A recent survey found that 80% of businesses are underinsured. Underinsurance could expose you to a major shortfall should you ever need to make a claim making it significantly harder for your business to bounce back successfully after a major loss.
Country Hotel case
Our client, a prestigious country hotel, had previously been valued at a £5.1m rebuild cost. So the client thought that if the hotel was impacted by an unfortunate event and totally destroyed, it would cost just over £5m to completely reinstate it.
However, using our valuation service with experts from Barrett Corp & Harrington (BCH) it was quickly realised that the figure £5.1m was 50% less than its true reinstatement value which was found to be £10.4m. This meant that in the event of a total loss the maximum payable would have been £5.1m. If reinstated to its original state the client would have to invest the further £5.3m, leaving a huge shortfall.
BCH uses its expertise to provide accurate buildings insurance valuations that eliminate this risk, to ensure your property is fully insured. In this instance BCH factored in the full cost impact of elements of the Grade II Listed hotel leading to a more accurate assessment at £10.4m, more than double its previous figure.
Martyn Barrett, Director at BCH said: “when dealing with a listed building of this quality, it is essential to take into account the full cost of replicating all of the important architectural features. This building has a high degree embellishment and had recently been sympathetically refurbished to a high standard. Our reinstatement cost assessment also took due account of the stone exterior, which amongst other factors contributed to our assessment value of £10.4m”.
Barrett Corp & Harrington has created a list of the ten key indicators which might indicate that your building is underinsured. If any of the following applies to your property, you may wish to seek expert advice:
- The current insurance value is based on a mortgage valuation
- The property is Listed and/or in a Conservation Area
- The building is made from stone or unusual local materials
- There are extensive outbuildings which may not have been included
- It was constructed before 1920
- Recent extensions/alterations/refurbishments which had not previously been accounted for
- The insurance value has been based on a % of the market value
- The building has never had a proper valuation
- The construction methods aren’t standard e. renewable energy elements
- It is situated in an unusual location
In this article Martyn Barrett explains why a true reinstatement cost assessment (RCA) is important for property owners, how under insurance can be avoided and the effects it can have. Martyn says “under insurance may not bother some property owners and landlords in the short term, as being underinsured obviously means that they pay lower premiums, and everyone likes to save themselves money. However, when a major problem does arise, the impact of an insurer applying what is known as ‘average’ to the claim will generally make them reconsider that view. To put that in its simplest terms, if the full reinstatement cost of a building is £2m, yet the insured value is £1m, the insurers will be quite within their rights to impose a ‘proportionate settlement’ on any claim. This means that as the property was underinsured by 50%, a valid claim for £200,000 worth of insured damage would only lead to an insurance pay out of £100,000, leaving the property owner substantially out of pocket by £100,000.”
If you believe your building needs an updated insurance valuation, please call your Jelf contact who will be more than happy to pass your details over to Barrett, Corp & Harrington for a free, no obligation quote on our Jelf preferential scale.