The key purpose of a Reinstatement Cost Assessment (RCA), otherwise known as a Building Insurance Valuation, is to ensure that a property is adequately covered by the Buildings Insurance. This is achieved by establishing what it would cost to demolish and rebuild the property, as well as all of its peripheral features. A professionally conducted RCA will provide a complete assessment of a property’s rebuild costs, taking into consideration:
The main structure (including foundations)
Half of the cost of party walls/protecting adjoining structures
The cost of demolition
The cost of debris removal
The cost of labour and materials
The cost of professional fees
It will also take into consideration any unusual fixtures and fittings, or whether the building is listed. As well as the property’s various peripheral features, which may include:
Walls, fences and gates
Garages, bin stores and outbuildings
Car parking areas, drives & access roads (including private access roads)
External lighting
Sewage and water pumping plant
Hard (and often soft) landscaping
Swimming pools, tennis courts and other leisure facilities
Conducting regular insurance valuations means that the property can be insured on an ‘agreed value’, rather than an average. So that, should the worst happen, the property (and its leaseholders) are protected.
Under-insurance can have a number of implications, here’s an example provided to us by Cardinus Risk Management…
Consider a building with a current sum insured of £3,600,000. If we assume the rebuild value was actually £4,320,000 (in other words, it was undervalued by 20%) and a claim was made at a cost of £2,500,000 then, if insurers applied an averaging clause – saying the cover was only 83.33% of the true building value, the settlement made by insurers might be just £2,083,250 – leaving a shortfall of £416,750. That bill would then have to be met by the landlord or collectively by the leaseholders. This could have one or all of the following implications:
Claims payment does not cover the full property repair/building cost
Funds may not be available to complete the rebuild
Increased borrowing may be required
Negative impact on balance sheet
Difficult negotiations with insurers
Upset leaseholders and tenants
Extended rebuild times
Potential legal action (from lenders and leaseholders) for inadequate levels of cover
Damage to reputation and brand
You would be surprised at how many properties are deemed under-insured following a Reinstatement Cost Assessment, and often by a significant margin. In the past, we’ve seen properties under-insured by more than 20%. This could be due to a number of reasons, such as:
The insurance being based on market value rather than the property’s declared value.
The insurance being based on developers figures, which may not include costs such as debris removal or surveyor fees.
Historical figures having been rounded up, without taking into consideration a rise in material and labor costs.
A professional valuation hasn’t been carried out within the last three years or more.
It is recommended that a Reinstatement Cost Assessment is carried out every three years, at a minimum.
If you think you need a Reinstatement Cost Assessment, please get in touch with your Property Manager. If we have one on file, we can provide you with a copy. Otherwise, we can arrange for one to be carried out on your behalf, via Cleaver Property Services’ risk management offering. We work predominantly with Cardinus Risk Management to provide this service to our clients.
The process of a Reinstatement Cost Assessment is as follows:
Pre-visit Preparation – time spend researching the building to gain an initial understanding of its size and peripheral features.
On-site Assessment – a qualified assessor will conduct a walk-around and measure up (according to the RICS code for measuring practice). A sketch plan will be drawn to record the footprint of the buildings, including the number of storeys present in each; this will be supported by a photo log. The assessor will then establish the gross external area of the buildings.
Post-visit Report – the assessor will then compile a report, and carry out appropriate calculations to determine whether the property is over, under, or adequately insured. This would usually be measured against the building’s current declared value.
We will always do our best to send you a reminder when your next RCA is due, and can also assist in arranging adequate Buildings Insurance cover, should you be declared under-insured.
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