you’re underinsured. You’ve covered yourself for the market cost of your club. And isn’t that enough? Actually, to avoid underinsurance, you need to take into account the full cost to rebuild and reinstate the premises. This includes: all contents, equipment, building materials, professional fees, outbuildings, debris removal and much more.
Costs will change over time – so make sure your valuation is up to date
Inflation is just one of the fluctuating costs to take into consideration. You should also consider any items that might be tricky to replace as the cost of this replacement could be higher than expected.
You should have a maintained inventory of all machinery, equipment and stock stored on your premises and let your insurer know if there are any significant changes that could affect the total you’re insured for.
New regulations and legislations may also have come into play. Maybe during a rebuild you’d need a new lift or eco-friendly materials – and this bumps your costs up.
82% of businesses haven’t altered or increased their insurance cover, despite the vast majority of businesses identifying new risks as it grows. As a minimum, arrange a comprehensive building valuation every three years. A professional Chartered Surveyor will be able to help you identify any changes you need to declare.
What happens if you’re underinsured?
Your Sum Insured is the amount you’re insured for. This takes into account everything – from materials to professional fees. If you have to make a claim and the valuation turns out to be correct – hurrah!
If, however, the valuation is higher than the Sum Insured, then your insurer will use Average as a ‘rule’ to calculate your payout.
Essentially, your insurer will pay your Sum Insured divided by Valuation (minus your policy excess). You’ll then be left to foot the rest of the bill yourself.
|Club X||Building Sum Insured £750,000||Reinstatement Valuation £1,875,000|
Club X suffers a small fire – the loss totals £10,000
Payment received would be calculated as follows:
£750,000 / £1,875,000 = 40%.
Sum Insured is 40% of the reinstatement valuation so the claim payment would be 40%.
Loss of £10,000 x 40% = £4,000 – policy excess of £250 = £3,750 paid by insurers.
The club will now need to find £6,250 from their own funds to pay for the underinsured element of the claim.
Ask yourself how much money you’d be able to upfront to help keep your club afloat in a crisis. If the answer is not a lot, then you really must make sure you have a correct valuation.
What is the Average Waiver Guarantee Clause?
For some of Club Insure’s customers, we have arranged Average Waiver Guarantee Clause. This means that, if the worst happens and the building suffers loss destruction or damage, the insurer agrees to waive the underinsurance provision. But only if the insured has had a professional building valuation of the reinstatement value within the past three years (providing there has been no subsequent structural alterations or additions). We still do recommend having a building valuation more frequently, and always alerting us to any changes. But this clause gives customers additional peace of mind.
For further expert advice, please contact the Club Insure team.