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Courtesy of Touchstone Underwriting

We are witnessing the substantial rise of building cost under-insurance and the associated reduction of pay-outs, due to the ‘Clause of Average’, in almost all policies. These sums can turn out to be quite some loss to the insured.  

A claim payout will reflect the level of under-insurance of your building reinstatement cost valuation – for example, if your property is under-insured by 25%, you will only receive 75% of the cost to repair or rebuild.

A Building Cost Information Service (BCIS) research report revealed that 80% of properties were under-insured.  Sums insured consistently fall behind valuations by at least 20%, if not more.  More recent studies reveal almost identical statistics, which are now increasingly rising due to various inflationary issues affecting our country today.

Property under-insurance has been an issue for several years, as many property owners have never had a professional rebuild cost assessment carried out.  Instead, they have mostly relied on guesswork to arrive at a rebuild figure, or very generalist internet platform-based estimates. Most of these inaccurate sums insured have then been carried across from year to year as the basis for their insurance renewal. 

The historical inaccuracy of insurance valuation has been exacerbated recently by the unprecedented inflationary pressures which continue to take place in the construction sector, especially:

Brexit supply chain issues – rising costs of imported materials and a labour shortage over the last few years are a key factor in the high construction cost inflation that we are witnessing

Covid – a reduced number of haulage drivers available at any one time has led to severe delivery shortages and the subsequent rise in distribution costs

Ukraine conflict – further disruption to the supply of materials and rising energy costs across Europe has further increased material and building costs

LV=General Insurance (LV=GI) said there had been a 205% increase in subsidence cases between June and July this year; the extreme heat in August could result in a similar spike in claims to 2018, when they rose 51%, because of the exceptionally hot weather.

According to the Royal Institution of Chartered Surveyors and leading insurers, ideally every building should be revalued for building reinstatement cost valuations at least every five years.  In this way, revaluations will take into account recent variations in pricing, the local market and alterations.

Signature Surveyors use the leading pricing platform – the Building Cost Information Service – to calculate insurance values for businesses and homes. Contact us for some free advice on assessing if you are adequately insured on 01892 710765.