Reality: Underinsurance can reduce the amount an insurer pays, even when the claim is valid, because many policies apply the average clause.

In simple terms: if the true rebuild/replace value is higher than the sum insured, the insurer may treat you as if you are self-insuring the missing percentage. That means the claim payment can be scaled down in the same proportion.

Example: you insure stock/contents/buildings for £500,000, but the true value should have been £1,000,000. That’s 50% underinsured. A £100,000 claim might only pay £50,000 (before the excess and other policy terms). The shortfall lands with the business—often at the worst possible time.

Underinsurance usually happens innocently: inflation, higher material and labour costs, growth in turnover, new equipment, extra stock, refurbishment, or forgetting about “hidden” costs like professional fees, debris removal, and specialist reinstatement requirements.

What to do next (and why we insist on reviews)

1. Review sums insured regularly—at least annually, and immediately after changes (new kit, growth, refits, moving premises, increasing stock).

2. Sense-check key numbers: buildings reinstatement, contents, stock, gross profit/turnover (for BI), and any seasonal peaks.

3. Use valuations where appropriate for buildings or complex risks.

4. Lean on us. This is exactly why we push for regular reviews—so we can help you keep figures accurate, avoid nasty surprises at claim time, and make sure your cover matches the real-world risk. We’re always available to run through it with you and put sensible recommendations in place.

If you’d like to talk this through or find out more about this or anything else, call your usual contact at Park, or one of the team here.