I read recently that Don McLean was, after 5 decades, about to reveal the meaning of the lyrics to American Pie.
(If you don’t know what I’m talking about, please refer to an elderly relative).
At the time, it seemed pretty obvious that “the day the music died” was a reference to the death of Buddy Holly in a plane crash in Iowa. As for the rest of the non-sensical lyrics, Don has had the benefit of the last five decades to think about how to explain them.
What is apparent is that the lyrics were written in an era of great upheaval. A war raged in Vietnam where huge quantities of ordnance were dropped on a civilian population. Sound familiar? There was great civil unrest across America driven by abuses of civil rights. Sound familiar? In the years that followed, the UK had to be bailed-out by the International Monetary Fund (IMF) having to all intents and purposes gone bust. Put simply, listening to the news in those days you could be forgiven for thinking the world was about to end.
It didn’t, but here we are again. A global pandemic followed by a war in Europe. An energy crisis. Shootings in America. Listening to the news you could be forgiven for thinking the world was about to end.
And the relevance of all this to insurance? Well, hopefully the world won’t end, but uncertainty is the enemy of insurers. Uncertainty inevitably leads to rising premiums and reducing policy covers. That is the phase we are in right now. It’s not as extreme as some previous hard markets but great care is needed to navigate the many hurdles placed in the path of a satisfactory claims settlement.
Against this background, what is new to many, is the phenomena of inflation. The simple act of replacing a machine or a line of stock or rebuilding a factory has become so much more expensive. The pandemic, followed by chronic supply chain issues and then a war in Europe, has sent the price of so many goods through the roof. And therein lies the problem. Sums Insured calculated in recent months (let alone recent years) can be wholly inadequate. Recent research undertaken by the Chartered Institute of Loss Adjusters suggests almost 40% of policyholders were under-insured even before the effects of inflation are factored in. Where such under-insurance exists, insurers have no hesitation in reducing claims settlements in proportion to the degree of under-insurance. It is the biggest cause of dissatisfaction amongst policyholders.
Dealing with the issue is simple; please take the opportunity to look carefully at your asset values. If you haven’t done so for some years, think about having a professional re-valuation of your buildings. The result may well surprise you. Ditto stock and machinery. Yes, your premiums may rise as a consequence of Sums Insured rising but there is limited value in paying premiums if your key assets can’t be reinstated and paid for by your insurer. As ever, please talk to us.
So, if you are a music lover, I apologise for conflating American Pie with under-insurance. Even if you are not a music lover, the bit about under-insurance is still relevant.
For me, I prefer Joni Mitchell to Don McLean. But sadly, I can’t think of a Joni Mitchell song that segways to the topic of under-insurance and that is probably for the best.
By Ian Laycock FCII – Group CEO & Chartered Insurance Broker