According to the Building Cost Information Service, part of the Royal Institution of Chartered Surveyors, almost 80% of commercial properties in the UK could be underinsured by as much as 60%. For a £500,000 property, that could mean a shortfall of £300,000: a very worrying statistic. But what is it that is causing this shortfall? It seems there are two main factors.
Rebuild Costs Versus Market Value
The first factor is a rise in rebuild costs and an underestimation of what the sum insured for these should be.
During lulls in the economy, property owners naturally assume their bricks and mortar assets are unlikely to have seen any sort of increase in value.
As true as this may be, when considering the sum insured for rebuild purposes, the issue doesn’t lie with the value of the property. Instead it is the actual rebuild cost that you need to concern yourself with, and this can be very different from the market value.
Changes to the Building Regulations in 2002 resulted in rebuild costs increasing sharply. The reasons for this increase include requirements for greater fire protection, energy performance measures and improved drainage together with better accessibility. Non-compliance with Building Regulations can have a potential impact of 30%+ cost increase.
Building, materials and labour costs have also been subject to hikes, which can make it tricky to estimate how much a rebuild would cost.
The Importance of Valuations & Risk Assessments
Another factor that could be contributing to such a high rate of underinsured properties is the lack of valuations and risk assessments being undertaken. Again down to the state of the economy, property owners looking to keep costs down may well circumvent such expenses.
But it is important to realise that failing to carry out assessments ahead of arranging cover could result in a raft of missed or underestimated risks. With extreme weather events becoming commonplace, and threats such as terrorist alerts on the increase, the need to make careful considerations as to the sum insured has never been more important.
Working out a Building Sum Insured
When assessing the suitability of a building sum insured, there are numerous variables to take into consideration. Outside of regular factors such as the age and size of the building, things like geological conditions, topography, proximity to water courses, prevailing building material and labour costs, local authority planning fees, Building Regulations compliance and landlord and tenant responsibilities under lease agreement terms must all be considered.
For older properties, risks relating to hazardous materials such as asbestos will also need to be factored into rebuild costs.
Underinsurance Could Prove Devastating
Failure to arrange a professional reinstatement valuation survey could result in issues such as these being overlooked, in which case, how could you be sure your sums insured were of the correct value?
Underinsurance could prove devastating to any business. The key message in all of this is to make sure you have your property professionally valued for rebuild and assessed for risk before arranging or renewing your buildings insurance. Think: could you afford to lose 60% of the value of your property? If not, get the experts in ahead of settling on your cover.