Mark Briggs

How to keep a buildings insurance valuation up to date

4th February 202216th February 2022 Mark Briggs

It’s more important than ever to keep a buildings insurance valuation up to date.

It’s more important than ever to keep a buildings insurance valuation up to date

With the increased construction costs and labour shortages due to COVID and Brexit exacerbating any incorrect rebuild values, it’s a particularly risky time to be underinsured.

What’s more, there is currently a ‘hard insurance market’, which means that in the event of a valid claim where a property has been underinsured, the insurer is more likely to apply the Condition of Average.

A RICS compliant Reinstatement Cost Assessment (RCA) is the most accurate method of establishing a correct rebuild value (building sum insured) for a buildings insurance policy. This will protect the policyholder from paying too high a premium as a result of being overinsured or worse, being underinsured.

Once an RCA has been undertaken, it must be reviewed on a regular basis to keep it up to date. This will ensure the insurance policy reacts in the way it is expected to in the event of a valid claim.

If changes are made to the building or its use before renewal of the policy, the building sum insured may need to be updated by undertaking a further RCA and the insurer or broker should be made aware.

So, an RCA has been carried out, what next?

An annual review

The next time and every time that a renewal of the building insurance policy or a change of provider is undertaken, the RICS recommend an annual review to update the building sum insured – reflecting inflation. This is often something that can be done in co-ordination with the insurer or broker and they may even do this automatically.

It’s important to make an allowance in advance of renewal for changes since the original RCA.

An annual review is not sufficient every year

While adjusting the building sum insured in line with inflationary effects is adequate for two subsequent years following the initial RCA, it is less specific to the property. This is due to it being an average increase based on broad cost indices from published sources, rather than reviewing the specifics related to the property.

If an annual review is undertaken, it is possible that the property may become over insured during the two years following the RCA which means the policyholder could be paying a higher premium than necessary. If on the other hand an annual review isn’t undertaken as advised by RICS for best practice, policy penalties could be introduced and the property could become underinsured.

How to keep the building sum insured accurate after the initial RCA

Third year following the RCA:

If no major alterations have been made to the property, the RICS recommends a Major Review at year three to keep the building insurance valuation specific to the property – ensuring it is as accurate as the original RCA and RICS compliant.

A Major Review maximises the investment in the original RCA, ensuring that correct premiums are being paid and the property remains correctly insured.

Without a Major Review, there is the risk of being incorrectly insured and the benefits provided in the policy wording, such as Average Waiver, falling away. This could mean that in the event of a valid claim, the Condition of Average could be applied, a clause which calculates the pay-out in proportion to the amount incorrectly insured.

BCH’s Major Review survey is a cost-effective extension to our RICS Compliant RCA. It’s desk-based and draws on data collected from our extensive database of site-based surveys and external industry recognised sources. A much more rigorous process than just annual index linking.

Fourth and fifth years following the RCA:

Between a Major Review and the sixth year from the original RCA, it is recommended that the practice of an annual review is followed.

This of course means that it is possible to drift away from the very specific building sum insured figure to an average figure based on inflationary effects and could result in incorrect buildings insurance premium being paid.

Sixth year following the RCA:

On the 6th anniversary of the original RCA, BCH recommend that our Building Insurance Surveyor revisits the site to re-appraise the property by undertaking a full review of both the property itself and any external influencing factors that may have changed.

This is much like the original RCA but conducted at a discounted rate to keep the buildings insurance valuation accurate and up to date.

An RCA doesn’t last forever

In this article, we have covered what needs to be done in the six years following the original RICS compliant Reinstatement Cost Assessment – to ensure that the buildings insurance valuation remains specific to the property to avoid over or underinsurance.

In the subsequent years, it’s recommended to follow a similar process which we refer to as the ‘BCH RCA lifecycle’ – it is essentially a continuous loop of Major Reviews and Revisits every alternate three years. This is the process recommended by RICS to keep the buildings insurance valuation compliant and accurate.

As a BCH customer, following the ‘BCH RCA lifecycle’ will give access to discounted rates and will avoid both over insurance (paying too high a premium) and underinsurance (a reduced pay-out in the event of a valid claim).

Here’s an illustration of the process:

Keeping a building insurance valuation up to date

Free Download

For a quick reference, download our guide to Keeping Your Building Insurance Valuation up to Date. It’s intended for anyone with a RICS compliant RCA.

You can download the full version of this whitepaper here How to keep a buildings insurance valuation up to date.

If you need to arrange either a Reinstatement Cost Assessment, Major Review or Revisit, please call us on 01455 293 510 or email info@bch-ltd.ie.

The Impact of Rising Building Costs on Insurance

2nd February 202222nd October 2024 Mark Briggs

We cannot escape the talk in the media about rising building costs. Even buying a tin of paint for a DIY job at home has become staggeringly more expensive over the last few years.

Part of our brief at BCH is to ensure that rising costs are reflected in our building reinstatement cost assessments for insurance purposes (RCAs for short). It is important that the value stated by the policyholder at the start of the policy is accurate and up to date. If not, then at the time of claim, the impact could be severe, as the claim could be reduced in proportion to the amount the true value bears to the value declared in the policy (known as pro rata settlement or Average).

Why has inflation taken off now?

Thinking back before the pandemic, there was talk of the impacts of Brexit being felt in the construction industry. BCIS (Building Cost Information Service part of RICS) gave three scenarios, the best, worst and most likely impact on construction activity and cost inflation. The cost drivers were predicted to be, losses of labour and potential delays in obtaining materials from the EU Bloc. When Brexit eventually happened, predictions became reality as the construction industry lost a substantial number of its overseas workers and had restrictions on imports from the EU.

Then in early 2020, the pandemic struck. Inevitably, construction activity took a sharp decline but rose relatively quickly throughout the summer of 2021. Early restrictions were, of course, imposed, and many construction sites had to significantly change working practices to ensure worker safety.

By March 2021, monthly output exceeded pre-pandemic levels – compounding issues that had been building throughout 2020. When demand exceeds supply, prices for labour and materials go up and lead times are delayed. Unusually and unlike previous construction cycles, the drivers of increased costs, were acute not only in the UK, but worldwide. The impact was massive, from the price of timber and carpenters, to plaster and plasterers and so on.

2021 saw a few more acute factors adding to the pressure on inflation including fuel costs, a shortage of HGV drivers and the ongoing effects of the pandemic. Contractors in fixed priced contracts were left to ‘absorb’ increased costs. History shows that this will lead to contractual disputes and delays in completions. There is also evidence of larger companies stockpiling materials. Speculating in this way was a sound move, but the result was a reduction in supply and rationing/shortages of supply for the wider market, particularly smaller sized contractors.

Combining this with the reduction in manufacturing capacity both in the UK and overseas and the ability to transport materials, a substantial rise in cost was the outcome, as demand outstripped supply.

This chart shows the cost of labour and materials, alongside the BCIS House Rebuilding Cost Index and General Building Cost Index from June 2020, onwards.

Happy New Year-2022!

So, 2022 arrived and we ‘welcomed’ a new style of lockdown. True, buildings carried on getting built, but severe supply issues for labour and all components, raw materials including fuel, remained with us. We have reached a pinch point. Key indicators are that tender prices are rising at a speed not seen for many years.

Mark Fowler, Director of MDA Consulting, one of BCH quantity surveying partners, summed the situation up recently:

“In terms of how building costs and tender prices increased during 2021, it was interesting to see that a lot of data / commentators (including ourselves) were – at the beginning of 2021 – forecasting increases for the year in the region of 1% to 2.5%.
In reality, those same commentators have reported actual increases of anywhere between 4% and 6.5% (and the BCIS have reported 6.7%), so there has clearly been a far greater impact on both building costs and tender prices than most people were envisaging.”

Cost increases and shortages of certain materials have been widely publicised, and there is plenty of evidence that certain timber and steel components too have risen in excess of 50-70% through 2021.

But we must remember, when putting together a rebuilding cost value for insurance purposes, that different building construction methods could mean that one type of property has been more severely affected by inflationary factors, than another. This is addressed by a detailed RCA or Benchmark but is commonly overlooked by generalised indexation. A bespoke assessment recognises the fact that few buildings are ‘average’ and thus, basing assessments that value on average building costs, could leave a policyholder significantly underinsured, or in some cases overinsured.

Looking Forward

If 2021 was a surprise to most, how can we confidently comment on what’s to come?

At the time of writing, the headline inflation rate was announced at 5.4% which is the highest for 30 years. Predicted to go to 6-7% before levelling off in the summer. BCIS, currently reporting a 40 year high on materials costs, are commenting that it is likely that the pressure on material prices and availability will continue throughout 2022 but, that the major driving impact this year is likely to be further labour shortages.

Mark Fowler, further stated:

“It is interesting to see that the BCIS are currently forecasting increases for 2022 of between 1.5% and 3.5% – however, combined with the well-documented issues relating to Brexit, Covid, increases in transport and logistics costs, and ongoing uncertainty about energy/fuel tariffs, it is difficult to forecast with certainty what this might mean for tender prices during 2022.”

What is clear, is demand is exceeding supply, across many areas. The result is price increases. In time, if prices go up too much, demand will reduce as people push back projects. BUT, with insurance claims you don’t have the ability to delay decisions on the project, the project be it repair or rebuild must proceed quickly, to help businesses and families return to normality and the market rate at the time of loss, however high, has to be paid.

The Impact on Insurance and the Insured

In one of our most recent articles, BCH Director Martyn Barrett talked about the ‘hard market’ in insurance and what it meant for all stakeholders in the insurance process. Premiums are rising and a tougher stance is being taken on underinsurance in claims settlements. There is never a good time to be underinsured, but the climate is tougher now than ever. A significant rise in inflationary pressure on claims costs will only lead to even to more scrutiny of the claim and as part of that process the validity of the base sum insured set at policy inception.

It may well be short-lived but a policyholder could be caught out should major loss occur in a period of cost inflation. The Sum Insured could be completely exhausted even with an inflationary uplift built into the policy provision. Standard inflationary uplifts may not be enough, particularly if there is a complex building with a long reinstatement period. In short, the base figure must be right from inception.

As the experts in insurance rebuilding costs and how they relate to policy cover, BCH are left wondering how property owners can afford not to protect themselves properly, looking at both declared values and inflation provisions within policies.

Nobody wants a claim and none of us can predict, if or when, that might occur. But if the unpredictable happens, the last thing you want to discover is underinsurance. At that time, it is too late to correct. If there was ever a time to undertake an RCA or Benchmark, it is now. Furthermore, even if you’ve undertaken one recently, at the annual policy review you should consider what might have happened to costs for your type of property since the last RCA with your insurance professional.

More than ever, the approach to insurance valuation needs to be dynamic and the answer may well be more regular reviews until a degree of normality returns, which at the time of writing is predicted by many commentators…but for now we can look at all these predictions and make a judgement. We haven’t quite resorted to using a crystal ball!

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Risky business: don’t risk underinsurance in a tough market

3rd December 202122nd October 2024 Mark Briggs

Mark Briggs discusses Benchmark, the cost effective e-valuation service from insurance valuation specialists BCH that ensures your buildings insurance cover is set at the right level.

Damage to property is a fact of life. During the pandemic, fires, floods and water damage may not have made the headlines while we have all had other, more pressing problems to deal with, but they have still cost businesses thousands of pounds to put right. These emergencies are still the most common cause of major loss – and they haven’t gone away just because our thoughts have been elsewhere.

The other issue that has not gone away is that, despite the best efforts of brokers to highlight the problem, well over 80% of all property we see is still underinsured. So now, more than ever, it is important for anyone responsible for securing buildings insurance to make sure their policies are regularly reviewed to ensure cover is adequate. Not many of us are in a position to fund any shortfalls in insurance pay outs that could result from underinsurance.

Here at BCH, the launch of our Benchmark E-valuation service in early 2020 was an immediate solution to the fast changing situation brought by the pandemic last year by offering our customers desk-based advice on property insurance values when we were unable to carry out in-person valuations.

Before the pandemic, we had been working for some time on an e-valuation service. Our soft launch during 2020 and the positive response from customers has driven our decision to extend this service more formally in 2021. Branded as Benchmark, the BCH e-valuation service aims to meet demand in the market for a more cost effective, quick-yet-still-accurate service to verify building insurance values, without the need for a site visit.

“Being able to offer the BCH service to clients is a great benefit to both our customers and us. When quoting for a nurseries’ insurance we are often able to comment on whether we think their sum insured is too low based on our knowledge of the sector and other comparable nursery settings. With buildings, it’s different and needs an expert. We are delighted to be able to recommend the services of BCH to our clients.”
Melanie Smith, Marketing Manager, Stanmore Insurance Brokers

Our service has proved instantly popular with all parties to the insurance contract; insurers, brokers and intermediaries and, of course, property-owners. Benchmark will never replace a fully RICS compliant, site-based reinstatement cost assessment (RCA). But, for smaller, simpler commercial risks and blocks of flats up to €5m and for residential houses up to €2million, it is an alternative which should help customers ensure their property insurance values are set at acceptable levels.

The launch of Benchmark has coincided with a tougher stance being taken by insurers on underinsurance, which is generally only discovered when a claim is made. Loss adjusters and brokers have reported that cases of application of Average (which means claims are reduced related to the level of underinsurance), are increasing. At BCH we are now being instructed by insurers to check the adequacy of insurance values after losses to assist them in considering reducing claims pay-outs. We are also asked by policyholders to challenge the values being used by insurers to reduce claims after loss. Sadly, this is often a desperate attempt to reduce the impact of underinsurance and rarely helps.

Policyholders continually need reminding pre-renewal that the responsibility for setting insurance values ultimately rests with them. Should the values submitted to their insurer be found to be lacking at the time of claim, there are consequences. These are laid out in their insurance contracts and the value of their claim is likely to be affected. What will follow is at best disappointment and, in the worst case scenario, leaseholders and business owners could be looking at financial ruin.

“Not only does our comprehensive Benchmark service utilise the Building Cost Information Service (BCIS) and our database of over 50,000 site-based surveys, we are also introducing a new data source – SPONs, it provides the most accurate, detailed and professionally relevant construction price information for the UK. All our Benchmarks are carried out by surveyors who continue to complete site-based Reinstatement Cost Assessments.
Our desk-based e-valuation is quicker from instruction to report; considering this and the limit on liability, Benchmark’s fee is lower than a traditional, fully compliant site-based RCA but not suitable for all buildings.
With the substantial uptake and growth since our soft release in early 2020 we are setting ourselves up for an exciting 2022.”
Lee Bond, Benchmark Principal Surveyor

Even for Insurers, times are hard and the current market conditions and prospects, are about as tough as they get. The attitude to underinsurance at the time of claim is getting tougher. Adequate insurance levels should ensure that policyholders making claims don’t end up victims twice….suffering a loss and then having their pay-out reduced.

You can call us on 0044 1455 293 510, email info@bch-ltd.ie or order a benchmark directly on our website.

If you are a broker, insurer or managing agent, you may benefit from our Portal which through a log-in, enables you to request, manage and track the status of multiple RCAs and Benchmarks for your customers – ask us for more information!

Property insurance valuations and the underinsurance issue

19th July 202122nd October 2024 Mark Briggs

In the majority of commercial or non-standard property insurance policies, the declared value (building sum insured or rebuild value) is critical to set the correct level of insurance cover.

An incorrect declared value could result in over-insurance – over payment of premium by the insured or worse still, underinsurance – resulting in a major financial loss to the insured in the event of a valid claim.

Underinsurance will only become apparent at the time when the policy is required to react, having a detrimental effect on the property owner and insurer partners.

How much of an issue is underinsurance?

According to our data, which includes over 55,000 property assessments, 80% of properties (non-standard, commercial or flats) are underinsured by up to 55%, on average.

To put this into context, if a UK property had £200,000 worth of damage on a building which is insured for £825,000, but should in fact be insured for £1,500,000, the insurers may only be liable for 55% of the £200,000 damage.

Therefore, the property owner would only be entitled to £110,000. This is despite the fact, that they are well within the £825,000 sum insured.

How could underinsurance affect a property owner?

Not having the right insurance coverage could be devastating for property owners to recover from financially.

If the property is used for commercial activities or for residential lettings, the financial impact could affect livelihoods too – putting business owners into bankruptcy.

Setting the rebuild value

Responsibility falls with the property owner or freeholding entity to ensure that the rebuild value of the property on the insurance policy is correct.

For non-standard, commercial buildings or blocks of flats, this is not a straightforward task – requiring specialist surveying knowledge and expertise.

Yet often, the rebuild value is estimated, or average price data such as the BCIS calculator, is used. It’s difficult to define what ‘average’ is when there are so many variables from one property to another and even more so with older properties, small holdings, blocks of flats and commercial buildings – ‘average’ is not reliable enough.

What happens when there’s a claim?

When a claim is made, a Loss Adjuster will assess whether the property was accurately insured.

If it is underinsured, depending on the policy wording, there may be a ‘Condition of Average Clause’ whereby the amount of claim is reduced proportionally to the value of underinsurance.

It is also possible that the insurer may be entitled to avoid i.e. not pay the claim, if it materialises that the risk was unfairly presented.

How to prevent underinsurance

The simplest way to prevent underinsurance is to instruct a RICS compliant Reinstatement Cost Assessment (RCA) from a reputable company.

An RCA is a site-based buildings assessment carried out by an experienced Buildings Insurance Surveyor.

The RCA can be tailored to a specific insurance policy and takes into consideration every aspect of a property from the boundaries and driveway to the fixtures and fittings.

When should a Reinstatement Cost Assessment be carried out?

If any of the below criteria are met, we would recommend an RCA is carried out:

Building is of protected status
Building(s) are made of stone
Property is difficult to reach
Building is eco-friendly
Property was constructed before WWII
Building has been recently altered
Use of the building(s) has changed
It’s more than 10 years since the building had a professional building insurance valuation
Extensive external features such as outbuildings
Updated with expensive fixtures and fittings

How to instruct an RCA

BCH are the chosen provider of RCAs to policyholders of major insurers and brokerages.

You can call us on 0044 1455 293 510, email info@bch-ltd.ie or contact us here to arrange an RCA for a property.

If you are a broker, insurer or managing agent, you may benefit from our Portal which through a log-in, enables you to request, manage and track the status of multiple RCAs for your customers – ask us for more information!

Buildings insurance rebuild values : How to support your clients

27th May 202122nd October 2024 Mark Briggs

As an insurance professional, you have an obligation to inform customers about the importance of setting the correct buildings insurance cover when advising them on their buildings insurance purchase. The correct cover is of course reliant on them providing an accurate buildings insurance rebuild value.

While this is usually standard practice, we continue to find that 80% of commercial and non-standard buildings are underinsured on average by around 55% of their re-build value. This means that the consequences of underinsurance at the time of a loss could be significant.

To assist your clients with minimising their financial risk, as well your risk as an insurance professional, you can advise them of the services available to help them achieve accurate buildings insurance rebuild values.

The Condition of Average

Many insurance policies use a Condition of Average clause. This means that the amount of claim is reduced proportionally to the value of underinsurance.

For example, a UK client had a property claim for £200,000 on a building which is insured for £480,000. If post loss, it is established that the property should in fact be insured for £600,000, the insurers would only be liable for 80% of the £200,000 damage.

In some instances, the insurer may be entitled to avoid the policy if it materialises that the risk was unfairly presented.

Achieving accurate buildings insurance rebuild values

To achieve an accurate rebuild value for a block of flats, commercial or non-standard property, the Royal Institution of Chartered Surveyors (RICS) recommend conducting a Reinstatement Cost Assessment (RCA).

RICS guidance for carrying out RCAs requires an experienced building insurance surveyor to physically visit and assess the property to establish an accurate rebuild value. This should include the rebuild of the property itself, demolitions, professional fees and external works.

It is often a requirement of the policy wordings to conduct an RCA at regular intervals and without a RICS compliant RCA, it’s easy to overlook something which could significantly affect the rebuild cost and subsequently make a huge and shocking difference in the event of a claim.

Managing buildings insurance rebuild values on behalf of your client

To help you manage your clients’ buildings insurance rebuild values, we have created an online portal for requesting and reviewing the status of RCAs, Benchmark e-Valuations or Desktop Reviews.

With all your requests stored in one place, you can track their status with ease, review our underinsurance statistics and those of your client base.

We can also help to keep your clients informed when a new site-based or desktop review is due.

How to arrange a building insurance valuation

Through our portal or via phone or email, it’s a simple process to arrange a quotation for an RCA or to instruct a Benchmark desk-based e-Valuation.

All we need to know are a few details such as postal address, property owner’s details, current declared value or sum insured and how many structures are on the site.

For more information on our buildings insurance valuation services, portal or to arrange a demo, please call us on 0044 1455 293 510 or email info@bch-ltd.ie.

Stepping into the past at the Black Country Living Museum

10th July 201913th December 2019 Mark Briggs

The Black Country Living Museum is unique in every respect. There are approximately 100 buildings of a variety of ages on the site, as well as external structures including a lime kiln, canal basin and bridges…

Q: Why did you choose this building?

The site has been sympathetically put together and really does feel like you’re walking back through time- which is one of the reasons it made such a good set for some of the recording of Peaky Blinders!

Q: What would be the key concerns about rebuilding here?

With many of the buildings being original and relocated here from other parts of the country, a challenge of reinstating at the Black Country Living Museum would be ensuring the buildings are reflective of their era, so the materials and even in some cases traditional construction methods no longer used in modern methods of construction, would be required.

A good example of this would be Jerushah (Tilted Cottage), a cottage believed to have been built around 1847. It was relocated from Gornalwood, Dudley in the 1980s and was subsiding as coal from the Earl of Dudley’s mines was dug from underneath the area.

As such, the Black Country Living Museum underwent a highly detailed reconstruction of the property, with the tilt being retained. This rebuild is believed to have taken 3 years, ensuring that the structure we see today is true to how the building stood in its original location.

bch-tilted-cottage — Jerushah (Tilted Cottage), a cottage believed to have been built around 1847.

Q: Interesting fact about this building?

The site of the Black Country Living Museum was formally a mining site, with 50 mine pits believed to have been in use. Though these have all been decommissioned, there is a replica mine that gives a very realistic experience of mining conditions.

Q: If you could survey and assess any building in the world, which would you choose?

The Silverstone Wing. With 40 pit garages beneath the spectator and hospitality zones, media centre and control tower, it would be a long but interesting ‘day at the office’!

Q: What do you do when you are not working?

My new role as Director at BCH is certainly taking up a lot of time as I enjoy being available to respond to queries and travelling nationally to fulfil the role, but in addition to this, my downtime is largely spent on walks with my wife, daughter and two spaniels.