Martyn Barrett, a founding Director of Barrett Corp Harrington, discusses the first two questions policyholders always ask in the event of a claim.
When I was a Loss Adjuster, looking at some pretty large losses, one of the things that kept me going whilst standing in the smoky remains of burnt-out blocks or being in ankle deep, smelly flood water, was the knowledge that I could get the distraught policyholder through the catastrophe because they were insured.
Even before the remains of the building had cooled down or dried out, two important questions were asked:
Q1. Are we covered?
Well, thankfully, the answer to that in the majority of cases is a resounding ‘YES’! It is very rare, that some terrible mistake or deliberate fraud would prevent a claim being paid on a block of flats.
But the second question is where most disappointments arise…
Q2. Are we covered for enough?
Regrettably, all-too often, the answer to Question 2 is sadly ‘NO’, and that can lead to problems and the start of the ‘blame game’.
Most insurance policies require the owner of a property to state the correct value for rebuilding it at the time of completing an insurance proposal. The value forms part of the contract for insurance. The policy premium, calculated by the insurer, is largely based on this figure at the outset and at subsequent renewals.
Protect Your Block From the Risk of Underinsurance
80% of properties are underinsured, leaving many flat owners open to catastrophic financial loss should a substantial claim be made. Typically, the more complex and unique the property, the tougher it is to estimate the value it should be insured for.
The Importance of Correct Insurance Values
If the rebuilding cost of the block stated in the policy is found to be adequate at the time of claim and the claim is covered by the policy, it will be paid in full.
If underinsurance is discovered, then it is likely that the claim pay-out will be reduced- potentially proportionately.
With a large loss, the financial impact could be catastrophic for all the policyholders unable to fully fund the rebuilding of the property from the proceeds of a reduced payment under the policy.
How a Reinstatement Cost Assessment (RCA) Helps
Most property owners have an idea of the market value of their flats but rebuilding costs for insurance purposes are very different.
An RCA involves a surveyor visiting the property to measure it and to record all the main features. This information is then used to calculate the cost of rebuilding, in full.
The RCA takes into account not only the build costs of the main property, but also the other structures and features which, combined, contribute to make up the definition of ‘buildings’ within the insurance policy. This includes, outbuildings and permanent external features, along with demolition and debris removal, professional fees and VAT where appropriate.
In the case of a suburban block of flats, external features may include costly, extensive retaining walls or parking areas with lighting and security gates. With a listed or historic conversion block, items often taken for granted such as stone paving, walled gardens or a range of outhouses are sometimes overlooked if just concentrating on the main building.
BCH finds that most property is underinsured. Having an RCA takes the guesswork out of setting insurance rebuild values and gives a policyholder the ‘peace of mind’ that when a valid claim is made, the insurance policy pay-out will be in full and not reduced by the impact of the discovery of underinsurance.
The worst time to discover underinsurance is at the time of a claim. The best time to act is when you are reviewing your insurance arrangements; at proposal or at renewal.
Martyn Barrett, a founding Director of BCH, is a Chartered Surveyor, Chartered Loss Adjuster and Chartered Insurance Practitioner.
