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Building Underinsurance

Written by Gillian Mccammon | 03/05/2022

Are you completely comfortable that your buildings are suitably insured and not at risk of underinsurance? 

A number of factors are having a potential impact on your building's rebuild valuation including Covid and Brexit.  Supply chain disruption and labour shortages are causing major issues, which are leading to rises across a number of areas.

Have you considered that it is estimated that rebuilding cost inflation will be 9.6% in 2022?

A report conducted in 2019 by Rebuild Cost Assessment Ltd (RCAL), a RICS accredited property valuation company, explained that as many as 9 out of 10 properties in the UK are insured for the wrong amount, with the vast majority (79%) underinsured and facing a shortfall in a claims settlement should an incident occur. 

As this report was conducted before the recent rise in inflation, it is most likely that even more properties will now be underinsured.

Considerations need to be made for the following when looking at the rebuild value of your buildings:

  • Rise in the cost of materials
  • Supply chain issues
  • Labour shortages, resulting in wage increases
  • VAT
  • Professional fees
  • Demolition and debris removal costs

We at Vista NW strongly recommend that a professional rebuild valuation is carried out by a Royal Institute of Chartered Surveyors (RICS) accredited company.  They will be able to determine if you need to review and reset your buildings sum insured on your insurance policy to avoid underinsurance.

Index Linking

In some scenarios, Index Linking may be applied automatically to the sums insured on a policy by the Insurance Company, which will take into account the inflationary factors previously highlighted.

It should be noted that this will have an impact on your premiums when the building's sum insured is increased each renewal.

Also, if you haven’t had a professional rebuild valuation carried out for some time, this may leave you significantly underinsured regardless of the % increase applied each renewal.

How can we support and assist?

We have seen a number of scenarios whereby buildings appear to be underinsured and we will advise our prospective or existing clients to have a professional rebuild valuation carried out.  We normally advise our clients to have these carried out every 3 to 5 years, however, with recent changes and rises, we would recommend that these are carried out more frequently.

We will work with your insurers to ensure that any premium rises as a result of the buildings sums insured increase are negotiated to a limited amount and request that your policy is average free, avoiding any potential reduction to a claims settlement.

We can also advise and support in the setting of business interruption sums insured and indemnity periods.  Again, considering the factors of lead in times for materials, labour shortages and other factors affecting today’s world.

 

Key Take Aways

  • Consider all factors affecting your rebuild valuation
  • Don’t just rely on Index Linking (if applicable on your policy)
  • Have a professional buildings rebuild valuation carried out
  • Do not use market valuations as the basis for your rebuild sum insured
  • Cover your buildings adequately, not cheaply!

Should you wish to discuss this subject in more detail or have any questions, please get in touch

 

 

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