Technical Insight – Underinsurance

I felt it appropriate to share some thoughts and concerns over a problem that has been discussed quite a bit over the last 6 months, that of underinsurance, inflation and the value of insurance products.

At Commercial Express, property owners insurance is our largest product line and we write thousands of policies every year. There seems to be a growing trend of claims where, whilst the indemnity of the claim is not in question, the buildings seem to be drastically underinsured. It is common for average to then apply as often the buildings are underinsured by 40% or 50%. Whilst the mechanics of this are all legitimate it can’t help but seem to the end client to be quite unfair and it doesn’t seem a good look for the industry as a whole.

I’m not sure that relying on index linking, day one or other indexation methods embedded within a policy wording is solely the answer. We have recently more than doubled our index linking percentage to try and keep in line with current inflation and help protect our policyholders, however even had index linking at the new percentage applied to some of these policies over the past few years, unfortunately, the building sum insured would still be quite adrift from current valuations.

I can appreciate the difficulty for the customer at this time with the pressure on costs and bills, to undertake a revaluation that might be the first time in five years and to have the building sum insured potentially double and thus most likely the insurance premium increase. However we can’t avoid this fact, and I think it is better to be clear and upfront and try to explain the issues with underinsurance rather than hope that the issue will go away and a claim not occur.

It is difficult for you, the broker, as well, to try and convince the customer around the merits of having up-to-date and accurate sums insured. Often if a claim started to go badly then the broker can often be in the firing line. The best thing we can do is to try and work together in making sure that our communication around this subject is clear, efficient and with the long-term goal of giving the best service to the customer.

I would be interested to hear your thoughts on this matter and anything further Commercial Express could do to help. Certainly, it is a topic that we all need to keep a close eye on over the coming year.

Tom Bolstridge
Head of Underwriting

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