Scaling up a business often involves taking on additional risks and exposures, which can be mitigated through the purchase of business insurance. Scale-up business insurance is designed to provide protection against a range of risks that are unique to fast-growing companies.


Here are some types of scale-up business insurance policies you might consider:

It’s important to note that every business has unique insurance needs, and the types and amounts of coverage required will vary depending on factors such as industry, location, and size. It’s a good idea to consult with an insurance professional to determine what types of coverage are right for your scale-up business. It is important to communicate to help ensure that any levels of cover are balanced and proportionate to the company’s size in order to avoid risks such as underinsurance.

What Is underinsurance

Underinsurance is a significant issue for policyholders.  Recent research by the Royal Institute of Chartered Surveyors and the Building Cost Information Service suggests that around 80% of commercial properties have an element of underinsurance

What does underinsurance mean to me?

Underinsuring your business can create a significant financial problem for owners when they come to make a claim. Most policies contain what is called an average clause, which insurers use to ensure that claims paid are proportionate to the premiums they receive. However, policyholders must be aware of what this means for them.

If any property is underinsured, insurers will invoke what is known as the average clause, to limit their liability for any claims.

In practice it works as follows –

Stock Insured £100,000 The value the policyholder insured their stock for when they took the policy out.

Actual Value of stock £200- The amount a loss adjuster calculates the correct stock value to be.

£100,000 / £200,000 = 0.5

Underinsurance percentage = 50%.

If this property has a fire claim that causes £50,000 of damage, the insurer will invoke a proportionate remedy and reduce the claim settlement by the percentage that the stock was underinsured. In this example, the business owner would receive a claim settlement of £25,000, leaving them to find £25,000 from their own funds to replace what was lost.

REMEMBER – Underinsurance applies to any insured property. This can be the buildings, stock, contents, plant and machinery. It can also apply to things such as loss of rent and alternative accommodation, if this is based on your building sums insured.

How to prevent this from happening to you

There are a number of recommendations that you should follow to ensure that your policy is there for you when you need it most.

Commercial Buildings

It is essential that you ensure your rebuild cost is correct when you state this figure to your insurance broker.  Only 5% of insured clients correctly assess their rebuild costs in the first instance.

The only way to assess your rebuild costs accurately is to have a rebuild cost assessment done by a RICS’ (Royal Institution of Chartered Surveyors) firm. For most commercial properties, a site visit is required in order to correctly assess the rebuild cost. You should ensure that this is completed by a RICS’ organisation.

Rebuild cost assessments should be done every 3 years as a minimum, or whenever there is a significant change to the building. Remember, it is your responsibility as the policy holder to ensure that your property is insured for the correct values.

Index Linking

Index linking may or may not be applied to your policy, you should check your documentation to see whether it is included or not.  Index linking is used by insurers to reduce the risk of underinsurance, by increasing the sums insured at each renewal of the policy.

Index linking is based on a national average, so is likely to be insufficient on a policy by policy basis. Factors such as location, type of build and fluctuating material costs can have a significant impact on building rebuild costs, which are not addressed by Index Linking.

Plant, Machinery & Equipment

Issues occurring with your plant equipment or machinery can be very expensive. Remember, it is not only important to consider the direct costs of replacing machinery or equipment, but also the expense caused by delays to production, lost or delayed orders and additional labour costs.

The British Insurance Brokers’ Association (BIBA) strongly advises that all machinery (both hired and owned) is insured for the full value of replacing ‘new-for-old’.

Business Interruption

Delays in supply lines, labour shortages and rising costs of materials have also had a dramatic impact on the length of time it takes a business to get up and running again following a claim.  This has serious consequences if your business interruption indemnity period is not sufficient.

Summarising Underinsurance

Underinsurance poses a significant risk to your business, it is therefore essential that you act now and consider every element of cover that is required to safeguard your firm in case the worst happens. The information above addresses some of the issues you may face, but it is not an exhaustive list. You should always talk to us for advice on how you can reduce the specific risks that you face.

Why you need to notify your insurer

While you expand as a company, it is easy to focus on maximising expansion, without realising your more exposed. Scale-up businesses are at significant risk of underinsurance due to several factors:

Luckily, with an insurance company such as SJL Insurance Services, we offer flexible policies which is designed to expand and contract along with you. It is always important to check with your insurer what you can adjust once the policy is live. The best insurers will give you full flexibility when it comes to mid-term adjustments.

What to notify the insurer of

The insurer cannot protect you if they are not notified of any changes. The factors which could affect your insurance will depend on the policy, although
as a general rule, you should inform your insurer of any changes to your business that could affect your insurance coverage. This includes:

It’s always best to err on the side of caution and inform your insurer of any changes to your business. Your insurer can help you assess your insurance needs and make sure you have adequate coverage in place to protect your business from risks and liabilities.

Solicitor giving advice with notepad - Unoccupied Probate Property InsuranceWhy Do I Need a Specialist Broker

As scale up companies have moved from the start up or ‘seed’ stage, they can typically have insurance cover in place that is inappropriate for the business now, let alone where the business will be at the end of the year. At SJL we have extensive experience dealing with high growth companies, so we know how companies can evolve during the year, and how your insurance needs to be flexible enough to evolve with you. We don’t believe insurance is a once a year job, but something that we work with you on all year round, providing the service and products your business really needs.

To understand how your scale-up business insurance can help you grow, check out our scale-up business insurance