Organising an event can involve a considerable amount of time, money and planning. Insurance can help protect you financially when something unexpected happens, but only when the level of cover accurately reflects the amount at risk. Learn more about underinsurance and how you can reduce the risk of it affecting your event.
What is underinsurance?
Underinsurance occurs when insurance coverage is not enough to fully cover potential losses. This means that in the event of a claim, the insurance policy may not cover the entire cost of damages or disruptions, leaving the event organiser financially vulnerable. Underinsurance can result from a lack of awareness and incorrect valuations that are not reflected in the insurance policy or costs being higher than expected.
All policies are open to risk if they don’t have the correct level of insurance, which could lead to potential financial hardship due to being either underinsured or uninsured.
Examples of underinsurance
Incorrect sums insured
When something goes wrong, events are covered for their ‘sums insured’. This is how much it would cost to reinstate or cover the costs and expenses in the event of a loss (up to a certain amount).
If this isn’t calculated correctly, an event could be underinsured. An up-to-date inventory of all an events equipment and/or costs and expenses can help you set the right sum insured. This should take into consideration everything associated with the event, particularly any equipment that is owned or hired under contract for use during the event.
The Lamborghini example
It can help to think of this in the same way as car insurance. If you owned a Lamborghini but told your insurer it was an old car worth very little, you couldn’t expect to receive the full value of the Lamborghini following a claim.
The same principle applies to event insurance. If your event costs £100,000 to put on but you only insure it for £20,000, you can’t expect the policy to respond as though the full £100,000 had been insured.
Incorrect valuation
It’s important the sum insured for equipment represents the full reinstatement cost of the property. For example, an organiser may insure a hired marquee for £10,000, when its actual value is £25,000. If the marquee is then damaged or stolen at the event, that organiser may find the cover is not enough to meet the full cost of the loss.
If you’re unsure, you should arrange a professional valuation or contact the hiring company for them to provide the correct valuation.
How can underinsurance affect a claim?
Underinsurance doesn’t simply mean that you are only covered up to the amount you chose to insure. It can also reduce the amount you receive following a claim due to what is known as the Average Clause.
For example, if your event costs £20,000 to put on but you only insure it for £10,000, you have insured just 50% of the total risk. Any claim may then be reduced by the same proportion, so a £5000 loss could result in a maximum payout of £2500, minus any excess.
Put simply, if you choose to insure only part of your event costs, this could proportionally reduce how much you receive if you need to make a claim.
The risks of being underinsured
Although not all insurance is a legal requirement, event organisers need to ensure that they’re adequately covered against many of the risks they could be exposed too, so they aren’t left in a vulnerable position.
All events are vulnerable if they are either uninsured or underinsured, but some may be more affected than others. Smaller scale events are at greater risk due to their size and nature. Not being insured against the correct valuations could lead to serious financial hardship which may affect the future running of the event.
Without the correct level of insurance, the event organiser will have to pay for any compensation claims themselves to cover the cost of replacements, such as equipment, stock and marquees.
Regardless of the type of event, organisers should review their insurance annually or whenever there is a significant change to their events.
How can you avoid underinsurance?
To reduce the risk of being underinsured:
- Calculate the full relevant cost of the event rather than only its largest expenses.
- Keep an up-to-date list of owned and hired equipment, as well as their value.
- Ask suppliers or hire companies to confirm equipment values where necessary.
- Review your figures when suppliers, equipment or event plans change.
- Check the cover again before your event takes place.
- Speak to your insurer if you are unsure what values should be included.
Make sure your event is properly protected
Underinsurance is often unintentional but can have serious financial consequences if a claim occurs. Taking the time to calculate your event costs and equipment values carefully can help ensure that your insurance provides the protection you expect.
If you are unsure about the appropriate level of cover for your event or would like more information, contact our friendly team at Event Insurance before arranging your policy.
