Following a winter of unprecedented storms, I have witnessed a number of building owners fall foul of undervaluing their buildings on their insurance policy and subsequently being unable to claim on their insurance. An insurance reinstatement valuation or reinstatement cost assessment is essentially a value placed on a building/site to rebuild it, should it be damaged or destroyed. Declaring this value is a standard requirement for all building insurance policies.
It is reasonable to expect insurers to refuse claims when the declared rebuild value is underestimated. I compare this to insuring a car – the lower the car value or the lower the milage stated at the start of a policy, it is likely the insurance premium would be cheaper than a policy with higher figures stated. However, if it came to a claim and the policyholder was found to be fraudulent or misleading, then their insurance would be invalid. The insurance industry is a business and it is common knowledge that claims will be reviewed and refused if declared information is incorrect. The same is applied to built assets and this is proving very problematic for building owners having now made insurance claims.
I am finding policyholders are either refused insurance as a consequence of underinsuring their property or finding that their claim is being reduced by the percentage which they have undervalued the property, therefore leaving a proportion of the insurance works bill to be covered by the property owner/policyholder.
The costs of rebuilding a property in the UK have surged in recent years, most notably due to inflation, energy costs, rise in both materials and labour costs and also due to shortages in both materials and labour. Insurers are more aware of this than ever before and are using this to limit claims or refuse them.
My advice to clients would be to ensure their property is valued correctly for insurance purposes, especially where property portfolios are held. A reinstatement valuation should not simply be a standard M2 rate multiplied by the area of the building. There is far more to the exercise than this alone and failing to consider abnormal building costs, features, materials, access, listed status, professional fees and other unique factors which can have a significant impact on value.
I would strongly urge commissioning an informed reinstatement valuation by a competent and experienced Chartered Building Surveyor in order to protect your interests moving forward and should the need to claim on insurance arise, there should be sufficient cover in place. The added benefit of this exercise can also be to reduce an insurance premium if a property is currently overvalued, therefore this exercise could lead to immediate savings year on year.
For more information, please contact James Cullen, BSc (Hons) FRICS, Senior Associate and Head of Building Surveying on 0333 920 2220.