back to basics...back to basics update on underinsurance and walk through case studies dave clare...

Back to Basics

Update on underinsurance and walk through case studies

Dave Clare BSc (Hons), MCIOB, C.Build.E, ACILA

Head of Surveying Services

Michael Ledgerton BSc, ACII, FCILA, FUEDI-ELAE

Head of Major Loss

“It takes many good deeds to build a good reputation and

only one bad one to lose it.” Benjamin Franklin

Develop services

attractive to

Domestic and SME

Raise

awareness

Gain insurer

“buy-in” Use knowledge to

enhance claims

process for all

Make claims

service the

reason we buy

insurance

Evidence results

to maintain

improvement

Improve our

reputation

through

partnership

The Results are In...

Claims experts working with brokers before a claim occurs to ensure the best

customer outcome - that’s true partnership.

No. U/I:

87%

72% in 2018

31% decrease

in claims

reduced

by U/I

Only

58% are valuing for

1st time

Commercial

claims complaints

fallen by

12%

£1.21m Additional

premium

collected

Extent of U/I:

40%

20% now

And this means...

CUSTOMER

No claims hassle

Insurance did what it was

supposed to do

Can concentrate on business

BROKER

Fair risk presentation

Less claims hassle = happy client

Renewal delivered

Reputation enhanced

QUESTGATES

Skills utilised for greater good

Better broker relationships

New revenue stream

Meet customer before claim

occurs

Risky Business

Direct

Brexit hokey cokey

Freedom of Movement

Import Costs

Specialist Trades Dying

Indirect

Competitive Markets – Best Price vs Best Fit

Customer Understanding of Risk

Do your clients say this...?

“Isn't market value

the same as

reinstatement

value?”

“I wouldn't

replace the

equipment if it

was damaged”

“I’ll recover

quickly”

“It wont

happen to

me" “A lower sum

insured saves

me premium”

...therein lies the problem!

“My bank

valued it”

Know The Risk

Arrange a mutually convenient time and date (Don’t rush)

Meet with the person most knowledgeable about the risk

Ask questions to fully understand the extent of risk

(E.g, Ownership, Construction Types, Business Interruption Needs, Key

Machinery and Plant)

• Value the Risk

- Research Past Information (accounts, documents, valuations)

- Knowledgeable Input

- Detailed measurements and calculations

- Consider basis of cover (Reinstatement/ Indemnity/ First Loss)

Where To Go For Help...

Google Warning!

BCIS

Insurer

Specialist Services

BIBA Valuation Facility Provides

Building

Valuations

Machinery/Plant

and Contents

Valuations

Business

Interruption

surveys

Case Study 1 – Commercial Building Fire

.

• Electrical fault in a vehicle

• Damage circa £250,000

• Pro-active Broker

• Policy liability accepted early by insurers

• Insured keen to reinstate

Case Study 1 – The Details

Case Study 1 – What could possibly go wrong?

• Building was underinsured

• Insured not VAT registered, but VAT was not added to the pre-loss

valuation obtained by the insured.

• Underinsurance of 20% - Average applied

• Ultimately cash settled as insured couldn’t fund the difference

• High end Indian restaurant

• Serious fire

• Inadequate BI cover

Case Study 2 – Commercial Fire

.

• Incorrect Rate of Gross Profit used

• Accountancy definition rather than insurance definition used

• Created significant underinsurance

• Also doubt whether 12 month Maximum Indemnity Period is adequate

Case Study 2 – The Issues

• Metal cutting business

• Building flooded to a depth of

1.5m

• Lot of old machinery

Case Study 3 – Commercial Flood

.

• Cover arranged by insured on purchase cost – i.e second hand

• Damage on reinstatement basis circa £400,000 – sum insured less than

half of this

• Insured didn’t accept underinsurance or that machinery was repairable

– most of it was.

• Broker massively helpful in persuading insured that what we were

saying was correct

Case Study 3 – The Details

Case Study 4 – Multiple Buildings

Case Study 4 – Multiple Buildings

Case Study 4 – Multiple Buildings

Guess the value?

Sum Insured £592,960

Value At Risk £2,586,040

73%

Underinsured

Case Study 5 – Pre 1910

Case Study 5 – Pre 1910

Guess the value?

Sum Insured £4,500,000

Value At Risk £7,093,925

37%

Underinsured

Case Study 5 – Austerity Gamble

Case Study 5 – Austerity Gamble

Guess the value?

Sum Insured £4,850,000

Value At Risk £11,523,625

58%

Underinsured

Ten Steps of Building Calculation

List areas by usage

Allocate appropriate usage rate (BCIS Quarterly Review/ Knowledge)

Use range for quality of finish

Apply uplifts for material/ labour factors

Apply uplifts for specific items (i.e. Play Area equipment)

Apply rate for regional factors

Calculate external works

Apply rate for demolitions

Apply rate for Professional Fees (incorporating design to build)

Issue clear concise report, noting exclusions

Top Things to Remember

1. The Risk

2. The Insurable Interest

3. The Source

4. The Market Forces

5. The Tax Position

6. The Business Continuity Plan

7. The Experts

The Insurance Act – Don't Guess!

Passion. Partnership. Progress. QuestGates.

Any

uestions?

T: 01204 860 429

M: 07595 452 522

E: michael.ledgerton@questgates.co.uk

W: www.questgates.co.uk

T: 01204 869 844

M: 07734 708 430

E: dave.clare@questgates.co.uk

W: www.questgates.co.uk

Passion. Partnership. Progress. QuestGates.