by Morag Keohane Dip CII, Head of Insurance

A recently released report from Rebuild Cost Assessment based on 11,000 property assessments during the past 12-months warns that buildings' underinsurance continues to be endemic. It identifies a significant problem for business premises and the private rental sector (PRS), where there is a ‘massive shortfall’ in cover.

New regulations and tax rules have challenged investment property owners, residential management companies and residential landlords, who have seen returns on assets diminish. Consequently, some may think an easy way to recoup loss could be by reducing their insurance outlay. Covid-19 has been the final straw for many, but neglecting adequate buildings insurance cover is a false economy and could prove incredibly expensive.

In the face of a disaster, the last thing anyone wants is an insurer not to pay a claim in full because the policy holder is not suitably covered.

Understanding how insurers arrive at a policy premium for a building may be helpful:

Risk = £cover

  • An insurance premium is calculated based on the risk posed to the underwriter and the amount or level of cover the insured chooses to take out in order to protect their ‘interests’.
  • Underinsurance occurs when a policyholder does not cover themselves adequately, which could lead to a potential shortfall in any claim made to the insurer. This can be due to a number of reasons such as:
    1. Disclosure of incorrect or incomplete information about property
    2. Failure to cover the correct Sums Insured
    3. Limit of indemnity
    4. Indemnity period

There are several factors that can affect how much insurance a buyer needs, and if there is any uncertainty, this is where the advice from an insurance broker can be invaluable.

If the level of cover proves to be too low, the insured could face large financial losses when making a claim.

What will affect cost and cover:

  • If the property is listed
  • If the building is made of non-standard construction: For example - Thatch/ Timber/Wood construction / Pod Construction / Cladding
  • If the building’s value has been based on a developer’s costs
  • If the building’s sum insured has been based on market value
  • If the building was constructed before 1920
  • If the building has never had a valuation or it was valued more than 10 years ago
    (According to ‘Zurich Insider’, failing to update property valuations is a common problem)
  • If the building is eco-friendly
  • If the building has been recently altered
  • If the building is in a location with difficult access
  • If the building has been significantly modified
  • If the building has extensive external features


Insurance page image

One shocking statistic highlighted in the report suggests that the shortfall in insurance cover for PRS properties across the UK could be as much as £315 billion and could equate to 79% of buildings being underinsured.

Most buildings insurance policies include an average clause that penalises the insured by reducing the claim by the same % that the property is underinsured. And at the time of the loss this will be devastating.

Last year, a leading firm of property valuation experts found that over 50% of the properties they valued were underinsured. The re-valuations that were carried out required an approximate uplift of between 50-55% in reinstatement costs.

Usually, the first time a property owner is aware they have a problem is when they want to make a claim.

At best, policy holders end up in unnecessary and lengthy negotiations with insurers to find a mutually acceptable conclusion to a claim. More often than not this will involve a reduction in the claim and, in some cases, where underinsurance is found to be deliberate, no settlement.

For example:

True value at risk £1,000,000
Sum insured £900,000
Amount of claim £100,000
Settlement figure £90,000

Insuring for the correct amount and paying a small difference in annual premium will avoid having to find a £10,000 shortfall towards a £100,000 loss should disaster ever strike.

If a reinstatement cost assessment (RCA) is carried out every three years by a qualified RICS surveyor, the condition of average is waived under Caxtons’ bespoke policy wording.

What to do:

  • Inform your insurer or broker of any material repairs, renovations or refurbishment carried out on the building
  • Ensure that the valuation for any building is appropriate and up to date
  • Arrange regular RCAs and ensure insurers are updated
  • If unsure, seek professional advice

Morag Keohane, Head of Insurance at Caxtons would be happy to discuss the above or any other buildings insurance issues. To contact her email This email address is being protected from spambots. You need JavaScript enabled to view it. or telephone 01474 537733.

morag keohane 8004 SQU V2

According to the latest Plimsoll Analysis, Caxtons has been rated as ‘strong’ – their highest category rating - against 366 (estate) agents in the UK who are considered to be in the ‘danger’ zone, with a further 220 companies rated ‘caution’ and 136 ‘mediocre’.

Plimsoll reviewed 2,400 of the top UK (estate) agents in the sector, using specific criteria to determine an overall financial position. In order to achieve this analysis, it reviews and rates each company and provides relevant information by which others can determine the strength of a business when compared to direct competitors.

Following individual analysis, whilst Caxtons achieved its rating and is considered to have a strong financial base, companies given a ‘danger’ rating are categorised as ‘must improve or will fail’.

The analysis takes in to consideration the difficulties that businesses have faced during 2020 and concludes that with so much uncertainty its findings are more important than ever - presumably in the face of a global economy in decline and a pandemic once again gaining strength.

Caxtons is delighted to learn that others consider its position in the market is as strong as ever.

caxtons doors

At the beginning of October, Housing Secretary Robert Jenrick announced that a minimum size for flats/homes converted from offices under permitted development rights (PDR) would be enforced.

This expands on changes to PDR, introduced on 1st August 2020, ensuring that adequate natural light is a pre-requisite when creating new homes from a building that had another use in a previous life.

In 2017, when a study compared floor space across the EU it unveiled that the UK had the smallest dwellings in the EU. (*At the other end of the scale, Canada has the largest floor space in the world, where on average, homes measure 150 m2.)

However, developers of new schemes must now comply with the new rule, ensuring that a one-bed home with shower room, measures at least 37m2. And, if the property has a bathroom the minimum size increases to 39.2m2.

This may not be vast, but is probably larger than the homes Nick Raynsford, ex-Labour MP and Housing Minister in Tony Blair’s Government, was referring to in Architects Journal (Jan 2020), saying the current Government was ‘immorally producing slums through PDR’.

PDR has been branded a major stimulus that’s resulted in cramped living spaces.

This latest amendment to PDR might be more readily explained if read in conjunction with a Government-commissioned report, which revealed between 70% and 80% of flats converted under PDR fail to reach the minimum size conditions. It found that some converted ‘studio’ flats measured 16m2 - less than half the recommended size.

The Housing Secretary says that while most developers “...deliver good homes and do the right thing...”, the new measures would address those who did not follow regulations. He also stressed that Covid-19 had illuminated the importance of having a comfortable place to live. And during lockdown or quarantine, this must have been very apparent to those living in tiny spaces.

In general, these new measures have been welcomed, although some say that consideration must be given to the communities impacted by PDR - especially when used to convert large office blocks. These schemes often result in a sudden increase in demand upon local amenities and services such as schools, surgeries and public transport.

However, PDR is a vital weapon in the Government’s armoury, to achieve its pledge to deliver one million new homes during this parliament. And if proof were needed that permitted development could help, the Government says there have been ‘over 60,000 homes provided over the last 4 years’ under PDR.

That said, a year of Covid restrictions has affected the Government’s housing ambition, and early lockdown adversely impacted the construction sector and delivery of some schemes. But as building sites were some of the first to return to work, it is hoped that time lost can be recouped in due course.

In summary, it is hoped that this new move will ensure the few who have abused PDR in the past are no longer able to, and that new homes created will meet minimum space standards.

*Caveat: the UK has a landmass of 244,100 square kilometres and a population in excess of 67,000,000; Canada’s landmass is almost 10 million square kilometres with a population of 37.600,000.


An Art Deco Apartment Block in Sydney Australia