The Exponential Rise in Build Costs & The Effect on Insurance Claims

Produced by :-

Gavin Floyd FRICS, Chair of the Chester Association of Property Professionals
& Christopher Lewis BSc (Hons) Building Surveying, Assistant Surveyor at DEESURVEYS Ltd.   

Insurance is rarely something you want to think about, but regardless, companies and private individuals must protect their interests and assets. When taking out insurance the priority is making sure that we insure our properties for the right amount. Insure your property for more than it’s worth and you will likely pay too high a premium. However, insure a property for less than it’s worth and you will maybe unable to cover the full cost, repair or reconstruction if something goes wrong.

However, if you underinsure your property, then because of what is referred to as the “Average Clause” then the insurer, in the event of a claim, may not need to pay the full cost of reinstatement required to cover the cost of repair or reconstruction.

For example, if you have building insurance cover on your home for £500,000, when it’s actual cost of reconstruction would be £1,000,000 and if your property burnt to the ground, then the insurer could invoke the Average Clause and the maximum they could pay you could be £500,000 leaving you to find the shortfall. Similarly, on the same property, say that the damage was not so severe and the cost of rectification was £250,000, then because of the under insurance, the Insurers would invoke the Average clause, meaning that you could receive just £125,000 towards the £250,000 bill.  So, underinsuring a property can clearly pose catastrophic implications for you or your business, but why is there a particular problem currently with a large proportion of residential & commercial properties in the UK being under insured?!

In 2018, it was reported on by GJS Dillon that 80% of commercial properties and residential blocks were underinsured for as much as 45% of their value. In today’s market the same problem is resurfacing with Gallagher having reported this December that just over 40% of recent insurance claims in the last 12 months have been underinsured. A cause of all this has been the exponential rise in build costs during the recent property boom, which has outstripped the usual Retail Price Index monitor; the cost of materials and labour have both increased significantly, with labour costs having been exacerbated by labour shortages, following the UK’s exit from the EU.

So, what can you do to improve matters?

Speak to an insurance broker concerning your residential or commercial buildings insurance and if you don’t have such a contact then DEESURVEYS Limited could provide you with the name of a brokers that they use, to discuss the matter further.

It will be important of course that there is a current and accurate Reinstatement Cost Assessment (ie. Building Insurance Assessment) for your property; if your property has not been assessed in recent times, then a new assessment maybe prudent.

DEESURVEYS Limited provide Reinstatement Cost Assessments and would be pleased to provide an informal, free initial discussion over the phone, should this help – contact Gavin Floyd FRICS, Chair of the Chester Association of Property Professionals, Tel: 07917 046943

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