Businesses across Ireland are leaving themselves exposed to financial disaster by failing to properly insure their premises, according to an industry expert.
Underinsurance is a growing problem for businesses of all sizes and in all sectors, says chartered building surveyor Trevor Kelly.
“Across the country, many companies believe they are adequately protected, only to discover after a major loss that their policy covers only a fraction of the true cost of reinstating their property,” said Mr Kelly, whose company Rebuildvaluation.ie acts both as a loss assessor and as a consultant offering guidance on reinstatement costs.
“For the past four years, we have been conducting on-site reinstatement cost assessments for commercial properties as Royal Institute of Chartered Surveyors-regulated chartered surveyors. Our findings show that nine out of 10 commercial properties are in fact underinsured, and not by small amounts either,” he says.
He points to two recent assessments carried out by his company to illustrate the potential cost of such underinsurance.
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In one, a waste management operation had insured its several buildings for a total of €8.5 million. On the basis of current building costs, his team assessed the actual cost of reinstating the buildings at €36.5 million.
“That business was exposed to an underinsurance gap of 77 per cent. In money terms that is a shortfall of €28 million,” Mr Kelly says.
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Another case saw a large logistics warehouse complex underinsured by about 82 per cent or, in money terms, approximately €20 million short of what it would cost to rebuild.
It is not just theoretical losses. Hundreds of business are left out of pocket every year when they have to make claims on their insurance.
Mr Kelly recalls one recent case where a hospitality business made a claim for close to €1 million but, because it was underinsured, just under €350,000 was paid.
“In most cases, that scale of shortfall would result in financial ruin,” he said. “It’s very hard to see how a business could get back on its feet when it was left having to find something like €600,000 just to reopen.”
Rising construction costs, changes in building regulations and the complexities of some modern facilities mean that, for many businesses, “the sums insured on many policies have simply not kept pace with reality” over recent years.
“Underinsurance is often seen as a technical detail, but its consequences are very real,” Mr Kelly says. “It is policies paying out only a fraction of the reinstatement cost, severe funding gaps that threaten business stability and huge knock-on effects for employees, local communities and supply chains.”
Mr Kelly says the problem is not confined to certain subsectors, with his team identifying what he says as “substantial gaps” across sectors ranging from manufacturing and hospitality to apartment complexes and professional offices.
The issue of underinsurance is in the headlines of late, as owners of apartments in Creeslough, Co Donegal, which were destroyed in a gas explosion almost three years ago with the loss of 10 lives, are battling with the building’s owner and its insurer over recovering their losses.
The building was underinsured and the insurer, Aviva, is now seeking High Court guidance on how the claims should be settled.