Minimising underinsurance risk in an inflationary environment

How Marsh Valuation and Business Interruption experts have helped clients eliminate the risk of over or underinsurance.

In this inflationary environment it is important to understand what impact inflation may have on an organization’s insurance and risk management programs.

Asset and business interruption values become very important in terms of how they are declared as well as the analysis and paper trail that supports them.

An organization’s approach to calculating declared values may result in over or underinsurance.

How confident are you that your approach calculates the appropriate values? And in the event of a loss will your insurance policy respond as expected?

In this article, real customer stories illustrate how our Marsh Valuation and Business Interruption experts have helped clients eliminate the risk of over or underinsurance.

1) Asset Valuation

Decreasing the risk of underinsurance with an Asset Insurance Valuation
Industry: Manufacturing

A large multinational firm acquired a business with multiple manufacturing sites across the Pacific. As part of the acquisition, they were provided with insurable values. The client was unsure of the accuracy of the insurable values provided and engaged Marsh to undertake a comprehensive review of the new assets.

Marsh’s valuation exercise identified that the portfolio of assets was undervalued by over $450 million or approximately 45%.

The firm decided to increase the insurable values in line with Marsh’s valuations, and add the new business to the existing annual valuation program, ensuring sufficient coverage for the client.

The valuation program minimized the risk to the client, ensuring the newly acquired assets were adequately insured, while allowing the Marsh insurance broking and placement teams to place appropriate insurance cover and terms for their client.

2) Asset Valuation

Avoiding additional premiums and over insurance with an Asset Insurance Valuation
Industry: Haulage, Logistics and Distributions

Marsh was appointed to undertake an Asset Insurance Valuation of a large transportation and logistics firm. The valuation involved Marsh undertaking physical inspections and thoroughly reviewing the sums insured, inclusions and exclusions of their leasehold arrangements.

The review found that various assets being insured by the client were either owned by third parties or required to be insured by the lessee under the lease agreements. This resulted in the client being over insured by approximately $1.1 billion.

The client ended up saving hundreds of thousands of dollars in premiums once the declared values were decreased as per the results of Marsh’s Valuation Report.

3) Business Interruption

Reducing premiums and reducing risk alignment with a Business Interruption Declared Values Review
Industry: Agriculture, Food & Beverage

An agri-food business had a declared business interruption value of $1 billion. Due to the hardening market, insurers were placing pressure on increasing retentions which would limit the client’s ability to access business interruption coverage.

They engaged the Marsh Claims Solutions team to conduct a Business Interruption Review assessing key risk exposures, controls, mitigation, analytics and program design/execution. Our review determined the client could easily avoid sales losses. The insured had a mature business continuity plan in place and could access multiple other manufacturing facilities across Australia, New Zealand and Asia.

Marsh Claims Solutions provided enhanced alignments of business interruption risk and improved risk understanding for the insurer. Rather than declaring full business interruption values per location asset, Marsh recommended the adoption of a first loss limit.

4) Business Interruption

Finding the correct coverage and avoiding excessive premiums with a Business Interruption Declared Values review
Industry: Energy & Power

A energy provider had a limited understanding of how their risk was managed throughout the business, including which were managed via supply contracts and which were transferred to the insurance market.

The Marsh Claims Solutions team was engaged and worked with the client’s directors to understand their contractual commitments and how their cover would respond. A Business Interruption Review was conducted along with a Declared Values and Policy Limits Review based on the risks they were able to transfer to the insurance market.

It was found the client had the wrong cover for their type of risk. Marsh Claims Solutions provided a clear resolution with the client reducing their premium spend as they were purchasing insurance for costs that would cease in the event of an interruption.

What are the consequences of incorrect declared values?

Declaring accurate values is the insured's responsibility. While you may have received advice from diverse sources, the ultimate responsibility to ensure valuations are adequate lies with the insured party. An over-estimation of the value can lead to paying more premium than necessary. On the other hand, an under-estimation of value can lead to an insufficient pay-out in the event of a claim.

Where next?

Marsh Valuations and Claims Solutions teams are part of Marsh Advisory. We act as trusted partner in the face of change, helping clients better anticipate future challenges and capitalize on emerging opportunities through proactive risk advice that builds resilience and confidence.

For more information, contact your Marsh representative or a member of the Marsh Advisory consulting team. Contact us.

This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.

Minimising underinsurance risk in an inflationary environment