GUIDANCE
Unsure about underinsurance?
RSA Insurance Group Ltd’s Annette Pocock helps build underinsurance understanding in early years settings
Children’s safety and security in early years settings is paramount, and so is protecting against unforeseen losses or damages. That’s why it may be more important than you think to get the right insurance for your setting(s) or group.
Underinsurance is on the rise – particularly for buildings and contents’ insurance.
According to a recent study, almost half of all early years settings need to raise their building’s value (‘sums insured’) to avoid being underinsured.
Whether you are a voluntary pre-school, a childminding professional or a chain of nurseries, it’s vital to have the right level of insurance cover.
Annette Pocock, a specialist underwriter from Alliance insurance partner RSA, sat down with us to shed some light on this growing problem.
What does underinsurance of buildings and contents mean?
Underinsurance means that your buildings and/or contents insurance isn’t enough to rebuild or replace everything in the event of a claim. If a fire, theft, flood, or other unexpected event happens, having enough insurance means your setting can recover quickly. If you don’t have enough insurance, you are likely to end up out of pocket – or worse, forced to close.
What are the things that can lead to underinsurance in early years settings?
Several factors can contribute to underinsurance. A common mistake is underestimating the value of your building or contents. You may have a shortfall if you don’t account for any work done, inflation/increasing costs or any new equipment purchased.
It’s not just about replacing or repairing things. Are you aware of the potential financial impact of a closure? You need to consider wages, rent and other outgoings, such as regular deliveries, utility bills and daily essentials – plus, you should also add fees or income received (including government funding).
Business Interruption insurance can be a worry if you don’t get it right. In one case, a setting insured by RSA had to close its premises for three weeks after an incident. The setting had £100,000 Business Interruption cover (their gross revenue), making it £1,923/week. Their paperwork showed an average income of £3,828 for the 12 weeks pre-closure and £4,449 for the four weeks immediately after re-opening. The annualised amount would be circa £200,000, which is a 50% shortfall.
What are the consequences of underinsurance for early years settings?
The consequences of underinsurance can be severe, especially in today’s battle with the costs of living and inflation. In the event of a claim, a setting may need to cover a proportion of the rebuilding or replacement costs themselves. That can strain finances, especially if you are still paying running costs too, and means it takes longer to get going again.
If the setting needs to close, it can cause a disruption to children’s routines and learning. Some parents may even choose to move their children to another provider, impacting on your reputation too. All this stress combined could also impact on your own mental health.
Are there common things that people don’t understand about underinsurance?
Some people might not know that having too little insurance can cause problems when you make a claim. If you claim for £10,000, any insurance company will not pay the full £10,000 if you’re underinsured. Instead, they’ll pay a part of the claim based on the ratio of the insured amount to the actual value. So, if you are 50% underinsured, they would only pay £5,000 and deduct any excess, and you would need to cover the rest.
As a real-life example, one setting we covered lost around £1,400 of equipment due to vandalism. A brick was thrown at the window and glass shattered all over the children’s play equipment. This was a voluntary toddler group that had only purchased £1,000 cover as it was all they could afford – but the total value at risk was actually around £3,500.
They thought they would get the whole £1,000 they insured for to fix things, but that’s not what happened. Instead, their settlement was proportionately reduced, and they were paid £337.85.
This could be catastrophic for most businesses, so please check your cover levels and make sure they are accurate.
"A common mistake is underestimating the value of your building or contents"
What steps can our members take to avoid underinsurance?
You need to review insurance policies at least once a year to keep up with changes. If you have changed the hours you open or the type of care given, your insurance needs to be updated as soon as you can.
You need to find out the current market value of your building, accounting for any renovations or improvements. You should do a thorough inventory of all contents. List all toys, furniture, and educational materials, even if they are donations or second-hand. Open every cupboard and look at everything you have – not just the obvious things, even the Tupperware! The question you have to ask is: what do I need to replace or repair to get my setting back to exactly how it was before?
If you haven’t reviewed your insurance for a while, please don’t wait until your next renewal. Prioritise the time now to check your cover levels and contact the Alliance with any updated figures.
How can we help get the right insurance cover in place for our members?
The Early Years Alliance and RSA have a long history of insuring settings like yours. Whether you’re looking for specific insurance or want to know about gaps in your cover, we can help you to find a package to protect what matters most.
Got a question about your policy?
■ Look up your insurance documents and certificates in the Members’ Area of the EYA Portal: portal.eyalliance.org.uk
■ Email us at insurance@eyalliance.org.uk
■ Call us on 020 7697 2595 from Monday - Friday, 9am - 5pm.