For many leaseholders, their flat is not only their home but also a significant financial commitment. In multi-unit buildings, one of the largest contributors to the service charge is the buildings insurance premium, making it essential that the declared value is accurate. A common misconception is that increases in insurance costs are simply premium hikes. In reality, they often reflect necessary adjustments to ensure the building is properly insured.
Why getting the insurance value right matters for your flat
If you live in a flat, part of your service charge goes toward buildings insurance, the cost to insure the whole block. That insurance is based on something called the Declared Value (DV), which is an estimate of how much it would cost to rebuild the building if it were completely destroyed.
Getting this value right is really important:
- If it’s too high, you and your neighbours might be paying more than you need to for insurance. The insurer won’t pay more than the actual rebuild cost, so the extra premium is wasted.
- If it’s too low, the building is underinsured. That means if something serious happens, like a fire or flood, the insurer might only pay part of the cost to fix it. The rest could fall on the leaseholders to cover, which could be a big financial hit.
This is called a proportional settlement. For example, if the building is insured for only 70% of what it should be, the insurer might only pay 70% of any claim.
Why overinsurance isn’t good either
While it might feel safer to overestimate the rebuild cost, doing so can lead to unintended consequences. It can drive up average premiums, making insurance more expensive for everyone. It can also distort economic data, giving the impression that costs are rising faster than they actually are.
The bottom line
Getting the insurance value right means:
- Your premium contribution within your service charge is correct
- You’re properly protected if something goes wrong
That’s why accurate Reinstatement Valuations, done by experts, are so important. They help make sure you’re paying the right amount and getting the right cover.
Dispelling the myths
It’s not about increasing premiums, it’s about ensuring the building is insured for what it would actually cost to rebuild. Relying on outdated valuations, online calculators, or bank estimates often fails to reflect the true reinstatement cost, especially in complex or historic buildings.
The solution: RICS compliant Reinstatement Cost Assessments
BCH’s specialist assessments help ensure:
- Accurate Declared Values that reflect actual rebuilding costs
- Protect against the potential impact of underinsurance and over insurance
- Eligibility for insurer waivers to the Clause of Average
In 2024, BCH’s recommended increases prevented over £4.8 billion in underinsurance from entering the UK insurance market. Regulated by RICS, a CIOB Chartered Building Consultancy, and a member of the Personal Finance Society, BCH has been a trusted provider of building Reinstatement Valuations since 2006. As a CII Associate Firm, BCH urges insurance professionals to help clients, especially leaseholders, understand the importance of accurate valuations.
To discuss Buildings Insurance Reinstatement Valuations for flats, contact BCH at [email protected].
