The underinsurance trap

With construction costs soaring,

THERE’S A weakness at the heart of countless UK businesses that most of them probably aren’t aware of. It’s called underinsurance.

Here’s how things stand. For a variety of reasons – such as energy costs, inflation, Covid-19 and Brexit – labour and material costs in the construction sector have rocketed recently.

Unless you’re building a house, factory or office block, that fact might have passed you by. But there’s a side-effect that everyone running a business needs to know about.

As the property’s owner, it’s your responsibility to ensure that the value listed on your insurance policy is correct.

Now, for the sake of argument, let’s say your premises suffer a fire. At the present time, it’s quite likely that the cost of rebuilding them is higher than you think –which matters when you make an insurance claim.

Say that you’re insured for £1 million, unaware that the building’s true rebuild value is now £2 million. You consequently have a shortfall of 50 per cent.

In formal language, the rebuild value on your insurance policy is lower than the actual cost to rebuild your property.

You make a claim for £500,000, oblivious to the fact that under what’s called the Condition of Average clause, the insurer might pay out a proportionate amount –that is, no more than £250,000. Worse still, the insurer might void the policy on the grounds of misrepresentation, meaning you get nothing.

Aston Lark’s business relationship manager, Max Palmer-Jeffery, wrote bluntly about the situation in a recent blogpost for the company’s website.

“Quite simply, due to the ongoing volatility in the construction sector, any rebuild valuation that’s over a year old is almost certain to leave you underinsured today,” he concluded.

What’s the solution?

Aston Lark offers two building insurance rebuild valuation services to ensure your assets are valued correctly.

The traditional “boots on the ground” evaluation is the building insurance reinstatement cost assessment, or RCA, suitable for single or multiple buildings.

RCAs are for anyone who has not had a professional valuation in 12 months and, for commercial and residential buildings, cost a minimum of £490 plus VAT, depending on the current declared value.

The alternative is a Benchmark e-valuation – a fast and affordable desk-based method introduced in 2022 in association with Barrett Corp & Harrington (BCH).

This virtual RCA costs £99 plus VAT. E-valuations, delivered within 72 hours of instruction, estimate the true reinstatement sum insured within 10 per cent accuracy of a surveyor undertaking a full survey.

Results are based on access, digital planning data, location, the latest digital mapping data, and information provided by you.

The Benchmark service is supported by some major insurers for average waiver guarantee.

In 2022, we carried out 1,923 valuations and found that 84 per cent of the clients in question were underinsured, and by an average of 57per cent. If you’ve not had your commercial property valued in the past 12 months, contact us today.

To find out more, visit: www.astonlark.com