Briefing: Brokers key to solving underinsurance problem

By Matt Scott 

Underinsurance has always been a problem the insurance industry has had to grapple with, but the ongoing cost of living crisis has exacerbated the issue to near breaking point.

Amidst a perfect storm of inflationary and supply chain pressures, BCH managing director Mark Briggs revealed that 75% of the firm’s reinstatement cost assessments carried out over the course of 2022 found the buildings to be underinsured.

Much of this has been driven by the rising costs of materials.

The March 2023 release of the government’s UK Construction Material Price Index revealed that the cost of materials for property repairs has increased by more than 40% since the start of the Covid-19 pandemic.

Over that same period, labour costs for the construction industry have also risen by around 9%.

And this rise in the cost of claims has, unsurprisingly, led to premium increases across a number of property and casualty (P&C) business lines.

Unaffordable cover

The Marsh Global Insurance Market Index, published in February 2023, revealed that commercial property insurance premiums have risen in every quarter for the last four years – peaking at 24% in the final three months of 2020.

For many businesses, this means that securing appropriate levels of cover is essentially becoming unaffordable.

Indeed, a survey by OnePoll revealed that one in five SMEs across the UK have started to reduce the amount of insurance cover they are taking out, exacerbating the already perilous position of underinsurance in the UK.

This presents a problem for the insurance industry – and one that brokers will be essential in solving.

With their clients facing an increased cost of doing business and rising insurance premiums, brokers will need to take on a much greater advisory role.

Helping businesses to determine which risks are essential for insurance cover and which areas are more suitable for increased risk retention will be key.

Risk management will also become much more important under such a scenario and the most successful brokers will operate as partners to their clients, rather than just providing a transactionary risk transfer solution.

They say prevention is better than cure – and by offering risk management advice and support, brokers can help businesses to reduce their exposure and offset the pressures brought about by underinsurance.

This, in turn, will also embed brokers more firmly in their clients businesses, helping to add value to their services and increase loyalty and retention.