Winter is coming are you properly insured?

Martin Barsley MRICS MBIFM AaPS of Earl Kendrick Insurance Services advises us on Reinstatement Cost Assessments

Winter is coming, as they say on Game of Thrones. And even those of us who don’t have to worry about White Walkers coming over the wall face the various risks that come with cold snaps, rain, snow and freezing weather. So while I would definitely advise the estate manager at Castle Black to obtain a Reinstatement Cost Assessment for the property, the same goes for those responsible for everyday blocks of flats.

A Reinstatement Cost Assessment (RCA) is a careful, professional assessment of what it would cost to rebuild a property if it were destroyed by fire, flood or other perils for which insurance is available (there may be a hefty premium where White Walkers are concerned). The cost of rebuilding a property is very different from that building's market value, and determining that cost accurately in advance requires extensive technical and professional knowledge about buildings and how they are constructed. For this reason, RCAs should always be conducted by a Chartered Building Surveyor, and not simply based on the value of the building or using pro forma templates.

An RCA provides essential information for property owners and occupiers, as it will determine the amount for which the property is insured. If the figure is too high, the insurance premiums will be unnecessarily high. If it is too low, the property owner may have to make up the difference between the amount insured for and the actual cost of rebuilding. In fact, insurers can reject claims altogether if the amount insured for falls badly short of the actual cost.

An accurate Reinstatement Cost Assessment is also important for insurance claims for repairs, as opposed to rebuilding from scratch. Most insurance policies specify that in the case of undervaluation by more than ten percent, any pay-out for repairs will be in the same proportion as the proportion of the amount insured for to the actual cost of rebuilding. For example, if the property has been insured for only half that figure, then the insurer will pay out only half the amount needed for repairs. The Association of British Insurers advise that 20% of householders are underinsured and one study has put the figure at as high as 80%. Clearly, then, an accurate RCA is essential if an insurance policy is to provide genuine peace of mind, and protect a property owner from devastating unexpected costs.

Every building is unique, so a good RCA will take into account the peculiarities of the property in question. The location, construction type and quality all have to be taken into account, along with any distinctive architectural features. Crucially, assessments must be based on careful analysis of each element, rather than using simple indicative tables, which can often result in misleading assessments.

There is a particular danger of undervaluation with period buildings and conversions, and we have particular experience of working with Listed Buildings. Older buildings tend to have higher ceilings, while warehouse conversions, for example, tend to have thicker external walls. Buildings with original fireplaces and chimney stacks are also more expensive to rebuild. Moreover, insurance valuations based on modern materials will be inadequate where distinctive older materials have been used. And if a property is Listed, negotiations will be required with the local planning authority to establish the standard of restoration, and this may involve additional professional fees.

A good surveyor will take all of these factors into account to ensure a property's RCA is as accurate as possible. This should then be reviewed regularly to ensure it is still accurate, taking into account the changing costs of materials and other developments in the building trade. Best practice recommends that a full reassessment is undertaken every three years.

With an accurate and up-to-date RCA in place, you can look forward to winter with confidence that, should the worst happen, at least you are fully covered.

Martin is a Chartered Building Surveyor and heads up EKA’s Insurance Services Team which deal with Reinstatement Cost Assessments - a careful assessment of what it would cost to rebuild a property if it were destroyed by fire, flood or other perils for which insurance is available - and in overseeing claims in the event of damage or destruction, as well as managing reinstatement works.

Find out more at ekainsurance.com or call Martin on 020 3667 1510