In 2012, Building Cost Information Service (BCIS) conducted research into under-insurance in commercial property. Results confirm that despite regular reminders, as many as 80% of commercial buildings are still under-insured.

Coinciding with the launch of BCIS's commercial property rebuilding calculator, this was a stark reminder that if shortfalls in reinstatement claims are to be avoided, regular reassessment of property value is vital.

Morag Keohane, Caxtons' insurance manager, says: "Unfortunately too many property owners rely on the building value to be index linked and allow the value to go unchecked year on year.

"We also see many purchasers relying on the value the vendor insured the property for without confirming if this is correct, or adopting the asset value as the reinstatement cost.

"This means that insurance companies will not have accurate details regarding the value of the building and any claims may therefore be subject to average if a property is under insured.

"Carrying out regular valuations is essential to ensure property owners are not left out-of-pocket should they need to make a claim in respect of their property."

The Royal Institution of Chartered Surveyors (RICS) recommends that a reinstatement cost assessment (RCA) should be carried out at a minimum of every three to five years. Property owners' insurance policies make it a policy condition that regular valuations are carried out by a RICS qualified surveyor, normally every three years, although this depends on the insurer.

In a recent on-line article published by RICS they said: "The Insurance Act, which came into force in August 2016, contains important changes, which those in the

property sector should be aware of. Insurers do not need to rely on their policy wordings to reduce the costs of claims as they will be able to proportionately reduce these due to non/inaccurate disclosures. Therefore, the duty to provide a fair presentation of risk should be given the utmost care and consideration to ensure that the property at risk is accurately presented to insurers to avoid any detrimental settlement adjustments."

There are two types of policy cover. A building can be insured on a 'reinstatement basis' where the amount of indemnification is determined by the cost of repair or reconstruction at the time of the loss rather than at the start of the insurance period. This means the sum insured at the start of the insurance year must include an adequate allowance for inflation both during the insurance period and during the rebuilding period, which may be longer.

The alternative is 'day one reinstatement basis' method, where the actual rebuilding cost is set as at the first day of the insurance period. Inflation is included automatically in the policy. This represents good value for money as the insurer may only charge, for example, 5% of the full rate for an inflation provision of 30%.

For information and assistance with the preparation of Insurance Reinstatement Cost Assessment Valuations, contact Mark Laherty, head of our Building Consultancy Department; on 01474 330960 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

For advice on property owner's insurance contact Morag Keohane on 01474 537733 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Caxtons Commercial Limited is an Appointed Representative of Morrison Edwards Insurance Services Limited which is authorised and regulated by the Financial Conduct Authority.

morag keohane 8004 SQU 1

Morag Keohane