Is Your Business Underinsured? Most NZ Businesses Are and Don’t Know It

Underinsurance NZ businesses face is one of the most common gaps in commercial insurance cover, and most owners don’t know they have it until they make a claim. Then it becomes very real, very quickly.

The January 2026 storms were a reminder of this for a lot of New Zealand businesses. When damage happened, many owners discovered their sum insured hadn’t kept pace with what it would actually cost to repair or rebuild, leaving a gap they had to cover themselves.

How underinsurance happens

It usually isn’t deliberate. A business takes out a policy, sets a sum insured based on the value at the time, and then doesn’t revisit it. Meanwhile, building and fit out costs go up, stock levels change, equipment gets added, and the business grows. The policy stays the same.

Building costs in New Zealand remain significantly higher than they were before 2021. Even though construction cost inflation has slowed, the overall cost to rebuild hasn’t come down. A sum insured set three or four years ago is very likely too low today.

Where the gap usually shows up

Commercial property: The most common area. If your building or fit out costs more to repair than your policy covers, you pay the difference.

Business interruption: This one catches people off guard. Business interruption cover is often complex and every business has unique requirements. Understanding how the policy triggers from varying circumstances, identifying your actual risk and how the policy ties in with your business continuity plan, is not something which should be glossed over. It is often one of the most miscommunicated lines of insurance for business owners. 

Stock and equipment: Businesses that have grown tend to hold more stock and more equipment than when they first took out cover. If your policy reflects where you were two years ago, it may not reflect where you are now.

What to do about it

Get a current valuation on your commercial property and compare it against your sum insured. For most businesses, this conversation with a broker takes less than an hour and can save a significant amount in the event of a claim.

It’s also worth checking whether your business interruption cover is set to reflect realistic timeframes. In the current environment, where builders are busy and materials take time, a twelve month indemnity period may not be enough.

If you haven’t reviewed your cover in the last twelve months, now is a good time. Get in touch and we’ll take a look.

Frequently asked questions

What is underinsurance in business insurance?

Underinsurance occurs when your sum insured is lower than the actual cost to repair, rebuild, or replace what you have insured. If you make a claim and the cost exceeds your sum insured, you pay the difference yourself.

How do I know if my business is underinsured?

The most common sign is a sum insured that hasn’t been reviewed in the last one to two years. Building and fit-out costs in New Zealand have increased significantly since 2021. If your policy reflects values from two or more years ago, there is a strong chance it is too low today.

Does underinsurance affect my business interruption cover?

Yes. Business interruption cover is closely tied to your underlying property cover. If your property is underinsured, your business interruption cover is likely to be inadequate as well. The indemnity period also needs to reflect realistic rebuild timeframes, which in the current environment can be longer than expected.

What should my sum insured be based on?

Your sum insured should reflect the full replacement cost of your building, fit-out, stock, and equipment at today’s prices, not the original purchase price or an outdated valuation. A current registered valuation for commercial property is the most reliable starting point.

How often should I review my business insurance cover?

At a minimum, annually at renewal. For businesses that are growing, adding equipment, or holding more stock, a mid-year review is also worth considering. Sentinel Insurance can walk you through this in less than an hour.

Sentinel Insurance is a specialist business insurance broker in New Zealand. We help businesses make sure their cover reflects what their business is actually worth today.

This article is general information only and does not constitute personalised financial or insurance advice. Sentinel Insurance is a licensed financial advice provider. For advice tailored to your specific situation, please contact us.