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While there is no legal requirement to carry out a Reinstatement Cost Assessment (RCA), directors and senior managers hold a legal duty to protect company assets. Commissioning an up-to-date, accurate RCA (also known as an insurance valuation) is one of the most effective ways of demonstrating that the business is taking reasonable measures to ensure assets are adequately protected and insured.

To maintain this safety net, the Royal Institution of Chartered Surveyors (RICS) recommends that a full assessment should be carried out either every three years, or as soon as there is a considerable change to a location. If your company is currently approaching either of these milestones, it’s time to start preparing for your next valuation. 

This can feel like a daunting, time-consuming task. An inaccurate declared value and insurance policy can leave a business exposed to the silent risk of underinsurance. In our most recent findings, we discovered that, despite lower inflation in recent years, high levels of underinsurance are present across many industries and locations. Both buildings and contents at all locations we inspected are overwhelmingly underinsured, at 87% and 83% respectively.

The valuation process doesn’t need to be a stressful responsibility. In this article, we will unpack the exact methodology and process that insurance focused surveyors use to generate an accurate valuation report. Our aim is to help businesses prepare for their next RCA and understand what to expect on the day of the inspection. 

What is a reinstatement cost assessment? Why do they matter?

A reinstatement cost assessment (RCA), also known as an insurance valuation, is a professional evaluation report commonly carried out by a RICS-qualified surveyor or similar professional. This will determine the cost to either reinstate or replace the existing assets or property “as new” in the event of a total loss or if they were destroyed by an insured event. 

Businesses often mistakenly confuse the market value of their asset with its reinstatement cost. This is the difference between what it’s worth to resell and what it actually costs to rebuild or reinstate in the case of a total loss.

Rebuild costs can be impacted by inflation, as the costs of materials, labour, and equipment rise over time, and often at different rates to published consumer cost inflation. In the period between reinstatement cost assessments being carried out, inflation and changes in the assets can radically alter the appropriate values to declare to insurers, and could mean that insurance coverage is no longer adequate. This is why frequent and precise insurance valuations are so crucial.

The purpose of an insurance valuation is to ensure that businesses have adequate insurance cover to meet these potential losses and prevent any financial suffering. 

The valuation methodology

The methodologies adopted for reinstatement cost assessments differ by the assets being inspected. They usually incorporate the following key stages:

Buildings and civil works  Plant, equipment, and contents
Submission of information requests Submission of information requests
Review of data provided Review of data provided 
Site inspection  Site inspection
Referencing the construction form and nature of the buildings and civil works  Referencing the nature and quantum of the assets 
Estimation of gross internal floor areas using plans provided and appropriate measurements  Confirmation of appropriate inclusions and exclusions
Research to determine estimated reinstatement costs  Research to determine estimated reinstatement costs 
Estimation of allowances for professional fees and debris removal Estimation of allowances for professional fees and debris removal 
Calculation of non-recoverable VAT (if applicable) Calculation of non-recoverable VAT (if applicable)

What information do you need to gather for your surveyor?

A thorough and accurate valuation assessment often begins long before a qualified surveyor even sets foot on site. 

Before the day of the visit, a surveyor will be in touch with you to ask for a range of information depending on the type of assets being evaluated. This is to help them understand more about your company, your current insurance situation, and your assets. 

Typically, they will request to see:

  • Lease documentation, if a leasehold interest exists, either held or granted to third parties to ensure that insurance responsibilities are understood and match to your policy terms.
  • The financial fixed asset register for each location to understand historic costs and to identify any assets that might be missing during the physical inspection.
  • Cost data for any construction projects completed in the past three years.
  • Information covering future planned capital building or equipment projects.
  • An asbestos report for any buildings constructed before the year 2000, since this can impact the allowances for demolition and debris removal.

The list of this required information is included in initial proposals, so you will have plenty of time to prepare and collate this data in advance of inspections. 

To assist with the process even further, it is helpful (though not always essential) to provide the following information to your surveyor: 

  • Up-to-date building plans
  • Asset registers or equipment schedules
  • Site layout drawings
  • Details of recent changes or projects

Compiling this data in advance of the inspection will greatly speed up the process, help reduce the time needed on site (so minimising disruption) and ensure accuracy in the final valuation. Ideally, surveyors would need this information at least a week before the inspections to allow time to review and prepare preliminary analysis.

They will use this analysis to map out their approach, identify any complex assets they will need to check on site, and generally maximise their time on-site and ensure there’s no wasted time or disruptions. 

What will happen during the site inspection?

When they first arrive, the surveyors will usually require a short tour of the site with a member of staff, including any necessary safety inductions required. This will help the valuers to truly understand the facility and its assets. For plant assessments, it is ideal for the tour to be taken with a member of the business who has thorough knowledge of these assets. 

Following the initial tour, the buildings surveyor will begin their inspection either with an escort (ideally a facilities management team member) or independently (subject to unrestricted access to all areas of the site). During this time, the surveyor will:

  • Inspect the internal and external areas of the building(s) to note the construction form and assess the age of the building , or
  • Take test measurements and check them against the plans previously provided 
  • Take photographs for reporting and verification 
  • Consider whether there are any restrictions to demolition of the existing building that will results from the surrounding environment

The plant valuer will usually work their way through the facility room by room, documenting the major assets and collating details of the various contents, including mobile plant.

At the end of the visit, the surveyor(s)  will hold a short closing meeting with a senior engineer or site manager to clarify any points and queries identified during the inspection. The inspector will also confirm any outstanding information that they may still need from the business, which can be collated and delivered after the visit. 

Delivering the final Insurance Valuation Report

With the information gathered before and during the visit, the surveyors will be able to calculate the total cost of reinstating the property and produce a comprehensive Insurance Valuation Report. 

This document is passed to the client for them to share with their insurance brokers for them to advise on adjusting the business’ insurance policy as needed. Doing so will eliminate any risks of underinsurance or overpaying on premiums. 

A report will typically include: 

  • A commentary on the general nature of the assets assessed 
  • A statement of the basis adopted and the date of assessment 
  • Information about the nature and source of any information relied upon
  • Commentary on the extent of inspection, assumptions and restrictions
  • A methodology statement covering the approach
  • An opinion of assessment, with appropriate analysis by location
  • The allowances made for the estimated costs of professional fees, demolition and debris removal
  • Provision for VAT, if applicable
  • A statement of the estimated maximum period of reinstatement in the event of a total loss occurring, and 
  • A location map or plan

Where contents are assessed, and if agreed during the proposal stage, a report can also include an inventory of the major assets to assist with asset management and maintaining accurate declared values in the future.

Contact our team of experts today

At Charterfields, we provide clear, accurate and comprehensive valuation reports to support owners, risk managers, insurance brokers, insurers and reinsurers in managing their assets effectively. If you have further questions or need an insurance valuation assessment, get in touch with our team and we’ll be happy to help.