What is an insurance valuation?
An insurance valuation is the assessment of a building’s structure and fittings to provide the re-instatement cost, ie, how much it would cost to rebuilding the building if the land it stands upon were FREE.
Important factors in an insurance valuation are therefore the physical size of the building, the methods used in the buildings construction, ie, solid brickwork, concrete frame with in-fill panels or perhaps in the case of a church solid stone!
What a Surveyor looks for when visiting a property to assess the insurance value is what would make the property cost more than average current building prices to rebuild the structure. For example, is the floor to ceiling height greater than the average 2.1m-2.4m? If so the volume of brickwork/materials would be greater and the Surveyor must factor this in. Other adjustments would be made for landscaping, gates, lifts, location, site conditions etc…
When should I commission an insurance valuation?
Most good leases will provide for an insurance valuation to be carried out at the cost of the leaseholders, after all it is them who benefit from the insurance should the building burn down.
We recommend that the frequency should be at least every 5 years for residential property and every 3 years for commercial property, because the risks of inappropriate insurance are high!
3 reasons why both Leaseholders and Freeholders are at risk if a property is under insured
- The principle of averaging Insurance companies apply the principle of ‘averaging’ to claims. What this means is that if they find out that the building is under insured say by 20% then they will reduce all claims by 20%.
- Who pays if a property is under-insured?
The building owner, the person responsible for placing the insurance.
For leasehold property : If a building burns down and insurance cover is inadequate then it is the Freeholder who has a duty to fund the shortfall between the actual re-instatement cost and the buildings re-instatement sum insured.
Also the principle of averaging will be applied to all claims for example, claims for alternative accommodation etc.
- The leaseholders caught in the mess may need to fund their own litigation as a civil claim to get the cost difference between their loss and the insured loss value.