Too often, clients request insurance cover based on outdated rebuild valuations, the market value of their building or, in some instances, guesswork. What should be considered is what it would cost to rebuild the property, which may end up being greater than the current market value.
Background
A property owner rents out holiday cottages within the UK. Their Sum Insured for each holiday cottage was based upon rebuild valuations obtained five years ago. But, over that period, global events had caused material and labour costs to increase substantially.
Incident
A fire spread from a neighbouring property and caused catastrophic damage to one of the property owner’s holiday cottages. The extent of the damage was such that the property was a total loss, requiring demolition and a complete rebuild.
Outcome
The policy rebuild valuation of £400,000 was five years old. A value-at-risk assessment calculated the true rebuild value to be £750,000 due to the rise in material and labour costs, leaving the property owner underinsured by 47%. Unable to meet this £350,000 cost, a cash settlement was agreed and the insured lost this property as a source of income.
Key takeaways
Underinsurance is a false economy
Being underinsured can put your business at risk. If you need to make a claim and your level of cover isn’t adequate, it may mean you won’t get the sum needed to recover after a loss.
A reinstatement cost assessment is essential
An expert survey can provide a rebuild figure that includes the total current cost to rebuild the property.
How to avoid this scenario
Expert support
We can work with you, along with expert underwriters, to help understand and recommend suitable levels and periods of indemnity for your business.
Enlist a qualified valuation expert
Our Specialist Partner network can provide businesses with thorough and up-to-date reinstatement cost assessments, available at preferential rates to Brownhill policyholders. These help to give you confidence that you’ve got the right level of cover to suit your business.
