Underinsurance Problem


If the sums indicated in the insurance contract are lower than the actual replacement costs, this is called underinsurance. In a claims event underinsurance can on the one hand lead to lengthy negotiations for the insurer and on the other hand have existence-threatening consequences for the policyholder.

An example  
Sum insured: 10.000.000,00
Replacement value:  15.000.000,00
Shortfall: 5.000.000,00
Shortfall in % 33,33

Damage Insurance proceeds Policyholder’s direct loss
150.000   100.000    50.000       
1.500.000   1.000.000    500.000       
15.000.000   10.000.000    5.000.000       


Our experience: Underinsurance as a general rule
From more than 20 years of experience in the area of valuation and claims management an alarming picture can be deduced:

Dependent on the branch 70 to 90 percent of the companies are underinsured, whereby the extent of underinsurance is between 20 and 80 percent (!).

The causes are complex and diverse
  • Acquisition values do not correspond to the replacement values (especially for used machines)
  • Assets are not capitalised for the accounting department and are also not considered in the insurance sums.
  • Wrong boundaries between buildings and technical equipment. Here there is a big difference between the reports from accounting (mostly assets) and the actuarially relevant values. This can give rise to underinsurance’s in subareas (buildings or technical equipment).
    Different rules apply for tenants and owners: Third party property (e.g.: rented or leased devices) often does not exonerate from the insurance obligation. Examples include EDP-systems, small equipment, machines and large plants, where the policyholders can be hit twice. First they must financially reimburse the owners, and secondly the facility/equipment in question is no longer available to their company.

The solution: Valuation by Risk Consult
At the basis of each insurance concept is the authenticity of the sums that “are at stake”. The RC valuation provides you with a summary of your replacement values and therefore forms the ideal basis for a good and long-term client relationship with policyholders.

Reliable & all from a single source / and all under one roof
We not only carry out building validations, but also the determination of equipment values, so no interface problems occur.

Waiver of underinsurance on the basis of the RC valuation
Normally the insurer waives the defence of underinsurance if the insurance value occurred on the basis of the estimate of an acknowledged valuation expert, the new installations were included and corresponding index adjustments were carried out.”
Dr. Wolfgang Petschko,
Leiter Firmengeschäft der Vienna Insurance Group (in: ASSCompact, 07/2008, S.39)


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