Underinsurance Claims Scenario – Business Interruption

Many businesses only discover they’re underinsured when it’s too late during a claim. This real-life scenario shows how incorrect sums insured and underestimated recovery periods led to significant financial shortfall after a major incident. Download the free case study to learn what went wrong and how to avoid it.

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Executive Summary

This one-page case study highlights the impact of underinsurance in a business interruption claim, following serious fire damage to a commercial premises.

What happened:

• A major fire forced the business to cease operations temporarily

• The property was damaged, and trading was suspended for several months

• The business had insured income and premises, but with key shortfalls

Where it went wrong:

• The sum insured did not reflect actual turnover and gross profit

• The indemnity period (set at 12 months) was too short for full recovery

• Increased costs of working and extended supply chain delays weren’t factored in

Consequences:

• The claim payout was significantly reduced due to the underinsurance clause

• The business was left with a funding gap and unable to fully recover operations

• Loss of clients and market position followed due to the extended downtime

Key lesson:

• Regularly reviewing your sums insured and indemnity period is essential

• Work with a broker to ensure cover reflects real-world recovery timelines and inflation

• Underinsurance can impact not just property, but cash flow, reputation, and viability

This guide is ideal for business owners, finance teams, and operations managers managing insurance cover for continuity risk.

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