The Brexit effect on insurance valuations… and other Trumpredictable scenarios

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UK businesses that import equipment and raw materials from foreign currencies may be affected by currency fluctuations following the UK’s vote to leave the EU.

When dealing with a recent claim, we found that this had influenced our client’s insurance cover. The client had insured their plant and machinery at a value of £10m. This was an accurate valuation at renewal, which reflected the cost of replacing everything in their facility. But following a fire at the client’s premises shortly after renewal, the increased cost of replacing the equipment in the post-Brexit market became clear.

As the new equipment was only available from European manufacturers, changing exchange rates meant that the cost had increased by 10-12%. This left the client short by £1.2m.

In the case of a partial loss, it’s also worth noting that an insurer could choose to apply ‘Average’ to the claim because of the under-insurance. Simply put, if the reinstatement cost of the equipment is £2m, but the business is only insured for £1m, the insurers would be within their rights to impose a ‘proportionate settlement’ for any claim. While under-insured by 50%, a valid claim for £200,000 worth of insured damage would only lead to an insurance pay out of only £100,000. Again, this would leave the business substantially out of pocket – and perhaps jeopardise their ability to trade.

Any business reliant on suppliers who operate in any non-sterling currency should be concerned.  This could have an immediate impact on your valuations for key equipment and stock. And, without proper attention, this could lead to a significant level of underinsurance.

In these times of considerable economic uncertainty, it’s never been more worthwhile to review your insurance cover levels.

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About the author

Passionate about all things digital, Dani is a specialist in digital transformation for businesses of all shapes and sizes.