Underinsurance in commercial premises: common mistakes and how to prevent them

You insure your business, pay your premium every year, and think that if something happens, you'll be covered.

But then a fire, flood or burglary occurs.

And you discover that your insurance only covers part of the damage.

The reason? You are underinsured.

In this article, we explain:

• What underinsurance is in commercial premises

• What are the most common mistakes that cause it

• And, above all, how to prevent it so that it doesn't cost you thousands of pounds

What is underinsurance?

Underinsurance occurs when the sum insured in your policy is less than the actual value of the insured property.

In the case of commercial premises, this can affect:

• The building (structure, walls, floors, etc.)

• The contents (machinery, furniture, stock, etc.)

• Or both

When you are underinsured, the insurer applies the dreaded proportional rule: if you only insured 60% of the value, they will only pay you 60% of the damage.

Practical example:

• Actual value of the premises + contents: €200,000

• Insured capital: €120,000 (60%)

• Fire damage: €100,000

• Compensation after proportional rule: €60,000

Result: you lose €40,000 even though you are insured.

Why is underinsurance so common in commercial premises?

Because many businesses:

• Have not updated their policies for years

• Insure for the "minimum" to pay less

• Do not calculate the value of their contents (machinery, furniture, merchandise, etc.) correctly

• Copy old values from previous policies

• Do not receive technical advice when taking out insurance

The result: cheap insurance, but useless when something serious happens.

Most common mistakes that lead to underinsurance

1. Using the cadastral value as a reference

The cadastral value does not reflect the actual reconstruction cost. If you use it as a basis for insuring the building, you are probably declaring a capital value that is well below what is necessary.

2. Not including improvements or renovations

Many premises have been renovated with high-end materials, modern facilities, enclosures, decoration, etc.

If the policy is not updated, all of this is left out of the actual coverage.

3. Forgetting part of the insured contents

It is common not to declare:

• Professional machinery

• Electronic equipment

• Technical furniture

• Seasonal stock (which may increase in certain months)

• Tools and auxiliary materials

This creates a huge gap between the actual value of the business and what the insurance covers.

4. Not reviewing your insurance after growing or changing your business activity

Have you expanded your premises? Changed sector? Invested in new machinery?

Any of these changes should be accompanied by a review of your insurance, to avoid being underinsured.

5. Underestimating to pay less

Some business owners voluntarily reduce values to lower their annual premium.

But when a claim is made, the insurer applies the proportion, and that "saving" turns into a huge loss.

How can you prevent underinsurance in your commercial premises?

1. Calculate the real value of the building accurately

To do this, use the PEM (Material Execution Budget) module or seek advice from a technician who can correctly estimate the total cost of rebuilding the premises.

This includes:

• Structure

• Installations

• Air conditioning

• Finishes

• Facades, glazing, enclosures...

2. Assess all contents in detail

Make a realistic inventory of:

• Equipment

• Machinery

• Electronics

• Furniture

• Stock (and its average or maximum value)

You can use estimates, invoices or specialist valuations to help you.

3. Update your policy every year

Before renewing, check whether:

• You have purchased new machinery

• The value of your stock has changed

• You have expanded your premises or renovated part of them

• The prices of materials have risen

Your policy should reflect the current situation, not that of five years ago.

4. Consult a commercial insurance expert

An independent advisor (not linked to the insurer) can help you review your policy and detect inconsistencies, omissions or insufficient coverage.

How does underinsurance affect compensation?

The most serious consequence of underinsurance is that it directly reduces what you will receive in the event of a claim, even if you are up to date with your payments.

The insurer applies the proportional rule:

📉 Compensation = (Insured capital / Actual value) × Damages

And yes, it does so for fires as well as water damage, theft, explosions, and even vandalism.

What should you do if you have already had an accident and the proportional rule has been applied?

1. Review your policy and the declared values.

2. Request a second technical assessment from an independent expert.

3. Provide invoices, estimates, photographs, land registry reports, etc.

4. If you believe the compensation has been unfair, you can file a claim

At MataSeguros, we help you review the case and negotiate with the insurer so that you receive what you are entitled to.

Conclusion

Underinsurance in commercial premises is more common than it seems. But it is also 100% avoidable.

Do not settle for a generic policy, and do not let your business insurance be based on outdated information.

Your premises are more than just a space: they are your livelihood. Protect them as they deserve.

📩 Do you have doubts about whether you are properly insured?

Contact us now and let us help you.