New underinsurance warnings as businesses told not to gamble with their futures

There are increasing fears over the soaring levels of underinsurance in the UK as inflation drives the costs of the materials ever higher.

The latest warning comes from specialty (re)insurance group Chaucer which warned increasing numbers of businesses are running the risk of finding their coverage is not enough to ensure their companies could survive a major loss.

It warned continuing high levels of inflation in construction costs in the UK and globally, risk leaving homes and businesses underinsured in the event of fire or another catastrophic event.

Chance Gilliland, Head of Global Property Delegated Authorities at Chaucer says that many businesses have tried to save money by not increasing the amount covered by their property even as constructions costs have soared. In the event of a fire or other catastrophe, that could mean they have insufficient funds to rebuild or replace the damaged property. This could leave the insured tens or hundreds of thousands of pounds short of the actual rebuild costs of their property.

The insurer highlighted the UK Construction Material Price Index increased by 10.4% in the past year. This has been driven by increases in the price of insulating materials (41%), gravels and sands (20%) and concrete products (16%) in the past 12 months.

As rebuild costs are 10.4% higher than a year ago, an average property insurance policy set to cover £1 million could now be short of covering the full rebuild value, meaning the policyholder is now underinsured.

A combination of soaring energy prices following the invasion of Ukraine and a 6% increase in worker wages in the past year, is pressuring construction companies to pass costs onto customers.

Gilliland added: “Soaring construction costs driven by scarcity of raw materials, supply chain disruption and higher labour costs could leave UK businesses underinsured and at risk of excess costs.

“It’s crucial that policyholders review their coverage to ensure that this is sufficient. Otherwise, they could find themselves in the position of having to pay for repairs out of pocket.”

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