Following a Reinstatement Cost Assessment (RCA) the Sum Insured of a block of flats will often change. Though this change can be an increase, in some cases Sums Insured can also be reduced.
Here are four examples of recent reasons Barrett Corp Harrington have found that have caused the Sum Insured of a block of flats to be altered following an RCA;
The Current Sum Insured (CSI) is reflective of the market value, not the cost to reinstate
There really is no correlation between market value and reinstatement cost. Though the costs involved in reinstating a block of flats vary regionally and in response to economic change, these variants are generally material to the building itself, or reflective of changes within the construction industry. A market value is reflective of a number of factors and usually boils down to how much a prospective buyer is prepared to pay for the property.
The last RCA was conducted over five years ago
As well as ensuring compliance, instructing regular RCAs means that any changes to a buildings Sum Insured will be incremental as opposed to seeing more dramatic shifts in Sums Insured when they are reviewed less frequently.
External structures may have been omitted previously
An accurate RCA looks beyond the block itself. Bin stores, hard standing parking areas, boundary walls and fences, gates, soft landscaping and walkways all require a significant amount of the Property Managers time to maintain, [MB1] but they are often omitted from Reinstatement Cost Assessments. Though rarely visible on site, mains service connections are also included in the externals of an RCA. If you as the PM are responsible for maintaining it, it should be included in the RCA.
The Current Sum Insured is set by the Developer
In the case of new build flat blocks, we often see Sums Insured given by the Developer. It is not unreasonable to assume a Developer would benefit from the economy of scale from constructing a single block on a larger development for example. Furthermore, figures given by developers often won’t take into account demolitions of the block to be reinstated, and other such aspects that would not have been necessary when it was first constructed. With insurance taking up such a considerable portion of a leaseholder’s service charge, it could also be argued that a lower Sum Insured would keep the service charge low and make the new build apartments more attractive to prospective buyer. Whatever the speculative reason, a Sum Insured given by a Developer is not a compliant RCA and does not offer the same assurances and protections as an RCA does.
We appreciate that any changes to a buildings sum insured can prompt questions from leaseholders.
As such, we have compiled a number of resources for Property Managers on our website.
Please feel free to download ‘Why has my recommended property insurance Sum Insured changed?’ from bch.uk.com or, call the office on 01455 293 510 to request hard copies to be sent out.
