The team from Hamilton Darcey explain the importance of accurate RCAs when it comes to insurance claims.  

As a practice, we are regularly instructed to oversee repairs to properties as a result of fire damage, property movement and flooding, where the cost of repairs and reinstatement are covered by insurance. This is only possible if the insurance premium paid is for the correct reinstatement value.

What is an RCA?

A Reinstatement Cost Assessment (RCA) in the context of insurance, is the calculated estimated cost to rebuild a property on the basis of ‘total loss’. 

The calculations are disclosed to insurance providers to ensure adequate cover is provided. The insurance companies in turn adjust their premiums accordingly.

In the event of a total loss of the building, if the rebuild cost is undervalued then the insurance payments will not adequately cover the cost of rebuilding. As many leases require the Landlord to rebuild in the event of a loss, the Landlord will be required to make up the shortfall in costs.

On the other hand, overvaluing the RCA will result in higher insurance premiums for the insuring party.

How We Work

At Hamilton Darcey, we undertake a measured survey of the building to determine the Gross Internal Area. This is then used to calculate the cost to rebuild the building, taking into account information on the building, such as:

• Use (e.g. residential, industrial, etc.)
• Total Gross Internal Area
• Geographic location

Once this data is collected, the average rates are found from the Building Cost Information Service (BCIS) based on similar buildings, recently constructed, within its database of information.

This method of calculating the RCA means that data can be gathered quickly on site and the final RCA values provided efficiently. As this method also relies on the BCIS cost information, which is regularly updated, it will ensure up-to-date and relevant rates for the new RCA calculations are used.

As part of the information gathering exercise, the Surveyor should take into account special features observed in the building, including items such as columns, fireplaces, lifts, enhanced finishes, outbuildings, pavement vaults, as well as heritage features, such as ornate facades, columns, fireplaces, etc. The listed status of a building should also be factored in.

Asbestos surveys for the building will need to be included in the calculation, as the anticipated cost to deal with asbestos removal needs to be factored into the assessment. In some buildings the safe removal and disposal of asbestos can pose a significant cost.

Including Demolition Costs

Demolition costs can often get missed from Reinstatement Cost Assessments. Not allowing for costs associated with demolition of structures and site clearance can lead to under-insuring a building. An assessment on site should pick up the following issues that can lead to increased costs from demolition and site clearance:

• Restricted site access
• Inner city areas 
• Party Wall & neighbourly matters
• Extensive external hardstanding areas
• Construction over and in close proximity to public transport infrastructure

In conclusion Reinstatement Cost Assessments are extremely important. Nobody wants to pay over the odds for their insurance premiums, however the costs and risks of underinsuring are significant.

At Hamilton Darcey, we recommend early engagement with the Surveyor to mitigate these risks. When instructing a Surveyor, confirm that they will undertake a site visit to ensure accuracy and carry out the assessment in accordance with the RICS Guidance Note. Once we have a suitable RCA in place, we recommend the calculations are revisited periodically and updated to reflect changes, such as inflation, changes to the building, new extensions or other alterations.