Importance of Property Valuation and Your Cover

Dear Member,

In previous articles we highlighted the importance of factoring into property rebuild cost assessments adequate allowance for the inflationary pressures caused by a shortage of skilled labour and rising material costs. This is essential because by not taking due regard of these factors may result in future issues around ‘underinsurance’. What this means that if the sum covered is below the value at risk, a claim for damages may be reduced in proportion to the underinsurance. This is what the insurance market often refer to as applying ‘Average.’
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Even though building sums insured are often increased annually through a mechanism referred to as inflation index-linking this is not a guarantee that the building sum adequately reflects current reinstatement values.

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As the building owner, it is in your court to provide as much empirical evidence and data to back up valuations as you can reasonably muster. Therefore, we cannot emphasise enough how important it is to revisit valuations to ensure that your property sums covered adequately reflect the costs to reinstate your building.
If as a Director or Trustee you knowingly make a decision to under-insure or you are deemed to have failed to take adequate care to protect assets you could find yourself personally liable. Therefore, first and foremost as part of the due diligence process we would recommend that members engage a professional surveyor to conduct a rebuild cost assessment.

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However, we are not blind to the pressures that many of our members are in trying to contain costs and as such in April we offered our members the opportunity of having a free rebuild cost assessment.
We accept that your property may be adequately covered but industry statistics suggest that at least 80% of all commercial property in UK is under-insured by around 30%. This statistic supports our findings as of those members who have taken up our offer so far the ‘under-insurance’ factor has averaged 38%.

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Finally, as your buildings damage cover is arranged on a ‘day one’ basis, you will notice from your Cover documents that the mutual has agreed to increase its limit of liability by an agreed percentage (known as ‘Uplift’). Our standard uplift is 15% which traditionally has been considered sufficient to cater for the effects of inflation during the reinstatement period. However, as we’re not sure how long this period of higher inflation might persist please talk to us if you feel that you would benefit from fixing a higher percentage uplift.
So please talk to us if you have any questions relating to this or any other risk management issue and we will do our best to help.

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For more information please contact Masonicrevaluations@towerinsurancebrokers.co.uk or Call Paul Page on 07542 335722

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Jim Knight

Mutual Manager

20^th July 2023