Double trouble in property

According to analysis by QuestGates of nearly 140 property projects, only 12% of owners paid the correct insurance premium. The loss adjusters, which undertook the valuations from September to November 2009, found that 85% of commercial properties were underinsured compared with 70% in 2008. On average, and just as worrying, the level of under-insurance for each property, 47%, is far higher than the historical level of 25%.

Alistair Steward, director at QuestGates, said: "It is shocking. It shows a lack of understanding for the basis on which buildings should be insured. It is not just re-instatement or market value, it may also be demolition and removal of debris."

Analysis of property investment portfolio valuations also produced results that the company remarked that it has never seen before: many were actually over-insured, by an average of almost £14m.

Steward commented on the findings: "Normally, you would expect property portfolios to fit the same profile as commercial." He cited properties having been disposed of from portfolios without a corresponding adjustment in premiums as one potential reason and added: "Companies index link valuations, which is fine for a couple of years but not for 15."

Ian Shelley, technical manager (property) at Aviva, pointed out: "Underinsurance has for some time been an issue of concern to insurers. For more complicated or unusual buildings, professional valuations may be the most appropriate way to ensure insurance premiums remain adequate. Typically, we recommend updates are obtained at least once every three years."

Luke Lockhart, valuation services manager at Cunningham Lindsey, added that brokers should be aware of some policies having a pro-rata clause that could lead to reduced payouts in the event of a claim. He added: "Brokers are looking at professional valuations increasingly because they protect them from a potential professional indemnity claim. A business might not survive a claim if it is under-insured and has an average clause. It is only natural they would look to recover it from a broker."