Under Insurance Explained

Are your property Sums Insured adequate?
When was the last time you reviewed your sums insured? Do you know that the cost of
rebuilding has increased significantly over the last few years due to factors such as the lack
of experienced tradespersons, increases in the cost of materials (especially steel products).
The decrease in the Australian Dollar against overseas currencies has also affected the
replacement cost of machinery, plant & equipment.
Your property sums insured should represent the following values:

• Buildings: the “as new” re-building costs including all additional expenses such as
  removal of debris, architect/surveyors fees etc.
• Contents: the “as new” replacement value (not written down, book or depreciated
  value) of all Plant, Machinery & Equipment, Office Contents, Furniture, Electronic
  Equipment etc.
• Stock: the maximum value of Stock on the premises at any one time based on your
  purchase cost.
  It is important to get these sums insured right as ALL policies covering commercial
  property contain some form of under-insurance clause. The effect of this clause is that
  where you have a claim and are under-insured a proportionate reduction will be made to
  your claim pay out. Most under-insurance clauses contain a “margin of error” percentage
  so you are not penalised if your sum insured is slightly under the correct value.
  Example (using an 80% under insurance clause):
  You insure your Building for $500,000.
  The roof is blown off in a severe storm. The total cost of repairs is $150,000.
  Rebuilding value of the Building at the time of the loss is assessed as $1,000,000.
  Under-Insurance applies because your sum insured is less than 80% of the rebuilding
  value of the property.
  Claim payment = $500,000/$800,000 (i.e. 80% of $1000000) x $150,000 loss = $93,750
  In this example you would need to come up with the extra $56,250 to repair the
  building yourself.
  As you can see under insurance can seriously affect the protection provided by your
  policy. We strongly advise that you review your sums insured regularly. As we are not qualified property valuers we also suggest you obtain an independent valuation. We would be happy to give you the names of some valuers who would be willing to assist you.
  Please note that under insurance clauses usually apply to the Material Damage, Fire &
  Perils, Business Interruption & Electronic Equipment sections of Business Package &/or
  Industrial Special Risk policies.