Building Insurance Valuations
How to check if you’re building insurance will cover the cost to rebuild your property
Whether it’s described as the rebuild cost, buildings declared value or reinstatement costs following a total loss, failing to insure your building for the correct value can be disastrous.
‘Blocks of flats’, for insurance purposes, can be anything from two flats in a converted house to many more in a purpose built block, including listed buildings, making it easy to see why rebuild costs could stretch into hundreds of thousands of pounds.
On your policy documents, you will see the value referred to as ‘the buildings sum insured’ or the ‘buildings declared value”. If you under-insure the buildings, the insurers could reduce your claim in proportion to the under-insurance. For example, if you insure for 50% of the correct value, only 50% of your claim might be paid.
Most policies make provision for re-building cost increases over time, but if the original value is wrong this does not help much. We recommend you get the buildings valued by a surveyor with experience of insurance valuations.
The valuation exercise should be repeated every three to five years, as although insurers may index-link the sum insured each year, this is based on national indices and the actual cost changes do vary on a regional basis. So over time, your rebuild value may vary from the buildings true valuation.
Are you confident you are adequately covered in the event of a claim?
After all, who wants to have a tricky conversation about how an insurance claim payout might not meet expectations, especially if it involves multiple flats and hundreds of thousands of pounds.
Searching for competitive, professional building insurance valuations?
At Deacon, working with surveyors approved by the Royal Institute of Chartered Surveyors (RICS), we offer competitively priced assessment reports which may not even require a site visit thanks to the wonders of the internet.
When it comes to your buildings insurance cover, knowing that you have the right level of cover in place provides peace of mind and could save you thousands of pounds! And it doesn’t necessarily mean your premiums will increase. For example:
- Everything is correct! You have a rebuild insurance valuation carried out and according to the report the current sums insured are in-line with the calculated rebuild cost. Fantastic! Everything is good and you should congratulate yourself because not everyone gets it right!
- You’re over insured! You have a rebuild insurance valuation carried out and according to the report the current sums insured are MORE THAN the calculated rebuild cost. This means your buildings sum insured can now be set according to a professional assessment carried out by a ‘Regulated RICS’ organisation and may result in a reduction of premium and/or enhanced cover.
- You’re underinsured! Act now! You have a rebuild insurance valuation carried out and according to the report sums insured as LESS THAN the calculated rebuild cost. What does this mean? Well, if the sum insured is say £600,000, but should be £1M, could you and your fellow leaseholders afford to pay the shortfall from your own funds to make up the difference? And remember, if you’re the Director of an RMC or RTM company, you might even be liable for the shortfall!
How do you calculate the sum insured?
Most policies require you to provide a ‘Buildings Declared Value’ at inception of the policy or at renewal. This value is the re-building cost at the date of inception or renewal, with no provision for future inflation.
The insurers then provide an allowance (normally as a percentage of the declared value) for future inflation during the period of insurance and during any re-building period. This uplift percentage varies by insurer and is normally in the range of 25-50%. The policy is then issued for a sum insured equal to the ‘Buildings Declared Value’ plus this percentage.
Whilst this uplift to cover inflation is a great protection for you against future, unpredictable inflation, if the original declared value is wrong you are still at risk.
What should be included in the ‘Buildings Declared Value’?
On this point insurer wordings vary in the detail, so the comments below are for guidance only. It is these extras that can lead to serious discrepancies.
In addition to the re-building of the main structure of the premises and fittings, you may also need to consider allowances for items such as:
- Outbuildings such as garages, bin sheds, bicycle parks
- Roads, paths and landscaping
- Underground pipes & sewers for which you are responsible
- Costs of removing debris after a loss Architects, surveyors and engineers fees Provision for additional statutory requirements Communal contents
- Leaseholder improvements to their own flats
You also need to allow for VAT. Generally new buildings are not subject to VAT, but repairs are, so VAT should be included in the figures above.
As you can see, establishing the correct sum is complex and we recommend you get a professional valuation from a surveyor who is a member of the Royal Institution of Chartered Surveyors (www.rics.org.uk).
Once you have a correct ‘Buildings Declared Value’ to start the process, the value needs to be kept up to date year on year. Most insurers will have a clause in their policy that allows “index-linking” and insurers will update this figure each year in line with inflation.
They normally use a special index called the Building Costs Index Service (BCIS), as this specifically monitors building cost only. This can produce very different figures to the usual inflation index figures we are used to hearing quoted such as the RPI (Retail Price Index) or CPI (Consumer Price Index).
With this index linking it is probable that the ‘Buildings Declared Value’ will remain reasonably accurate over time, but we still recommend that every 3 to 5 years you revalue the property to ensure the figures are still accurate.
We do see discrepancies occurring particularly where buildings are listed or have specialist (or sometimes, imported) materials. To find a surveyor contact the Royal Institute of Chartered Surveyors (RICS) at www.ricsfirms.com
For a pdf copy of our free Buildings Insurance Valuation fact sheet simply click here. (To link to the fact sheet online).
How can you arrange a buildings insurance valuation?
Simply call us or send us a message via the Send us a Message link (right).
As with all insurance policies, the policy is subject to limits, conditions and exclusions. For more information please contact us to discuss further, or request a full summary of the cover or the full policy terms and conditions. The opinions and views expressed in the above article are those of the author only and are for guidance purposes only. The authors disclaim any liability for reliance upon those opinions and would encourage readers to rely upon more than one source before making a decision.