20 October 2020

Consequences of being underinsured as a motor trader

By Road Runner
What is underinsurance?

Underinsurance means that a policyholder does not have enough insurance coverage.

If the policyholder were to make a claim, the claim would exceed the total amount that can be paid out.

As an independent motor trader, you don’t want to be left feeling frustrated if your insurer does not pay the total amount of your claim. You could find yourself out of pocket by several thousand pounds.

At Road Runner, we aim to help you understand the risks involved with underinsurance and how to make sure your motor trade business, full or part-time, is adequately insured.


What are the main things to be mindful of?

There are ways to avoid being underinsured for your motor trade business, depending on the type of policy you have.

Road Risks – if you have a road risks only policy, and undervalue your vehicles, you could find yourself only covered for half. Most insurance policies pay per claim, not per vehicle.

When you think about the amount of cover you require, you should think of the value of your vehicle collection based on the worth of each vehicle. For example, if you have ten vehicles and only £5000 cover in place, this assumes that each vehicle is worth only £500.

If you then had to make a claim, and the vehicles were in fact worth more, the claim would not cover the true value.

Liability – are you dealing with employees or customers? You could be held liable for accidents that take place at your premises, or for damage resulting from parts fitted for example.

A common problem here is not having enough cover for the most expensive mistake you could make, for instance up to £1m. It seems a vast sum, but have you considered all the working contracts with all the customers you deal with?

What if a client sues you for the total value of a failed project – not just your part in it. Do you have enough cover in place which pays your legal fees or at the amount being sued for?


What are the consequences of underinsurance?

There are unintended consequences from being underinsured, which could mean:

  • Financial hardship – it can result in serious financial crisis depending on the size of the cover or asset being insured and the extent of the shortfall in insurance.
  • The average clause – insurers use the average rule to calculate the cost of claims. If you are underinsured, the insurer can reduce the amount they pay out to you by the same percentage you are underinsured.

It’s often tempting to try to save some money on your premium, but it’s wise to weigh up that saving against potentially losing more to underinsurance. A potential claim could surpass any minimal saving on the premium amount.


How to avoid underinsurance
  • Don’t use general market prices or estimations from elsewhere
  • If you take on more vehicles, make sure to update them as soon as you can. At Road Runner, we have a Vehicle Management System, allowing our customers to update the MID in real-time.
  • Provide as close to the true value of your assets as you know

If you’re concerned about underinsurance, no matter what trade you operate in, speak to our team on 03301 00 87 20, or request a call back.

If you need any help deciding the right amount of cover for your business, we’re with you.

Related Articles