How could property rebuild values cause a headache for owners?

It’s difficult to assess what a building would cost to rebuild, particularly as a layman. Difficulty in assessing the costs of building, materials, design, and the clearance of debris from the land has meant that the sum insured value on insurance policies is often not aligned with the actual cost required to rebuild the insured property.

Policies will often simply not allow for the value declared to be used for the rebuild, and instead will reduce the settlement proportionally to the amount of underinsurance. This is called ‘average’ and can cause issues for property owners trying to rebuild or repair a building after a claim.

On its own, underinsurance is a massive threat to property owners, and there are additional implications which are often overlooked when declaring a rebuild value. These include hardstanding land or carparks, difficulty to clear the site of debris, and even design costs. Furthermore, the construction type or grade listing of a building can dictate rebuild costs.

Why careful consideration should be given to insuring listed and historic buildings

When a property is labelled as a listed building, it means that the building has specific historical value and often comes with a responsibility to uphold that value, both aesthetically and architecturally. Historic England estimates that there are approximately 500,000 listed buildings in the UK in 2022.

People are often unsure of what’s required for repair or renovation of a historic building, as well as the relevant permissions that must be obtained. To carry our repairs or renovation work, property owners must acquire the consent of the local council, which will often come at extra cost.

Often, councils will want to see that repairs, rebuilds or renovation work adhere to aesthetic and architectural interests – such demands mean both the planning and the work can become more expensive than standard construction builds. Just think of engaging a craftsman joiner or glazier to replace a window of bespoke style, shape and size compared with a UPVC mass produced replacement window – the difference can be staggering.

What about modern buildings?

At the other end of the scale, there are many buildings that use modern construction methods which could also impact insurable values. This is particularly evident where cladding or composite panels form a part of the building. If the regulations for the building have changed considerably and this type of cladding cannot be used, changing, or upgrading the cladding might also drive up the cost. Planning permission might be needed to change the appearance of the building, as well as compartmentation surveys and issuance of EWS certificates for buildings above a certain height.

Many factors determine the rebuild value, not simply the cost to buy the building or its market value, and an accurate rebuild valuation is often broken down into debris clearance, design, and construction of the rebuild.

How does this affect building insurance?

For historic buildings, particularly those where planning permission is granted by local councils, it’s important for stakeholders to price in the cost to preserve historical features. It’s important that appropriate materials and competent tradespeople are factored into rebuild costs. The best way to understand the costs is to get a RICS surveyor to give advice on rebuild values. RICS surveyors will understand the intricacies of rebuilding properties with various construction methods, both historic and modern, and will be able to advise on the appropriate declared values. Insurance brokers often cannot advise accurately on what we think the rebuild values will be – however, brokers can often provide companies to deliver assessments as a part of the service. Aston Lark has advised many property businesses to review their buildings’ declared sums insured over the past few months as building materials costs have increased.

So far, 450 surveys have been conducted and, of those, 84% have been underinsured, and the average amount of underinsurance on these is 57%. These estimates sit in line with surveys of buildings underinsurance conducted by RICS and Landlord News, which showed 74% and 82% of properties to be underinsured by some degree, prior to materials and labour inflation costs widening the gap even further.

It’s important to note that buildings insurance covers a host of property types including private dwellings, rental accommodation, commercial premises, even carparks and hard standing land. If you are not sure about a property that you insure, we can arrange RICS surveys for you.

To find out more about this and obtain a valuation for your commercial premises, click here.

References

82% of UK properties are underinsured. Are yours? (landlordnews.co.uk)

Sam Forbes: Buildings underinsurance (civilsociety.co.uk)