Why Having Accurate Reinstatement Cost Assessments is Essential for Property Insurance

Property remains one of the most significant assets for owners and investors, with insurance providing essential protection against unexpected events. Yet, underinsurance is a persistent risk that can undermine this safety net. According to the Chartered Institute of Loss Adjusters, underinsurance affects more than 40% of claims, exposing property owners to substantial financial shortfalls when disaster strikes.

The root cause of underinsurance is often the rapid rise in building material and labour costs, which have escalated sharply in recent years. Without regular review, sums insured can quickly become inadequate. While underinsurance may leave owners with insufficient payouts, overinsurance can result in unnecessarily high premiums. The solution lies in regular, professional Reinstatement Cost Assessments (RCAs).

Underinsurance

Underinsurance occurs when the declared value of a property is set too low to cover the full cost of rebuilding. In these cases, insurers typically apply a “Condition of Average” reducing the claim payout in proportion to the level of underinsurance. For example, a property insured for £500,000 with a true reinstatement value of £1 million (50% underinsured) could see a £200,000 claim settled for only £100,000, leaving the owner to cover the rest.

Underinsurance can happen for several reasons, including:

• • Inaccurate or outdated property valuations
  • Rapid increases in construction costs
  • Inadequate index linking and annual uplifts
  • Relying on informal estimates instead of professional assessments
  • Infrequent reviews of valuations
  • Misunderstanding VAT implications
  • Ignoring the impact of new building regulations, which can drive up costs

• Comprehensive Reinstatement Cost Assessments (RCAs)

• A Reinstatement Cost Assessment calculates the cost to replace and rebuild a property as if it were a total loss, ensuring the insured sum is adequate. A robust RCA includes:

• • Preliminary/Site Considerations
  • Sub-structure & Super Structure
  • Elevations & Roof
  • Building Services & fit-out
  • External works like landscaping, gates, and fences
  • Professional fees like architects, engineers, and project managers
  • Demolition and debris removal
  • Statutory planning and building regulation fees
  • VAT, which can vary depending on the organisation’s tax status and project details
  • The clients insuring responsibility

  The role of professional expertise

  Professional advice is key to establishing accurate declared values. Qualified surveyors - especially those approved by the Royal Institute of Chartered Surveyors (RICS) - have the expertise to identify and quantify all factors affecting reinstatement costs, including specialist features or challenging site access.  Only relying on average benchmark data is not enough to ensure your insurance is adequate, a detailed approach with specific costs assigned to individual parts of the rebuild will help ensure your sums insured are adequate.

  RICS recommends a full professional survey every three years, supplemented by annual desktop reviews to keep pace with inflation. Any material changes to a building, such as an extension, should prompt a new assessment. Some modern insurance policies may even remove the “Condition of Average” clause if declared values are set by qualified surveyors, underscoring the importance of expert input.

  Zurich Resilience Solutions (ZRS) offers in-house, RICS-qualified surveyors who provide comprehensive RCAs. Their elemental cost analysis ensures accuracy and robust insurance cover, whether through on-site assessments, portfolio health checks, or desktop reviews.

  Conclusion

  An accurate Reinstatement Cost Assessment is not simply an administrative task; it’s a critical investment in protecting property assets. By understanding the risks of underinsurance, accounting for all relevant costs, and consulting qualified professionals, property owners can ensure their insurance remains the vital safety net it was designed to be.

  Want to find out more about our valuations expertise? Contact us here. 

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