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I have had the pleasure of working with several new clients in the leisure sector over the last 18 months or so – hotels and restaurants; single or multiple chains. The majority of them have had one thing in common: underinsurance.

By Gary Clifton, NFU Mutual Preston

The buildings reinstatement cost considers many aspects the market value does not: debris clearance, architects fees, site access issues, availability of specialist materials, etc.

Listed buildings or those in conservation areas are impacted especially, so many repurposed country house venues need to beware. Professional survey firm Barrett Corp Harrington found that 86 per cent of all such buildings it assessed in 2017 for insurance purposes were underinsured to some degree.

For business interruption it is common to underestimate how long it would take to make the premises operational again, especially for those buildings with special planning requirements.

This ‘indemnity period’ should also allow for client win-back. “If you build it, they will come.” Well yes, eventually. But the fact a hotel or restaurant is open for business does not mean full occupancy overnight.

Think how long it has taken to build the business and reputation to its current point. It will take time again.

I am also finding with many new clients that use a ‘gross profit’ basis of business interruption cover, that it has been set incorrectly. If all you are asked or providing at each renewal is your actual gross profit for the year, you will likely find yourself in this trap.

The insurance ‘gross profit’ calculation insulates your profit following a loss, but factors in more than just this figure. One of the biggest gaps I have seen in a hotel recently was a client who only had 48 per cent of the cover they required (£1.6m short!).

If you are underinsured and do suffer a major loss, an insurer is within its rights to reduce the claim settlement by the proportion of the underinsurance.

If this is five, six or even seven figures adrift of where it should be, all of a sudden your business and/or personal assets are going to take a hit. If you have any doubts:

Arrange a professional reinstatement cost assessment Seek professional insurance advice to assist with technical calculations around business interruption indemnity periods and ‘gross profit’ values