Insurance Reinstatement Cost Assessments and COVID-19

February 17, 2021

Whilst a significant portion of businesses premises have lain empty as a result of the ongoing COVID-19 restrictions imposed throughout the country, this doesn’t mean that the requirements to ensure your premises are anything less than properly insured reduces, in fact, they are likely to increase.

It is extremely likely that should your premises be empty for a significant period of time, quite typically 30 days, then insurers will request that regular inspections are undertaken to ensure that no issue have developed.

During lock down alone, FG Burnett’s Building Consultancy team have been involved in 4 separate cases where the insurers have been or are likely to be contacted for rectification purposes:-

(i) Two flood damaged premises, directly as a result of the significant weather event of the 12 August 2020

(ii) One explosion to an outhouse

(iii) One electrical fire

It is very common for an insured party to rely on desktop update valuations however, it is strongly recommended that full re-inspections of the buildings and land are undertaken every 3-5 years. 

FG Burnett have undertaken Reinstatement Cost Assessments (RCA’s) for long standing clients where we have not inspected the premises for the specific purposes of Insurance Reinstatement in a significant period and have discovered varying degrees of disparity with the sum insured, sometimes up to 20%.  This can be attributable to uplifts in material and labour costs however, it is not that unusual for refurbishments/ improvements to have been carried out to the premises which have a bearing on the reinstatement and could not be considered when assessing simply on a desktop basis.

The implications of being under insured could be significant. Fortunately in the cases noted above there has been no suggestion of an issue, however should the premises be deemed to be under insured then Insurers will more than likely apply average to the claim which would result in a liability on the insured to fund the shortfall of any claim themselves which, if you are dealing with a significant loss would be a significant sum.  The consequences of such a situation, when many businesses are facing extremely tough trading conditions would not bear thinking about.

All insurance policies are contracts of indemnity with the objective to place the insured, as far as is reasonable, in the same financial position after a loss as they were before it. The basis on which indemnity is measured will vary to suit different circumstances.

The most common variant of assessment likely to be requested is as follows:

Day One Reinstatement

The majority of buildings in the UK are insured on a ‘Day One Reinstatement’ basis, meaning claims are settled on a ‘new for old’ basis. In theory it does not matter how old a building is or what its state of repair. If insurers have agreed indemnity by reinstatement cover, the damage to the building will be repaired to a condition substantially the same as, but not better than or more extensive than, its condition when new and the insured will not have to contribute to any betterment.

For more information or enquiries in relation to Reinstatment Cost Assessments please do not hesitate to contact Jim Johnstone our Head of Building Consultancy who will be happy to advise accordingly.

E: jim.johnstone@fgburnett.co.uk T: 01224 597523

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