What are Reinstatement Cost Assessments and how are they conducted?

WHAT ARE REINSTATEMENT COST ASSESSMENTS AND HOW ARE THEY CONDUCTED?

Regardless of whether you own a single property or a wide-ranging portfolio, ensuring you have the correct insurance cover for buildings and contents is essential. It is not simply a case of being insured; it often transpires that property and contents are either under-insured – leaving you highly exposed to potential costs in the event of a claim – or over-insured leading to unnecessarily high premium payments.

This is where reinstatement cost assessments (RCA) come in.

Reinstatement Cost Assessment (RCA) is the basis adopted by the Royal Institution of Chartered Surveyors (RICS) for undertaking an appraisal of property, and plant and machinery/contents for insurance purposes. The term reinstatement indicates to repair, reconstruct or renew assets to a condition equal to but not better than when new. This assessment is all-encompassing and can often include inspection and reporting on a wide range of properties of differing size, type and use incorporating complex structures and installations.

RICS recommends that full RCAs are carried out every three years although updated RCAs should be undertaken whenever there are significant changes to the buildings, or investment/downsizing in the plant and machinery/contents.

In undertaking the reinstatement cost assessments of buildings and/or contents for insurance purposes, all buildings are visited for assessment by a qualified surveyor, and assessments undertaken on a building by building basis. Building schedules and schedules of main plant and machinery/contents, along with grouped figures for general contents, are undertaken on site. Office based investigations are undertaken with research through BCIS published data, machinery manufacturers and agents, internet research and internal databases. Reinstatement costs are calculated to rebuild the property, with costs of demolition, professional fees, any statutory authority fees and the relevance of current statute which could impact on the reinstatement cost assessment itself.

The assessments being undertaken on a building by building basis allow for broker analysis of the values at risk and estimated maximum losses, which should assist in their insurer negotiations.

Challenges can often arise in the area of specialist buildings. Surveyors will likely be accustomed in assessing traditional buildings such as factories, office blocks or educational establishments though an experience of valuing, assessing and appraising listed buildings or specialist structures will often be required. In respect of educational buildings – both private and public – this is an area in which we have particular widespread expertise; every year we undertake insurance valuations which often comprise class rooms, laboratories, conference space, lecture theatres and canteens. In some cases where a client may own unique buildings or structures, the surveyor may be reliant on co-operation from industry experts in deciding on rebuild costs for these type of structures; drawing on their relevant expertise and experience to advise.

It is critical that reinstatement cost assessments provide the full cost of demolition and rebuilding, together with any other allowances required by the lease terms, so the property owner or manager can arrange the appropriate level of insurance cover. Failure to do so could result in a claim for negligence.

In the event that the buildings or plant and machinery/contents are under-insured, the insurance provider may invoke the Condition of Average Clause where the total claim is reduced proportionally to the value of under-insurance. Clearly, this could have devastating effects, with the policy holder liable for the shortfall in the payout.

Should you require expert and independent advice on buildings and contents insurance including reinstatement cost assessments, contact our insurance team at Eddisons. We have undertaken RCA’s on wide and varied portfolios across a range of sectors covering private, public and education.

Eddisons also act for the majority of major banks in undertaking valuations for both lending and insurance purposes. We typically provide reinstatement values for hundreds of buildings/contents every year.

The assessments being undertaken on a building by building basis allow for broker analysis of the values at risk and estimated maximum losses, which should assist in their insurer negotiations.