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Torque Bike: How can underinsurance affect motorcycle businesses?

When you take out Motorcycle Business Insurance, you will set figures for the sums insured. This is the maximum amount that your insurer will pay you should the worst happen and you make a claim.

However, these sums insured are not always accurate, which can lead to something called underinsurance.

What is underinsurance?

Underinsurance occurs when your sums insured do not accurately reflect the value of your buildings, contents, stock, vehicles and equipment. 

If you make a claim and your sum insured turns out to be too low, you could find that your insurer won’t pay you enough to rebuild your premises or replace your tools, contents and equipment. 

This is because your insurer will apply something called the condition of average. This means that your insurer will reduce your payout in proportion to the amount you are underinsured by. You will then need to make up the shortfall from your own business funds. This will apply whether you have a partial or total loss.

For instance, perhaps you insured your business premises for £250,000. However, its actual rebuild cost is £500,000. This means that you have underinsured your premises by 50%.

If your premises is then damaged by a flood, for example, causing £50,000 of damage, then your insurer will reduce your payout by 50%. This means you get paid £25,000, leaving you with a shortfall that you will need to fund yourself.

Why does underinsurance happen?

Underinsurance may occur because you underestimate the value of what you own. This can be easy to do. You may not realise how much specific items are worth, or you could overlook something.

You may also underestimate the sum insured for your commercial property because you base it on its market value rather than its rebuild cost. If you suffer a total loss and your commercial property needs to be rebuilt from scratch, the costs can add up to significantly more. 

This is because you need to factor in things such as clearance costs, tradespeople and materials. 

These costs, and the value of your equipment, tools and other contents, can also change over time. Factors like inflation and rising wages can contribute to this. So, even if you did accurately estimate your sum insured to begin with, as time goes on, you may find that this sum is no longer adequate.

If you automatically renew your policy, you may also forget to add the value of new purchases made over the year. 

What can you do to avoid underinsurance for your motorcycle business?

The best way to avoid underinsurance is to accurately add up the value of your motorcycle business’ belongings and the rebuild cost of your commercial premises.

Our Torque Bike team recommends that you:

  • Use a professional surveyor from the RICS (Royal Institution of Chartered Surveyors) to estimate the rebuild cost of your commercial property.
  • Carry out a regular review of your contents, equipment, stock and vehicle values.
  • Chat to your suppliers to ensure that the cost of items is reflected by your sums insured.
  • Think about index-linking your sums insured. This means that it will change in line with inflation at renewal.
Talk to us about Motorcycle Business Insurance

If you’d like to talk to our knowledgeable Torque Bike team about your Motorcycle Business Insurance or your sums insured, please get in touch! You can call us on 0845 467 8737 or visit our dedicated webpage.

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