A new report from insurance broker Gallagher reveals that 46% of commercial properties in the UK are underinsured, leaving owners at considerable financial risk. The study highlights a growing issue driven by inflationary pressures, with the average shortfall in coverage around 40%.
Inflation has significantly increased the costs of building materials and labour, making it difficult for many property owners to keep their insurance coverage aligned with actual rebuilding expenses. The price of construction materials has surged by 36% since 2020, while labour costs have climbed 7% in the last year alone.
According to the research, six in 10 (63%) claims managers pointed to material cost increases behind the underinsurance issue, while 50% attributed the problem to rising labour costs. Supply chain disruptions, raw material shortages, and worker shortages add to the complications.
“This data shows how important it is for property owners to work with a risk management specialist when insuring their property, as those who don’t are leaving themselves at significant financial risk,” stated Gallagher claims director Phil Daly.
“Clearly, our research shows that the issue of underinsurance is not going away and has actually increased over the last five years.”
It was found that 67% of claims managers have reduced or rejected claims due to insufficient coverage while 62% said the problem has worsened over the past five years.
Moreover, 96% of respondents noted that commercial property rebuild and repair timelines have extended, further exacerbating the risk of prolonged business closures or interruptions. More than half (54%) of claims managers also reported that business interruption cover is often insufficient.
Another factor driving underinsurance is the failure of commercial property owners to conduct regular valuations. The study found that 37% of claims managers attribute underinsurance to owners neglecting to reassess their properties’ value, a process typically recommended every three years.
“[Underinsurance] poses a significant threat to businesses who may find themselves having to foot some of the costs of rebuilding or repairing their premises,” Daly added. “Challenges such as supply chain disruption and increased demand for materials mean that owners could face longer repair times, which carries a serious risk of business interruption.”
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