Are you aware that the “averaging” of insurance claims takes place on a regular basis. Put simply this means that if you under insure the rebuilding cost of your property by, say 25%, then any claim you make on your buildings insurance will be reduced by that same percentage. This means that if your rebuild costs are dated, you could be at risk. Even if you have increased your original rebuild costs by inflation, you need to be aware that the Retail Prices Index (RPI) has, historically increased by less than the Building Cost Indices. This again means that you can, quite quickly, end up with reduced buildings insurance cover and be at risk of losing money on any insurance claim by the insurance company invoking the “averaging” clause in your policy. To safeguard against this eventuality it is sensible to have regular reinstatement costs assessments undertaken. Here at CSD we have RICS qualified Surveyors who are highly experienced in undertaking reinstatement cost assessments.
A reinstatement cost assessment (RCA) used to be known as a fire insurance valuation, but the Royal Institution of Chartered Surveyors (RICS) changed the name as buildings are insured against more than just fire risk. Not to mention the fact that the word ‘valuation’ would often make people confused between the projected cost to re-build and the current market value of their property. The RCA calculates the cost of putting you back in the same position as you were, before an insured event (fire, subsidence, flood etc.) occurs. The RCA also includes the cost of any demolition and fees that might be needed before re-building can begin.
Protect the value of your investment
If you own and occupy your building or let it out, it is vital to protect the value of your investment by ensuring that your property is insured for its full reconstruction costs.
“But I had an RCA calculated when I first let my property out – the insurance company were happy enough then and haven’t hassled me to update it. Why should I worry?” Well, the figure you’re insured for may well be lower than the true cost of rebuilding now. RICS recommend getting an updated RCA every three years. Buildings cost inflations do not run at the same rate as retail price inflation (RPI) and in fact almost always outstrips it. On top of that, circumstances sometimes change. For instance, if your property was designated as being listed or in a conservation area after you insured it, that imposes additional costs as you will be required to re-build in traditional materials rather than their modern equivalents.
Are you under insured?
What’s more, if you are under-insured, the insurance company will impose something called “averaging” to your claim. Say you are insured for only 85% of the cost to fully re-build your property. Then, even if your claim isn’t for a full reconstruction, any payment you receive will be reduced to 85% of your claim – leaving you to pick up the rest of the bill yourself.
That’s why you should always get an updated RCA on your building. Commercial Surveyors Direct, have a nationwide team of RICS qualified surveyors who can make sure that you are covered for the full amount of the cost of re-building your property, helping protect you and your building properly if anything happens.
Who is responsible for a Reinstatement Cost Assessment?
It is usually down to the commercial property owner, building manager or tenant to arrange regular RCAs. Where the property is leased, the property owner is usually responsible for obtaining the appropriate level of insurance. However, some lease agreements may differ.
What information is needed for an RCA to be completed?
When undertaking an initial RCA, our surveyors will need an accurate address and permission to access all areas of a property. Building plans may also be required, in addition to Health and Safety documentation and any other relevant information.
The final Reinstatement Cost calculation will take into account the building’s size, age, construction, location and associated services and utilities. The more information that is provided, the more accurate the RCA can be.
Subsequent RCAs may be carried out without a physical inspection, but this may vary for specific properties and is dependent upon the level of information already available.
How frequently should an RCA be arranged?
We recommend that a complete RCA is carried out every three years, with desktop evaluations carried out annually with costs amended based on Tender Price Indices (TPI’s). Our assessments are presented in a manner to allow the declared values to be adjusted accurately using the latest cost data obtained from the Building Cost Information Service (BCIS). If there are any significant changes made to the property then a re-assessment should be carried out in full to ensure there is adequate insurance cover.
We have a team of people at our head office who are happy to chat to you about your concerns or requirements and act quickly to assist you in getting the right figure for your insurance company. If you would like to speak with one of our expert and friendly sales team you can call us now on 0808 169 8881, and we will be happy to assist you with any questions that you may have.