Accurate Declared Values are important under Industrial Special Risks Insurance because underinsurance can affect how a claim is settled.

Some ISR policies contain co-insurance provisions that can reduce a claim where the values declared to the insurer are inadequate.

What is underinsurance? #

Underinsurance occurs where the value used for insurance purposes is lower than the amount that should have been declared under the policy.

This can occur because of:

• Rising rebuilding costs.
• Inflation.
• New machinery or equipment.
• Increased stock.
• Business growth.
• Incorrect Business Interruption calculations.
• Outdated property valuations.

What is co-insurance? #

Co-insurance is a policy mechanism that can require the insured to bear part of a loss where the declared value is insufficient.

The precise calculation varies between policies.

Businesses should therefore not assume that a claim will simply be paid up to the amount declared.

Can underinsurance affect a partial loss? #

Potentially, yes.

Underinsurance provisions can be relevant even where the insured property is not completely destroyed.

The policy wording determines how the calculation applies.

How can businesses reduce the risk? #

Useful steps can include:

• Obtaining professional building valuations.
• Reviewing machinery replacement costs.
• Updating stock values.
• Recalculating Business Interruption values.
• Reviewing values after major acquisitions or renovations.

Declared Values should be reviewed regularly rather than simply carrying forward the previous year’s figures.