Valuations and regular re-valuations are key and should be at the forefront of the mind of any prudent property owner or insurance manager.
Ultimately, exposure to underinsurance would mean funding replacement costs following a loss from other sources. A reserve that many businesses will not have, and an oversight that could lead to financial collapse. Conversely, the cost of over insurance is wasted premium, which can annually eat into company margins.
BIBA (the British Insurance Broker’s Association) advise businesses to use professional valuation services regularly, to make sure sums insured are correctly assessed. The risk of incorrect insurance cover will be greater if a professional valuation has not been carried out within the last three years.
However, this is not just about the number, a detailed valuation report that provides a beneficial description of a property and its construction form will be welcomed by insurers and underwriters to further understand the asset at risk. It will also assist in calculations such as Estimate Maximum Loss and likewise provide reference material in the event of a claim. Furthermore, in most cases having a professional valuation will remove the Average Clause in the policy, transferring further risk away from the insured.
The risk of under insurance is even more prevalent currently, due to price and project timescale increases in the construction market.
COVID-19 Follow Up
Further to our previous update on price increases, {A COVID-19 update on the Construction industry – Rushton} several material rates have continued to rise. The current situation is unprecedented and similar sustained industry-wide material price increases have not been seen since the 1970’s.
Price movement from 2Q 2020 to 2Q 2021 for some of the worst effected materials can be seen below;
The big price rises can be attributed to a variety of factors;
- A general post-covid leap in construction causing a rise in demand.
- Supply issues including shortages, allocations, and delivery problems.
- Production difficulties due to covid-19 disruption and political upheaval (Brexit).
- Accidents such as the Suez Canal blockage.
- Weather: plastic polymer production disrupted by winter storms in Texas, and Hurricane Ida.
- Energy costs: a 70% rise in wholesale gas prices contributing to cost escalation for brick manufacturing.
Industry Changes
The insurance market has hardened quite considerably due to an increase in claims and falling levels of underwriter confidence. Lloyd’s of London CEO, John Neal, recently claimed that the pandemic is the most expensive event to ever hit the insurance world. Generally, this hardening of the market will imply:
- Higher insurance premiums.
- Stricter underwriting criteria.
- Insurers being more risk averse.
- Premium rates being less competitive among insurers.
The last review the Financial Conduct Authority (FCA) carried out revealed what they termed ‘an alarming degree of underinsurance.’ In August 2016 the Insurance Act 2015 came into force, stipulating a “duty of fair representation” of risk by the insured.
In consideration of all the above, it is now more important than ever to ensure declared values are accurate, and reinstatement periods remain appropriate.
Rushton International are a London based firm of Chartered Surveyors and Registered Valuers who have a specialist team of real estate professionals, specialising entirely in Reinstatement Cost Assessments/insurance valuations. Our experience spans all sectors of real estate and civil infrastructure internationally.
For further information on the importance of valuations, please contact:
Gareth Williams BSc MRICS
Director
gareth.williams@rushton.co.uk
07788 188847
