Under-insurance is when a business’s assets are valued and insured for less than the current rebuilding or reinstatement costs, and can lead to a reduced insurance pay out in the event of a property claim.

Ryan Roberts, who is a director at RAW Insurance, said: “Under-insurance isn’t a new phenomenon but we are seeing insurers focus on it more than ever in the event of a property claim.

“It’s essential that businesses take a serious look at the sums insured on their policies, to ensure that their assets are correctly valued and insured to the true value at risk.

“Under-insurance can have a big impact on a business in the event of a claim. For a business that insures its buildings for a sum of £500,000, which turns out to have a true rebuild value of £1,000,000, then in the event of a property claim they would be deemed 50% under-insured.

“In this case, a fire at the premises with a repair cost of £100,000 would be settled by insurers at £50,000 leaving the policyholder seriously out of pocket.”

Ryan, who works with businesses throughout the UK, advised businesses to take steps to reduce the risk of being under-insured.

He said: “Even the best run businesses can experience unexpected challenges so it’s best to take measures to ensure you are protected.

“We recommend businesses conduct regular, accurate valuations of buildings and contents using a professional valuer.

“When advising insurers of the sums insured for buildings, remember that it’s the cost of rebuilding the property that insurers need, not the market value or what you paid for it.

The building sum insured should cover the cost of demolition and site clearance, as well as planning, architect and other professional fees.

“For contents, insurers will usually want to know the cost of replacing items as new in the event of a claim.

“Also consider how inflation could affect the sum insured. While most policies are index-linked, factors such as an increase in the cost of building materials could directly impact on rebuilding costs.

“Speak to your broker regularly about any changes in your business that may need updating on your policy. Have you bought new machinery, stock or contents that could leave your current sums insured undervalued?

“If the value of your assets has increased, then that will need to be reflected in your policy.”

RAW Insurance is based in Carlisle and has recently expanded into Kendal and south Cumbria. The commercial insurance broker insures more than 500 businesses across the UK, with clients in a range of sectors including construction, engineering, the motor trade and property development.

Ryan said: “We have access to the most competitive policies in the market, and our clients automatically get free access to business support information including health and safety, HR, and regulatory compliance through our MORE from RAW online portal.

“Our additional services also include a property valuation service, which is available to our clients at a heavily reduced cost.”

RAW Insurance is a member of the British Insurance Brokers’ Association and is regulated by the Financial Conduct Authority.