The cost of reinstating a building includes so much more than the bricks and mortar. Factors such as demolition, site clearance and professional fees are often overlooked, as are the cost of external works such as structures and hardstanding areas.
Mark Briggs, Managing Director of Barrett Corp & Harrington (BCH) explains how market changes are responsible for increasing costs and how this could be affecting clients’ policies.
Market changes generally
“It’s well known that anyone looking to carry out construction work, be it small home maintenance and decoration through to projects by multinational construction companies, have been impacted by changing economic factors and continuing economic uncertainty.
“Global events have seen construction materials, driving prices up. Factors have also led to a reduction in work force and labour availability, pushing prices up further. With gas and energy prices rising ever higher, everything from transportation of material to site, to energy needed to manufacture materials for construction, have all driven every aspect of a reinstatement to the highest levels on record.
Interest rates offer more market volatility as do changes within the political landscape, causing an expensive construction market at the same time as a hard insurance market.
“It’s very hard, if not impossible, to predict any distance in front of us at this moment in time, and whilst chosen construction projects can be ‘postponed’ to a time when costs may be more stable, in the event of a loss to a property, such delays may not be possible.
“Insurance is there to provide peace of mind in the event of a claim, especially for a large loss, and it’s crucial that businesses have suitable cover.”
Market changes compounding in 2022
“Policies are also seeing large levels of index linking being applied to buildings Sum Insured at renewal, which is reflective of the construction market that insurers are keen to address in an attempt to best avoid underinsurance.
“Unfortunately, no amount of index linking can provide the certainty of outcome required without a Sum Insured established by a reinstatement valuation.”
What Aviva is seeing from their own data
“Accurate declared values are therefore essential in giving customers best protection. Underinsurance exposes customers to a potential proportional settlement, with overinsurance resulting in potential over payment of premium. Both are an avoidable headache for broker and insurer alike.”
Market volatility and insurer indexing with market fluctuations considered, the only way to ensure an accurate Declared Value, offering best cover to the policyholder, is by carrying out a Reinstatement Valuation.
Last year, Aviva found underinsurance in 76% of cases, with the average increase being 47%. In 2022, Aviva noted underinsurance in 71% of all instructions.
“Our work last year helped prevent over £4bn of underinsurance reaching the UK insurance market. Not only is an accurate, recent, Reinstatement Valuation the best way to ensure best cover for the policyholder, it can help to avoid a poor outcome in the event of a loss.”
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This article was adapted from an article by Aviva which can be found here.