The risk of being underinsured

Price increases for raw materials and the shortage of materials and components means that major claims today are increasingly more expensive compared to a year ago. If Insurance, the largest insurance company in the Nordics, has experience with corporate customers who have been significantly underinsured as inflation has raised costs to cover claims.

Kristine Birk Wagner photo
Kristine Birk Wagner, Head of Underwriting, If

Being underinsured is a bigger problem than most people realise. The worst-case scenario is that the insurance solution may be insufficient to cover the damages incurred. This means that rebuilding or purchasing new equipment, so that operations can be maintained, may not be possible at all,” says Kristine B. Wagner, Head of Underwriting at If Industrial.

According to Kristine B. Wagner, “One of the most essential questions to consider as a company these days is ‘if something happens, how much longer will it take for us to be up and running again, and do we have a plan for this?

Our aim is to help our clients in having the insurance they want, whether it is a 100% coverage of their business interruption or solely cover for the first six months, for example. It must be a conscious decision from the client’s side, and a financial exposure the top management is willing to take.”

If Insurance is in active dialogue with many large clients in the Nordics, both to review the client companies’ values and to discuss whether the insurance solutions correspond to the current conditions in today’s market.

In cases where the insurance sum is too low, companies are at risk of not being able to secure the necessary compensation to recover from a fire or flood or other property damages. Therefore, the outcome of being underinsured can, in the worst-case situation, stop the company from completely re-establishing operations.

Heavy reliance on suppliers

At present, the scarcity of materials and components can create a serious dependency on certain suppliers, which is an issue that is providing increasing challenges for many clients. 

“The importance of having multiple suppliers for critical equipment cannot be emphasised enough. The strong dependency on single suppliers puts forward a significant risk of facing long periods of business interruption, as many companies cannot get the needed goods from their usual suppliers,” notes Wagner.

In general, the current situation has developed over time, and has been further impacted by the disruption caused by the coronavirus pandemic. This troubling development, specifically the number of companies that are underinsured, increased during the second half of 2021 and this trend is accelerating in 2022 due to the war in Ukraine and its resultant global ramifications.

“We have not seen inflation at this high level for 20-25 years. The situation is completely different this year compared to just one year ago,” adds Wagner.

Recovering from business interruption

“We see this as one of the most important tasks right now. We are committed to ensure that the values our customers are insuring are adjusted to the current price level. Our experience is that almost all companies underestimate the expense to re-establish their operations after an accident or incident. The consequences may be that the company cannot get full coverage and is unable to recover and re-establish their operations,” says Wagner.

If reviews the insurance solutions of companies of a certain size on several parameters, such as stock values, longer delivery times and the prices for acquisitioning needed materials and equipment to maintain production.

“Even in cases where the value of the buildings can be assessed relatively easily, we see that it is difficult to calculate the total values accurately. Challenges, for example, with obtaining the components needed to keep production up and running when it comes to critical equipment, or the scarcity of materials and trade restrictions, make it more difficult than usual,” notes Wagner.

“It is important that clients act on this, otherwise they risk being significantly underinsured. Our aim is that our customers are not disappointed when damage occurs. And you will be disappointed if you are underinsured,” she concludes.

Written by

Birgitte Ringbæk, If
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