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Underinsurance – the hidden risk

Many people in New Zealand don't have enough insurance to cover the full replacement value of their assets. This means they are underinsured and may face difficulties rebuilding their property or replacing possessions to the same standard if they are damaged or destroyed. Underinsurance often happens because people don't update their insurance based on the current replacement value of their assets such as property, business assets and other possessions.

21 June, 2024
Insurance, Family Business, Family Business Owners, Family-Owned Business, New Zealand, Partners, Article
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Many people in New Zealand don't have enough insurance to cover the full replacement value of their assets. This means they are underinsured and may face difficulties rebuilding their property or replacing possessions to the same standard if they are damaged or destroyed. Underinsurance often happens because people don't update their insurance based on the current replacement value of their assets such as property, business assets and other possessions.

Gallagher claims specialist, Alana Howard says some people are taken by surprise by high replacement costs.

“When you’re dealing with an unexpected loss, you want the reassurance of knowing you have enough insurance to cover the cost of repair or replacement. As claims experts, we don’t want to see heartbreaking cases where people discover they can’t replace their home or treasured possession to the same level as before.”


Business owners are increasingly vulnerable  

The risk of underinsurance also applies to business owners. In recent times inflation has pushed up prices, meaning the baseline values of business assets erode over time. If a business owner does not adjust their insurance cover in response, they may face serious underinsurance risks that result in significant financial consequences at claim time.

The Vero SME Insurance Index published in October 2023 revealed that around 70% of small and medium-sized enterprises overall are significantly underinsured and the high inflationary environment is a big contributing factor. The research also showed that significant premium increases are causing many businesses to reduce cover, which can prove a costly decision when they need to make a claim.

Gallagher Chief Broking Officer, Mark Jones says that, given the current tougher economic environment, it is not surprising that more business owners are prioritising price as the most important consideration when making insurance decisions. 

“While it may be tempting for people to opt for the cheapest option, your broker can help you assess the risks associated with insufficient coverage. Insurance solutions should strike a balance between affordability and comprehensive coverage, enabling a business owner to navigate economic uncertainties with confidence.”


Do your sums to avoid underinsurance

A good way to avoid underinsurance is to accurately and regularly review the sums insured covered by your insurance policy. The cost difference between being underinsured and properly insured is often not as great as people think.

Mark says it’s important to keep replacement cost estimates up to date, obtain regular valuations and let your Gallagher broker know about significant asset purchases and alterations or additions to your business premise or home, or business changes.

“A Gallagher broker can use their expertise to guide you through the process of setting your sums insured, which requires you to estimate the replacement costs of your property, equipment or personal belongings, or if you’re a business owner, factors such as gross profit and staff numbers too. Your broker will also review your policy regularly and advise you on any updates that might affect your level of coverage,” says Mark.

To discuss your specific situation please contact your Gallagher broker so you can face your future with confidence.


The information contained in this document is a guide and does not take into account any individual’s or entity’s particular circumstances. Please talk to your Gallagher broker for advice on your specific circumstance.



For over 45 years, Gallagher (formerly Crombie Lockwood) has provided insurance cover for family businesses. Their characteristic blend of local expertise and global reach means they can support their clients wherever they do business.