FEATURE
COVERING ALL YOUR BASES
David Fairley, a partner at Sanderson Weatherall’ s Teesside office, sheds light on the important but often overlooked topic of reinstatement costs...
Construction cost inflation in the UK has been a significant challenge for property owners over recent years.
While material price inflation has largely moderated since its peak, certain products such as cement and insulation are still seeing increases.
As material costs stabilise, the primary driver of rising construction costs has now shifted towards labour shortages and wage inflation.
The scarcity of skilled workers has led to intense competition for talent, pushing up wages across the sector.
This means property owners and contractors continue to face a complex and unpredictable market, with tender price inflation still hovering around 2-3 %. This price inflation, alongside lack of market predictability, can have a serious impact on your property insurance.
Are you insured for the correct sum? Most commercial insurers require a Building Reinstatement Cost Assessment( BRCA), which determines the rebuild cost of a property. This assessment is vital for an accurate insurance policy because it calculates the cost to repair or fully rebuild your assets to a condition equal to but not better than when new. While not mandatory in the UK, a BRCA is essential for complying with the Insurance Contracts Act 1984.
Because of the surge in construction costs, many buildings are now significantly underinsured. Building costs have increased by up to 30 %, with some materials rising by as much as 50 %. This means that relying on standard annual increases tied to inflation is no longer reliable.
What are the consequences of an inaccurate BRCA? A BRCA provides an accurate assessment of the likely cost of demolishing and reconstructing a property in the event of total or partial loss, such as in a major fire.
By including professional fees and statutory obligations and considering the complexities of the specific property and surrounding environment, the assessment will include all affecting matters.
An inaccurate assessment can have serious consequences. Over-insuring a property leads to paying excessive premiums. Conversely, under-insuring can result in significant financial loss. Insurers may apply an“ average” clause, meaning they only pay out a portion of the claim based on the percentage of underinsurance. For example, if a property is insured for £ 50,000 but the true rebuild cost is £ 100,000, a £ 25,000 claim would only pay out £ 12,500.
This assessment is especially crucial for complex or unusual properties such as listed buildings.
In line with RICS guidance, it is recommended to adjust the value annually for inflation, review after any major renovations and conduct a formal reassessment every three years.
We’ re here to help The team at Sanderson Weatherall have undertaken BRCAs for a wide range of property types, including city centre tower blocks, factories, retail and showrooms, and has extensive experience across all sectors of commercial and industrial property.
We can provide accurate BRCAs using the most up-to-date industry pricing information, all backed by our comprehensive professional indemnity insurance cover.
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