When the rising costs of goods combines with shortages in labour, and lead times for planning approvals are on the rise, the task of setting a sum insured for buildings insurance becomes particularly challenging. If you have responsibility for property insurances, it’s a good time to consider how you calculated the reinstatement cost of your buildings.
According to the Builders Merchants Federation (BMF), prices have risen by between 10% and 15% for products and materials this year. However, some products, such as timber, have seen prices go up by 50% and by as much as 100% for oriented strand board (OSB) and other sheet materials, which are all key housebuilding components.
The importance of establishing a correct sum insured in the first instance has never been so important. Underinsurance, which is insufficient coverage on an insurance policy, is a UK-wide issue, with commercial property in the UK estimated to be underinsured by £325bn.
Where properties are underinsured and the sums are inadequate to reinstate the buildings due to above factors, policyholders could see a shortfall in their claims settlement. Recent data from the Rebuild Cost Assessment website has highlighted how, on average, buildings are covered for just 68% of the amount they should be in Britain.
The consideration for this, is if your business suffered a fire, storm or flood claim and your insurer paid out 68% of the value you expected on that claim, could you financially recover?
Whilst most buildings insurance policies, at the time of writing, are seeing index linking rates of between 6% and 12%, it is unlikely that annual indexation will have allowed for the above listed increases. Where a building sum insured is already potentially low, these rising costs will be increasing the potential for underinsurance.
Lead times across the construction industry and availability of goods are also affecting the time it now takes to reinstate a property. The indemnity period, which is the period of time your insurer will continue to pay your loss of rent (if purchased), will need to accommodate these changes.
As a solution to this, we recommend that all property owners undertake a reinstatement valuation where they purchase buildings insurance. A reinstatement valuation can encompass not only the cost to rebuild but also professional fees, demolition and other permanent structures which may all need to be considered. The team at Towergate in Northampton have a range of solutions to assist with reinstatement valuations.
If you are concerned about your buildings insurance costs or would like to discuss our support tools, contact northampton@towergate.co.uk
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Towergate Insurance Brokers is a trading name of Towergate Underwriting Group Limited. Registered in England No.4043759. Registered Address: 1 Minster Court, Mincing Lane, London EC3R 7AA. Authorised and regulated by the Financial Conduct Authority
