In this article we look to explain the importance of accurate Reinstatement Cost Assessment RCAs when it comes to insurance claims.
Understanding the origin of the rebuild value in an insurance policy is essential, as is keeping it maintained. The only way to be sure of an accurate sum insured is to instruct an RICS compliant Reinstatement Cost Assessment (RCA) in the first instance and then review this figure annually until a “major review and reassessment” is required, usually three years after the initial RCA.
A Reinstatement Cost Assessment (RCA) in the context of insurance, is the calculated estimated cost to rebuild a property on the basis of ‘total loss’.
The calculations are disclosed to insurance providers to ensure adequate cover is provided. The insurance companies in turn adjust their premiums accordingly.
In the event of a total loss of the building, if the rebuild cost is undervalued then the insurance payments will not adequately cover the cost of rebuilding. As many leases require the Landlord to rebuild in the event of a loss, the Landlord will be required to make up the shortfall in costs.
On the other hand, overvaluing the RCA will result in higher insurance premiums for the insuring party.
Asbestos surveys for a building may need to be conducted as part of a RCA calculation, as the anticipated cost to deal with asbestos removal needs to be factored into the assessment. In some buildings the safe removal and disposal of asbestos can pose a significant cost.
Demolition costs can often get missed from Reinstatement Cost Assessments. Not allowing for costs associated with demolition of structures and site clearance can lead to under-insuring a building. An assessment on site should pick up the following issues that can lead to increased costs from demolition and site clearance:
- Restricted site access
- Inner city areas
- Party Wall & neighbourly matters
- Extensive external hardstanding areas
- Construction over and in close proximity to public transport infrastructure
In conclusion Reinstatement Cost Assessments are extremely important. Nobody wants to pay over the odds for their insurance premiums, however the costs and risks of underinsuring are significant.
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