Nearly half of all UK commercial properties are estimated to be underinsured

• Inflation, in particular the cost of materials and increased labour prices are causing widespread commercial property underinsurance with many owners failing to keep pace
• Research amongst insurance claims managers reveals that nearly half (46%) of commercial properties are estimated to be underinsured
• The average shortfall in cover is around 40%, leaving property owners at significant financial risk
• Nearly seven in ten (67%) claims managers have been forced to reduce or reject claims in the last year due to underinsurance
• Gallagher is urging UK property owners to work with an experienced broker to ensure their properties are correctly valued

Research from insurance broker and risk management company Gallagher has revealed that over four in ten (46%) of commercial properties are underinsured, with the average shortfall being 40%.

The significant gap between the correct valuation of properties is being caused by the UK’s lengthy inflationary environment with the cost of materials alone increasing by 36% since 2020 and labour costs up 7% in just the last year¹.

According to claims managers, these are the two biggest contributing factors leading to the current underinsurance problem with six in ten (63%) citing the rising cost of materials and half calling out labour prices (50%), which are exacerbated by current challenges such as supply chain disruption, raw material shortages and worker shortages.

The majority of claims managers (62%) report the issue has got progressively worse over the last five years, meaning they are having to have difficult conversations with underinsured property owners with 67% in total saying they have had to adjust or refuse a payout.

In the instance that insurance does not cover the full repair or rebuild cost, or reinstatement, owners could find themselves having to borrow money to foot some of the costs when budgets are already stretched, and it could also increase the risk of an extended period of business interruption.

The significant majority (96%) of claims managers reported that commercial property rebuild and repair times have increased over the last five years with all of the claims managers interviewed saying this is having a knock on effect on business closure or interruption periods.

As a result, the majority (54%) of claims managers say that currently business interruption cover is either sometimes or always not adequate against the backdrop of these increased repair and rebuild times.

Over three in 10 claims managers (37%) said that underinsurance was being driven by commercial property owners not carrying out regular valuations of their premises, which it is recommended they do every three years.²

Phil Daly, Claims Director at Gallagher, said: “This data shows how important it is for property owners to work with a risk management specialist when insuring their property as those they don’t are leaving themselves at significant financial risk. Clearly, our research shows that the issue of underinsurance is not going away and has actually increased over the last five years.

“This poses a significant threat to businesses who may find themselves having to foot some of the costs of rebuilding or repairing their premises. Challenges such as supply chain disruption and increased demand for materials means that owners could face longer repair times, which carries a serious risk of business interruption.

“Gallagher works with commercial property owners to ensure they are carrying out regular valuations so that they can find the appropriate insurance cover they need, and brokers can also advise on suitable business interruption insurance periods to ensure that should they need to make a claim that are protected. It is crucial for commercial property owners to take the appropriate measures so that they don’t leave themselves vulnerable to loss.”