Insurance can be a bit of a black art and remains somewhat of a mystery to many of us – but it does need to be given serous consideration if problems are to be avoided down the line. When it comes to insuring buildings one of the key questions is what level of cover is actually required in the first place. How much would it cost to replace the building or buildings if they were destroyed or had to be demolished.
Insurance brokers can provide plenty of examples of businesses being underinsured with several reporting it as being ‘widespread’ across the UK. One 2012 study focused on the East Midlands identified the problem in over 95% of businesses. The implications can be serious:
All is not lost though. For many years insurers/surveyors have had a method of getting as close to the right answer as possible. Often referred to as a fire insurance valuation, the correct term is a Reinstatement Cost Assessment.
These assessments are usually undertaken by Building Surveyors, or in the case of more complex buildings, Quantity Surveyors. They need to be undertaken in accordance with RICS guidance and the surveyor will need to understand exactly what is being insured and on what basis. A ‘new for old’ approach is common but this does need to be confirmed.
The actual assessment should include the cost of replacing the building(s), the cost of removing what was there previously and those fees and other costs that would be incurred during the process. Any new building needs to comply with current Building Regulations and the cost of this compliance (upgrading what might have existed previously) is likely to continue to increase as the move to even more energy efficient buildings gathers pace. With potential to skew the figures by 20% what has been assumed in relation to VAT should also be made clear.
Once the assessment has been undertaken it needs to be reviewed on a regular basis to ensure it remains valid. If significant modifications and/or extensions to the buildings are undertaken a new assessment is likely to be required.
David Castle, Partner, Vail Williams