80% of commercial properties affected by underinsurance

Mark Davies, Director of Building Surveying Services at GJS Dillon

Up to four in five organisations will be disappointed with the pay out from their buildings insurance when they look to claim for damage, according to a leading building surveyor.

Mark Davies, Director of Building Surveying Services at Worcestershire commercial property consultancy GJS Dillon, says that the insurance industry estimates that most commercial properties, and many residential blocks, are under-insured by between 20% and 45%, reducing pay outs for damage because the wrong valuation figure was submitted to the insurance company when the policy was bought.

“The recent storms and flash floods have seen many more businesses than usual digging out their buildings insurance policies, looking for insurance companies to pay for damage to their premises, some of which has been quite substantial,” says Mr Davies.

“When buildings are under insured, insurance companies will only pay out on a pro-rata basis. This means if they are under-insured by 45%, then any claim will be reduced by the same amount. This will leave organisations struggling to make up the shortfall and may be the difference between business survival and failure.

“As alarming is the fact that business interruption policies are also underinsured by an average of 50%.”

According to Mr Davies, the reason so many organisations get it wrong is that insurance companies require an accurate rebuild cost, which has nothing to do with the freehold value of the premises.

“Building materials and other costs have been increasing at a tremendous rate in the past few years, so it is impossible for a lay person to provide an accurate rebuild figure,” says Mr Davies.

“To ensure you submit the correct rebuild cost to your insurance company when renewing your policy each year, you need an Assessment of Building Reinstatement Costs for Insurance Purposes, carried out by a Chartered Surveyor which we can provide for you.”