Now might be the time to take stock and have a professional evaluation of your property. Don’t rely on guesswork or out of date information. You need to be confident that your insurance cover is sufficient to cover all your assets should the worst happen.
Ensuring adequate protection is a paramount issue for any property, yet the extent of underinsurance in the UK property market continues to be worrying. According to research carried out recently by the Building Cost Information Service (BCIS), part of the Royal Institution of Chartered Surveyors (RICS), 80% of commercial properties in England and Wales are actually underinsured.
The widespread nature of the problem in recent years has seen the British Insurance Brokers’ Association (BIBA) publish specific advice for property in an attempt to counter the problem. According to Graeme Trudgill, head of corporate affairs at BIBA, “The crux of the issue is that if people have not had a claim previously then it can be difficult for them to see just how much of an impact underinsurance can have on their business.” Trudgill stressed that, “Although there will invariably be an incentive to focus on price, this remains a false economy. This problem is unfortunately all too common: too many property owners fail to ensure their property is insured for the right sum. Yes, competitive premiums and value for money are very important but ensuring you have appropriate cover is paramount.”
What’s appropriate cover?
For buildings, this means the full cost of rebuilding your property, plus any extra charges that could be involved in rebuilding, such as demolition and removal of debris, site preparation, architects’, surveyors’, consultants’ and legal fees (+VAT) and the additional cost of complying with government or local authority requirements.
It’s a good idea to also make some allowance for inflation as the price for many of these things can change, either during the year that your policy runs for, or during the repair or rebuilding process following the property being damaged.What we’re talking about here is the ‘sum insured’. When you buy a property you will have a valuation. However, unless you have a reinstatement cost valuation conducted for your insurance, this figure could soon become out of date.
I have a claim but I am underinsured?
If you are underinsured, your insurers could reduce the value of the settlement. In technical language, this is known as a ‘condition of average’. For example, if the cost of rebuilding your property is determined to be £200,000 and you have insured for only £100,000 only 50% of any claim would be paid before the deduction of any excess. This could mean that in the event of a serious incident your property is exposed to a large financial loss. On smaller losses you might only receive a proportion of any claim for repairs leaving you financially exposed for the balance of the cost you incur.In the worst case scenario, your insurer might even refuse to pay anything under the claim if the sum insured was deemed to be materially misleading.
Ensuring appropriate cover
In short, don’t just focus on the cheapest price when it comes to your Property Insurance. It is critical that you receive good guidance on an adequate sum insured and that the policy provides appropriate cover.
Top indicators you could be underinsured
- The building is listed, made of stone or other nonconventional material, or was constructed prior to 1920.
- The building has not had a professional valuation within the last 3 years.
- The building has recently been altered or extended or is in an unusual location, perhaps with restricted access.
- The property is finished to a significantly higher standard than normal or has ‘eco-friendly’ features.
- The value is based on developer’s costs, which are often much lower than one-off rebuilding costs due to economies of scale at the time of build.
- You haven’t factored in costs for outbuildings, car parks, driveways, gates, fences, boundary walls, paving or lighting.
- You haven’t factored in costs such as professional fees, site clearance or access – particularly where your building needs a crane or heavy plant to help with remedial work as a result of a claim.
- You are now VAT registered.
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