MAXIMUM COVERAGE

The Importance of Carefully Reviewed Insurance Policies and Top Tips from Lycetts Insurance Brokers

Recent NFU figures highlighted that incidents of the theft of oil, diesel and other fuels had doubled in 2022, compared with 2021, representing a significant risk to rural homes and businesses. Not just in the value of the fuel stolen but the potential damage that can be left behind. Whilst the theft of the fuel itself may be covered, it is worth reviewing the specific contingencies in place to cover the potential resulting damage to the surrounding area, and / or the goods in store. Inflation and commodity price fluctuations may also have an impact upon the values you have placed in your goods in store, for example grain and fertiliser.

Unpredictable weather patterns are also a concern. The freezing temperatures that we experienced in winter 2022-23, resulting in countless burst pipes and flood damaged properties, served as a tough reminder that carefully reviewed insurance policies and up-to-date Reinstatement Cost Assessments (RCAs) are important when it comes to damaged properties and the success of any resulting claims.

It is important to note that a reinstatement value is not an equivalent to market value. The former is an estimate of the total costs associated with reconstructing a building in the event of destruction or significant damage. This includes allowances for demolition, support and protection, local authority and professional fees, alongside re-construction of the property itself. Taking account of any special features is also very important, as these are often overlooked when calculating a re-build value of a traditional property, or those with a unique design.

Though reinstatement sums within an insurance policy are generally index-linked and therefore increased annually to allow for inflation during the period of insurance, the significant increase in build costs in recent years has meant that the need for a policy review and an updated RCA has become increasingly important. The Building Cost Information Service (BCIS) inflation figure reached 18.5% in Q3 last year, and higher inflation increases the likelihood of error. There has been an even greater variance in relation to particular types of building materials, for example steel and concrete rising to 30% in 2022, making some buildings at a higher risk of underinsurance than others.

If you have improved or modified a property, altering the insured value, and have not carried out an updated RCA in the last 3-5 years, you may be at risk of loss. Similarly, if you have not reviewed the specific contingencies and statement of facts upon which your policy depends, for example notifying your insurer when a property becomes unoccupied, this might also put you at risk. Where buildings have not been maintained and have fallen into disrepair, insurers are likely to reduce cover to a basic level of fire, lightning, earthquake and explosion (otherwise known as FLEA). As always, good management, maintenance and compliance programmes, and communication with your insurer reduces the risk of damage but also means that where claims are necessary, the higher the likelihood of success.

We asked Wiliam Barne at Lycetts, an independent, UK based insurance broker, for some more tips to consider when it comes to insurance and RCAs: High inflation increases the 1 likelihood of an error due to greater variability in the figures over a period of time, which is why regular RCAs are particularly important. In order to ensure sums insured of properties across an estate have not lagged, it might be worth considering regularly benchmarking a sample of properties.

VAT is an important consideration 2 on sums insured. The rule of thumb is that if the insured can recover VAT (on either partial or complete replacement), the VAT does not need to be included in the reinstatement value. If, however VAT is not recoverable, then this should be included in the assessment. RCAs often leave VAT out, leaving it to the client to consider the relevant implication of tax.

When considering the basis of 3 cover, it might be worth considering insuring on a modern replacement basis. This is particularly relevant to farm and estate buildings and means that the insured can opt to replace a traditionally constructed building with a modern equivalent in the case of a total or substantial loss. Where a building has been insured on a modern replacement basis, minor or partial damage may be repaired in traditional or existing materials, provided it is economic to do so. It is important to review the policy to ensure you understand the basis of settlement. Claims are one of the key 4 influences on whether an insurer will offer competitive terms, or whether conditions, exclusions or excesses might apply. Claims tend be analysed in terms of frequency and severity. Claims for storm damage and burst pipes, both seasonal and weather related, tend to have a relatively high frequency, and both can be affected by good maintenance and management programmes. Fires tend to be low frequency but high severity, and such claims often form the highest part of an insurer’s claims costs. As such, good fire risk management is essential, including regular EICRs, fire detection, maintenance, and systematic operations such as the regular removal of dust, oil or other combustibles from commercial buildings.

We recommend policies are reviewed carefully with renewal and a full re-calculation should be undertaken on a 3 yearly basis by a qualified building surveyor to take account of any construction related cost increases and any alterations to the property. Whilst the RICS provide indexed rates for rebuilding specific property types through their BCIS, traditional buildings often require unique values.

There is also the additional risk of the presence of asbestos, particularly in older agricultural buildings, that may result in insurers excluding or limiting liability.

However, the risk of loss is not specific to buildings alone. Public liability cover for farms and estates will generally be conditional, particularly in relation to sporting activities, upon adherence to safety and statutory regulations. It is important to review any conditionality and ensure that best practice is followed so that nothing is done that may limit cover if an incident were to occur. There is always a risk of accidents and loss. One of the key considerations when it comes t insurance is whether the management practices in place –be it maintenance, updated RCAs, security, staff training, complianc and regular reviews of the policy are designed to minimise this risk.

Our rural and building consultancy teams here at Galbraith are experienced in providing both management advice and servic alongside the necessary advice surrounding the provision of RCA in an agricultural, residential and commercial context. n

Ailsa Baird

07917 464 262 ailsa.baird@galbraithgroup.com