The Building Cost Information Service, part of the Royal Institution of
Chartered Surveyors, has announced that close to 80% of UK commercial
properties could be underinsured for rebuild costs by as much as 60%. For a
property worth £500,000 this would mean a shortfall of £300,000: a very
worrying thought.
The problem could stem from the fact that during an economic downturn,
business owners tend to assume their properties have remained stagnant in
value. So when they renew their policies, they don’t bother to think about
increasing the sum insured for rebuilding purposes.
However, it should be noted that the market value of a property is not
in question; it is the rebuild costs that need to be considered, and these can
vary quite substantially from the value.
Rising Rebuild Costs
Rebuild costs have risen considerably recently, due largely in part to
the changes in the Building Regulations that were introduced in 2002 bringing
in a range of stipulations that drove construction costs up. These included
things like higher levels of fire protection, improved accessibility, energy
performance measures and better drainage. Failure to comply with the
Regulations is said to have the potential to add 30 per cent to the cost of a
build. And then there is the increase in labour and materials costs to add to
this. All of this demonstrates the vital importance of reviewing a sum insured
for rebuild.
Businesses may also be under-insured for another reason, and that is a
lack of risk assessments and professional valuations, again a symptom of cost
cutting in the economic downturn. The trouble is, this could be a false
economy, especially when you consider the increase in harsh weather events and
terrorist threats that could put properties at a greater risk.
Calculating the Rebuild Value
If you think you are able to calculate your own rebuild value, you may
wish to think again. There really is a lot to consider, including Building
Regulations compliance, local authority planning fees, geological conditions
and materials and labour costs. And if your building is older then you may need
to include provision for dealing with the likes of asbestos.
Summarising, when you are renewing your buildings insurance, or taking
out a new policy, be very careful about the figure you quote as your rebuild
cost. The advice is to invest in a professional reinstatement valuation survey
to ensure the sum insured is adequate. If you cannot afford to stump up any
shortfall yourself, make sure you have sufficient cover.
