The British Insurance Brokers’ Association (BIBA) and Allianz have developed a digital guide to support brokers in helping their customers avoid the risks of being underinsured.
Underinsurance occurs when you have insufficient insurance cover that leaves you responsible for a percentage of a loss or expense and may lead to financial hardship, said the BIBA-Allianz guide, which was released at BIBA’s recent annual conference in Manchester, England.
(See related article from the BIBA meeting that covers a panel discussion on the themes of the hard market, which included the topic of underinsurance).
Underinsurance remains a persistent and widespread problem, according to BIBA. The Chartered Institute of Loss Adjusters estimates underinsurance to be present for more than 40% of claims and the degree of underinsurance to be around 35% to $45%.
Underinsurance can arise as a result of a failure to:
- Correctly calculate the amount of insurance cover you need.
- Understand how to arrive at a suitable sum insured or limit of indemnity
- Understand what a sum insured or limit of indemnity represents
- Select an appropriate indemnity period for business interruption cover (It’s widely agreed that most businesses need at least 24 months to recover their trading position)
- Take account of the fact that accountancy definitions of gross profit are different from insurance definitions
- Obtain up-to-date valuations
- Review sums insured year-to-year
- Recognize that policy standard limits are not always enough
- Appreciate that periods of high inflation also increase the risk of underinsurance.
“This new guide couldn’t be more timely. Not only do we know that underinsurance is already an issue, but the current economic climate, supply chain problems and rapidly increasing inflation could all mean that people and businesses are underestimating the amounts that they need to insure,” said Graeme Trudgill, BIBA executive director.
“Allianz’s input on this vital topic will help us raise awareness and the information in the guide will help to reduce the problem,” he added.
“This topic resonates with us. Our own 2022 survey of SMEs has revealed practices that would leave businesses without sufficient cover in the event of a relevant loss, so we are committed to working with BIBA to reduce that potential,” commented Nick Hobbs, chief distribution & regions officer, Allianz Commercial.
“We want customers to secure the exact levels of cover they need – and it’s our broker partners who provide them with that crucial guidance, the absence of which reveals itself too late,” Hobbs continued.
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