What is a Reinstatement Costs Assessment?
The value of the risk the insurer is taking is often quite difficult to understand, and the market value of the property will rarely be anywhere near the cost of rebuilding it. After all, sometimes the land the building stands on has more value than the building itself. On the opposite end of the spectrum, the market value for a building can be so low that it’s cheaper to buy a property than to build or rebuild one. So, often, your insurer will ask you for the rebuild value of your property to work out the risk to them. On most residential properties this is usually pretty straightforward. For simple properties you can use the BCIS free online rebuild cost assessment tool. But for more complicated properties, like listed buildings or commercial properties, you’ll need to ask a building surveyor or quantity surveyor to prepare a reinstatement cost assessment for you.
A reinstatement cost assessment looks at the worst-case scenario for the insurer. It’s prepared on the basis that the building has suffered such significant damage that it needs to be knocked down and rebuilt in its entirety. You need to make sure that the RCA value is accurate, as you may only be able to recover part of the value of your claim if your insurer thinks you’re underinsured for full loss, even if your actual loss is only partial. Even if it’s under the value of the rebuild cost you submitted to the insurer.
What’s Involved in a Reinstatement Cost Assessment?
To carry out a reinstatement cost assessment, a surveyor will first measure the building you want to insure. They’ll then assess whether there are any unusual features that might affect the rebuild value and whether there are any externalities like party wall agreements needed, or even propping of adjacent buildings. The surveyor will also take a look at the grounds and assess the cost of reinstating any car parts or planting, usually using standard costs to either provide a per square metre valuation or in some cases include an elemental breakdown of the cost to rebuild.
The way the reinstatement costs assessment can be presented to clients varies from firm to firm, but typically we will provide you with a brief letter report detailing the rebuild cost assessment value, as well as any particular exclusions that have been omitted from our report, along with a high-level breakdown of our valuation. Typical exclusions might be that we haven’t allowed for VAT or asbestos clearance, which insurance underwriters will usually assess themselves.
Can A Reinstatement Cost Assessment Affect Your Premium?
Yes, but in a strange way. With any building, but especially high-value ones, a reinstatement cost assessment can be critical in ensuring you’re not paying too much on your insurance premiums, and making sure you’re not paying too little either. Because if you’re underinsured for any future claim it can cause a lot of problems and affect the payout you get, whether it’s for a total or partial loss.
How Often Should You Update a Reinstatement Cost Assessment?
When we provide a reinstatement cost figure its on a day one basis, which means that the building will be insured against the value of the rebuild at the start of the policy. Ordinarily we would then expect your insurer to index the costs for the next couple of years, but we recommend that the reinstatement cost assessment is renewed every three years. This is because market forces can significantly change the value of rebuilding particular properties. For example, recently we’ve seen extreme volatility in construction prices, which have been linked to factors like Covid, the war in Ukraine and other macroeconomic events. All of which mean that the index linking by insurers isn’t always sufficient to ensure you’re adequately insured.
If you own or manage any properties, it’s important to ensure they are properly insured so that you and your assets are protected. If you have any questions about reinstatement cost assessments, our friendly team are always happy to help. Just get in touch to speak to one of us today.
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