The importance of getting a correct valuation for insurance purposes cannot be over-stated. Here are some articles concerning the matter.
The Importance of Buildings Valuations – The Under-insurance Issue – By Gavin Dickson (BHIB Insurance)
“Buildings insurance is something that every property owner, business owner or homeowner will be aware of. However one factor that is often overlooked is the actual cost of rebuilding a premises, as if the building is not insured for the correct rebuild cost, then the insurance can spring a nasty surprise when you need it the most.
In the event of a claim then insurers can look to apply ‘average’ and reduce the claim payment accordingly. To use a basic example, if someone has only insured a building for 60% of it’s true rebuild value then insurers are only obligated to pay 60% of the value of the claim, whether this is a small claim for a damaged wall or a significant claim where a large portion of the building has been destroyed.
Needless to say, such a difference in costs can be catastrophic, whether for an individual or a business.
Surely the majority of properties are insured for the correct amount?
Sadly this isn’t the case, and this is why we are promoting the importance of valuations.
There are various reports and studies on this subject with a common theme being that the majority of commercial properties within the UK are currently underinsured. Some reports have this figure as high as 80%.
How does this happen?
There are a number of factors that can be out of the control of the Property Owner, so having a building under-insured does not mean that you have done anything wrong or that you have deliberately sought to deceive the insurance company.
The costs of materials, labour, planning and design can fluctuate quite wildly (especially within the current economic climate) and even if a building has not changed within the past few years, it’s value certainly could have.
One trap that some people do fall into is to use the purchase price of a property as the rebuild cost and insure for that amount.
The purchase price, much more often than not, will be substantially different to the rebuild cost. Sometimes the purchase price will be more expensive, for example if the property is in a sought-after area and the value of the surroundings is a factor. Sometimes the purchase price will be less than the rebuild cost, for example if the seller reduced the price for a quick sale or if the property was purchased at auction.
When buying a new property it is imperative that you request a copy of the latest rebuild valuation, and if one is not available or if the valuation is three years old or more, then arrange for a valuation yourself.”
For the full article, follow the link at the top of the article.
Valuations for insurance purposes – Crombie Lockwood (An Arthur J Gallagher Company) – Publication
Statistics show that 83% of commercial properties are underinsured. This is generally due to a number of
- The property is insured for indemnity value instead of replacement value
- The sum insured amount is not reviewed on a regular basis
- Natural disaster cover is not available or is cost prohibitive
- A market valuation is used to determine the value instead of an insurance valuation
In order to insure a commercial property correctly, it is important that customers obtain a Registered Insurance Valuation. This will also help insurers understand the value of the property and the risk to be insured.
Why are insurance valuations required?
- Reassurance the sum insured on your policy schedule is as accurate as possible. This will mean in the
event of a total loss, you should have sufficient funds to rebuild the property
- Providing a starting point for an accurate sum insured which can be updated each year in line with
- Estimating the rebuild costs for unusual features of the property e.g. fences, bridges…
- Obtaining an accurate indemnity value for fire service levy charges
Market valuations versus insurance valuations
So what is the difference between a market valuation and an insurance valuation?
Market valuations provide an indication on the amount a property might be expected to realise when offered for sale. It is based on what is happening in the current property market and includes the sales price of similar properties. A market valuation is not suitable for estimating the cost to rebuild a commercial property, as these are not based on rebuild costs, and will also include the value of the land.
Insurance valuations estimate the cost of reinstating the property with a new modern equivalent for insurance purposes. The factors considered in establishing the replacement or reinstatement cost will typically include:
- Specific materials used in the building
- Location factors (remote or rural sites versus metropolitan)
- Design of building including soil type, special footing…
- Demolition costs and removal of debris
- Fees associated with reconstruction, architects, survey and engineering
- Inflationary provisions
The cost to reinstate assumes an individual event and does not reflect a wide spread or national disaster
impacting on the cost or availability of materials and labour.”