Why building cover relies on correct reinstatement cost

With an increase in inflation as well as flooding and storm damage, it is now more important than ever to insure buildings for an accurate value if cover is to be valid


  • James Cullen FRICS

28 May 2024

Damaged interior of building

Storm damage and water ingress © James Cullen

The costs of rebuilding a property in the UK have surged in recent years, most notably due to inflation, energy costs, and shortages of materials and labour.

Following unprecedented storm events, the scale of damage, flooding and building defects is also on the rise. Being conscious of this context, insurers are seeking to limit their liability.

My advice to clients is to ensure their property has a correctly calculated and up-to-date reinstatement cost assessment for insurance purposes, especially for property portfolios or for buildings at increased risk of a claim such as listed buildings, older properties, derelict structures, or those in high risk areas such as flood zones and coastal regions.

Policy validity depends on accurate cost estimate

An insurance reinstatement cost assessment – sometimes known as an insurance reinstatement valuation – determines the cost of rebuilding a property should it be damaged or destroyed by an insured event such as storms and flooding.

Declaring this value is a standard requirement for building insurance policies; but for a policy to be valid, the figure must be correct and reasonable. It is in turn reasonable to expect insurers to refuse claims when the declared rebuild value is incorrect.

An insurer will typically undertake a desktop reinstatement cost assessment at the point of making a claim and may well undertake a site inspection and detailed assessment – should they deem this necessary to validate a claim.

Compare this to insuring a car – the lower the value or mileage stated at the start of a policy, the more likely it is the insurance premium would be cheaper than when these figures are higher. The same concept applies to buildings.

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Incorrect valuation can nullify cover

In the event of a claim, if a policyholder were found to be fraudulent or misleading then their insurance would likely be invalid. Insurance is a business, and it is common knowledge that claims will be reviewed and refused if declared information is inaccurate.

The issue of void policies or reduced settlement offers became a common issue in 2021 when Storm Arwen hit the UK, causing significant damage to buildings and infrastructure.

Many were forced to claim on their insurance for storm damage but were challenged due to incorrect reinstatement values on policies. Interestingly, premiums have risen since this event, and most recently, the average home insurance price quoted to customers rose by 40.6% in the 12 months to January 2024, according to the Consumer Intelligence Home Insurance Price Index.

I have seen many owners undervalue their buildings on insurance policies and subsequently been unable to claim fully on their insurance, or indeed at all. This has included claims following flooding or significant storm damage.

Even though this has resulted in insurance being refused in some cases, insurers have on most occasions paid out for claims. However, they have only done so proportionately, according to the sum covered rather than the actual sum that should have been.

As a consequence of failing to consider and calculate a suitable sum when taking out their policies, building owners have therefore been left to cover a proportion of the reinstatement bill directly.

'I have seen many owners undervalue their buildings on insurance policies and subsequently been unable to claim fully on their insurance'

Consider actual conditions not standard rates

RICS provides informative guidance on reinstatement cost assessment of buildings for members. A reinstatement cost assessment figure should not simply be derived from a standard M2 rate, based on historic jobs, a previous policy or BCIS data alone.

The BCIS data and rates do not provide detail as to how they have been determined; for example, what specification was used and whether there were any different features on the subject property in the data sample.

There is far more to reinstatement cost assessment than this, and abnormal building costs, features, materials, demolition, access, listing status, site location, professional fees and other unique factors can all have a significant impact on value.

In an area of historical significance, for instance, a new development could require archaeological investigation as part of a planning condition before works commence. This would not be a standard item factored into a typical BCIS rate.

Other conditions could include a development being situated in an area that is hard to access, substantially increasing contractors' preliminaries and complicating materials delivery and removal.

The existing building may also contain asbestos that requires specialists to remove, or a rebuild may entail dealing with complex party wall matters.

Buildings must be reviewed by experienced surveyors

These examples show clearly why an experienced surveyor should review a building, site, and surrounding area as part of a reinstatement cost assessment.

Understandably, this exercise is an estimation and not a fully tendered build cost. However, thinking about the bespoke issues associated with a demolition and rebuild is essential to reach a more reasonable figure.

I would strongly urge policyholders or building owners to protect their interests by commissioning an informed reinstatement cost assessment by a competent and experienced chartered building surveyor.

Not only can this reduce an insurance premium if a property is currently overvalued, but if the need to claim does arise it also means there should then be sufficient cover in place.

It is also important to consider the risk of providing reinstatement costs in valuation reports where the valuation surveyor lacks experience in construction costing and works. Where this falls beyond a valuation surveyor's competence – or the competence of any other surveyor for that matter – the reinstatement cost calculation may well be inaccurate and require review by a competent specialist.


James Cullen is the managing director and founder of Adept Building Consultancy
Contact James: Email

Related competencies include: Contract administration, Health and safety, Insurance

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