Underinsurance is a growing problem: As a result of inflation and its wider economic impact, in recent years far too many policyholders have found that their insurance does not quite offer the level of cover they thought they had.
In this post we’ll explore some common causes of underinsurance and discuss who is responsible should a claim reveal that you or your business is underinsured.
What Is Underinsurance?
Underinsurance means you do not have enough insurance to meet your needs. This means that, should you ever need to make a claim on a policy, there’s a strong chance you’ll find your cover won’t stretch to pay for all your expenses.
Working with an insurance broker can help you avoid underinsurance while getting the best possible value for money from your cover. Find out how we can help you get the cover you need at a competitive price.
Common Causes of Underinsurance
There are a number of situations than can cause underinsurance, such as:
- Mis-sold or misunderstood policies
- Poor Planning
- Misrepresentation or non-disclosure
It could be the case that more than one of these factors are at play to cause a significant level of underinsurance. We’ll cover each of these in more detail below.
Mis-sold or Misunderstood Policies
If you buy an off-the-shelf insurance product, then it may not cover you for all of the risks you or your business face. For example, you may assume that your business insurance package covers you for certain cyber risks, but it may have certain limits and exceptions that you would not have with a standalone cyber insurance policy.
There are many ways in which inflation can lead to underinsurance. For example, if inflation drives up the price of certain building materials, then the cost of repairing or rebuilding your property will also increase. If your building’s declared value (BDV) exceeds your policy limits, then you’ll be underinsured.
Sometimes, underinsurance results from a policyholder simply not providing sufficient information when taking out a policy. For example, business interruption insurance can cover you for lost revenue if your business is unable to trade following an insured event.
It can be difficult to calculate how much business interruption cover you need, as you’ll have to factor in operational costs, potential lost revenue, the costs of replacing lost equipment, and more. You might have business interruption cover in place. But if your policy wouldn’t cover all of the expenses associated with getting you back up and running, then you may be underinsured.
Misrepresentation or Non-Disclosure
Sometimes, policyholders may leave out relevant information when taking out a policy, or they may provide incomplete or misleading information. There are a few reasons why people may do this, usually to save money on the cost of cover. But misrepresentation and non-disclosure can lead to underinsurance, as it may result in significant limitations and exceptions in the policy.
If you make a claim on your policy and you find that your insurance doesn’t provide enough cover to meet your needs, whose fault is it?
Whose Responsibility is it to Avoid Underinsurance?
There are some situations where policyholders might be held responsible for underinsurance. If the policyholder misrepresented their situation when taking out a policy, or if they did not disclose certain information, either intentionally or otherwise, then they will be responsible for any resulting underinsurance. But there are also situations where insurers and brokers can be held responsible for underinsurance too.
Also, company directors have a duty of care to protect their businesses and their employees against all possible risks. As we saw above, cyber security is one area where far too many businesses are underinsured, and in some cases, this is purely because directors assume that their standard business insurance policies stretch to offering full cyber insurance.
If you’re aware of the threat of cyberattacks, then you have a responsibility to cover your business against these risks. So if your current business insurance policy does not cover you for all the risks you face, then you may be held responsible in the event of underinsurance.
When Can Insurers be Responsible for Underinsurance?
There are some situations where insurers and insurance brokers may be held responsible for underinsurance. The most obvious example is when an insurer or a broker prioritises sales over customer service. This might lead them to selling their customers any cover at any price, with little regard as to whether this cover meets the customer’s needs.
Thankfully, unscrupulous behaviour like this is rare. Yet sometimes, underinsurance can result from miscommunication, or from even the smallest slip in professional standards.
Insurers and brokers must ensure their customers have the right levels of cover when they take out a policy. If an insurer or broker does not ask clear and specific questions at the point of sale, then they may be to blame for any resulting underinsurance.
Insurers should give their customers all the support they need to help them choose the right cover. For example, we mentioned above how discrepancies between policy limits and a property’s rebuilding costs can lead to underinsurance, particularly in times of inflation. To counter this, insurers could direct their customers to specialist online services to help them calculate the exact rebuild cost of their home.
Worried About Underinsurance? Talk To Us
If you’re worried about underinsurance, working with an insurance broker can make a huge difference – particularly during periods of economic uncertainty.
At Anthony Jones, we’ll take the time to get to know you, your business, and all the risks you’re currently facing. We’ll then work to find you an insurance package that truly meets your needs, with no gaps in your cover that could lead to underinsurance.
Don’t hesitate to get in touch with us to discuss how we can help you get true value from your business insurance.