Underinsurance – a false economy

We were recently appointed to act as insurance broker on a substantial commercial property portfolio that hadn’t had any Reinstatment Cost Assessments (RCAs) carried out on the individual properties since their purchase. Yes, the Declared Values had been index linked annually, but had they kept up with the rampant rebuilding cost inflation we have seen over recent years?

It appears not. With the client having taken our advice to put a full programme of surveys in place, the first two RCAs back (from a RICS registered valuer) have highlighted massive underinsurance at both locations, with the rest to follow. And when we say massive, one business park should have been insured for nearly four times the existing Declared Value!

The ramifications of this in the event of a loss are enormous, with average being applied by insurers and the clams proceeds being significantly reduced. Underinsurance is definitely a false economy – if you don’t have a rolling 3-5 year programme of RCAs in place on your property portfolio, it really would be prudent to do so.

You can only remedy the situation by actively investigating, so feel free to get in touch with your usual AIS contact if you would like any further information or recommendations for RCA valuers.

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