Rushton Hickman Director, Mark Richardson explains how easy it is to get it wrong when it comes to insuring your property …

With apologies to our professional colleagues involved in the business, I have to admit the word ‘insurance’ is not one that generally gets the pulse racing. But paying a bit more interest in getting it right when it comes to insuring your property assets is essential if you want to ensure you are properly protected.

Just the other month we were involved in a situation where a property owner turned up to their offices one morning to find the back end of a car sticking out of the front of the building following a late night altercation between a speeding driver and a blind bend. The buildings insurers refused to pay out the cost of the claim on the basis of the building being under-insured, and we were asked to double-check the insurance figure.

You may not be aware, but it is the responsibility of the property owner to make sure a building is properly protected, not the insurer or mortgagor. And if say you are only insured for 75% of the true reinstatement value, your insurer could insist on paying out only 75% of the claim, even if the total cost of the claim is less than you are insured for. Accordingly, under-insurance can be a very costly mistake.

Where people often go wrong is through not understanding the difference between the ‘Market Value’ of a building and its ‘reinstatement value.’ Even lenders who we are providing reports for sometimes get the two mixed up.

A laypersons explanation is as follows:

Without giving the full RICS definition, ‘Market Value’ is essentially what you will get for a property should you decide to sell it.

‘Reinstatement value’ is the physical cost of rebuilding a property to its current design using modern methods and materials. It can include an allowance for demolition, professional fees and location.

The buildings reinstatement value has absolutely no relation to the Market Value figure, though it is not uncommon for this to be misunderstood, and property owners sometimes use the Market Value for their reinstatement figure. End result: possibly having a building significantly under-insured and with the insurer refusing to cover the cost of the claim.

The simple way to get this right is by having a proper re-instatement valuation undertaken. At Rushton Hickman we calculate this using the Building Cost Information Service (BCIS) calculator model.

The BCIS provide base reinstatement figures which make a cost allowance per square metre for a huge variety of type, age, construction and use of buildings, together with allowances for regional location, professional fees, demolition and other factors. The BCIS figures are the most up to date, comprehensive and accurate that are available, and in most circumstances can be used to calculate a very accurate building reinstatement value for insurance purposes. This calculation involves not just the £ per square metre rate, but also makes essential allowance for many other factors which can be unique to a property, such as location, access, materials and a host of other issues. Based on a measured survey of your building we can calculate an up to date reinstatement valuation which will satisfy the needs of your insurers.

It’s also worthwhile getting it updated every few years, particularly if building renovation or extension works have been carried out.

The cost of spending a little time getting this right and making sure you have an accurate insurance figure is well worth it. Just ask the owners of that office building with a car sticking out the front. Sadly for them, they ended up with a very hefty repair bill …

For more information on getting an up to date buildings reinstatement valuation please contact us on 01283 517747 or