Buildings, tenant’s improvements, plant, machinery and general contents represent a significant investment for most operators, and protecting these assets is a core responsibility of directors and senior managers. 

In this article, we’ll explore the challenges involved in determining accurate declared values for insurance purposes for airports and aviation facilities. These insights aim to help owners and operators mitigate the risks associated with underinsurance and achieve adequate coverage for their complex assets…

1. Airside versus non-airside considerations

When calculating reinstatement costs, a primary distinction exists between airside and non-airside facilities. Airside construction involves specific challenges, including increased security protocols and logistical restrictions, which can lead to significantly higher costs:

• Security-driven access restrictions: Airside zones demand stringent security measures, from detailed background checks on personnel to restricted access protocols. These requirements extend project timelines and add to the cost of labour and equipment transportation, impacting overall reinstatement values. 
• Specialised contractor restrictions: Not all contractors have the expertise or clearance to work airside, limiting the pool of potential suppliers and service providers. 
• Escalated professional fees: The scarcity of specialised professional firms with airside knowledge can lead to inflated rates in comparison to standard construction projects, with fewer professionals available who possess the niche skill sets required for airside work.

Conversely, when determining declared values for insurance purposes, it’s essential to consider the cost implications of reinstating the entire facility, rather than extrapolating from recent smaller projects. 

These smaller projects often include inflated costs because they were completed in active airport environments, with adjustments needed for enhanced security and operational disruptions. 

As a result, applying data from recent projects can inadvertently lead to an overestimation of reinstatement costs for insurance purposes.

2. Insurable responsibility

Airports typically accommodate a variety of occupants, including airlines, customs and border force, air traffic control, car hire firms, taxi companies and police as well as a large number of (often third party) maintenance and project contractors. 

Not all of these occupiers have the same lease terms and there can be a wide range of insurance responsibilities. For example…

• Diverse tenant agreements: the airport may have leased bare shell space or may have handed it to the occupier as fully fitted out including furniture and equipment. The diversity in agreements necessitates a detailed analysis and breakdown of assets, allowing accurate representation between airport-owned and third-party items.
• Shared and independent assets: It isn’t always clear on the appropriate demarcation between airport owned and third-party assets e.g. air traffic control assets. This often needs investigation to help prevent coverage gaps and ensure that only airport-owned assets are factored into their declared values for insurance.

In summary, it is essential when looking at declared values to investigate leases and occupancy agreements to fully understand where responsibility lies and which assets fall under the airport to insure.

3. Treatment of mobile plant

Airports are a flurry of activity, and it is common to have a large fleet of varied mobile plant and equipment moving across the hardstandings. These might include baggage tugs and trailers, toilet and fuelling trucks, pushback tugs, towbars and maintenance trucks, some of which are road registered, some aren’t. 

Mobile plant makes up a significant portion of airport assets. While some of these may be covered under a general fleet policy, we have seen instances where it is only road registered vehicles that are covered under such a policy, leading to the risk of significant underinsurance and operational setbacks during recovery efforts.

Non-road-registered assets that contribute to daily operations, such as tugs or trailers, may need to be included in declared values. 

Ultimately, airport operators and owners need to understand the quantum and ownership of the mobile fleet, and under what policies these vehicles and supporting assets are covered. 

4. Accurate demarcation in policy terms

Achieving accurate demarcation between civil works, plant, and equipment is crucial to aligning policy terms with real-world assets. Complexities arise when distinguishing coverage boundaries for airport infrastructure:

• Civil works vs. equipment: Assets like runway lighting, blast walls, or transport tunnels can fall into both civil works and equipment categories with insurance sometimes being based on their utility or who the original contractor was. Categorising these items correctly prevents over- or under-insurance, ensures that the correct demarcation is used to match to the insurance policy wording, and provides a realistic scope for potential claims.
• Shared insurance of transport infrastructure assets: Airport facilities, including public transport tunnels and railway stations, often involve shared insurance responsibilities. Clarifying the demarcation between ownership, the shared assets’ values and coverage terms supports a comprehensive insurance framework.

5. Approach to Specialist Assets

Airports contain various complex facilities and assets, such as fuelling, firefighting and other specialist assets, which contribute significantly to total reinstatement costs. Below are some common examples of considerations when assessing reinstatement costs in the aviation sector: 

• High-cost infrastructure: Runways, taxiways, tunnels, bridges, and perimeter structures, like blast walls and security fencing, have high replacement costs. Some airports set “first loss” limits instead of full reinstatement values, covering partial losses while managing premiums for these high-cost assets.
• Environmental and safety systems: Systems like surface water handling, storage and treatment, taxiway and hardstandings de-icer usage, and fire suppression systems also require special consideration because of their operational criticality and replacement expense.

6. Inclusion of assets outside of airport boundary

Essential assets often extend outside the main airport boundary, including residential and commercial property. These assets can impact overall reinstatement values. Here are some examples of what these assets may include: 

• Remote operational sites: Remote radar stations, lighting equipment, and other operational facilities beyond the main airport perimeter are vital to day-to-day functions. To ensure comprehensive coverage and mitigate coverage risks after a loss, these assets should be included in declared values. 
• Investment properties: Many airports manage substantial investment property portfolios, with a mix of residential and commercial assets. Clear differentiation between tenant improvements, common areas, and owned property within these portfolios ensures accurate insurance valuations.

7. Accounting values vs insurable values

Many firms confuse capital expenditure movements and accounting values with the sums they ought to declare to insurers. Reinstatement insurance policies require insured values to be on a ‘new for old’ basis, having no bearing to current book or market values. Some capex is also replacement or refurbishment by nature that can have little or no impact on actual values at risk. 

Businesses often forget to include expensed, or leased and rented, assets in their declared values to insurers. While not appearing in fixed asset registers, a business would need to replace these items following a loss. 

For airport locations with large numbers of smaller assets, these amounts can be substantial and a significant proportion of the total value at risk. 

For one airport client, we discovered expensed assets in the order of tens of millions of pounds that were not captured in the asset register, and had not been considered when setting declared values.

Other key considerations for assessing reinstatement costs in the aviation sector

• Aviation sector-specific inflation adjustments: Standard inflation indexing, such as consumer price indexes or general building cost changes, may not be appropriate for specialist airport facilities. Certain assets, like advanced security systems or specialised runway equipment, may experience radically different inflation rates due to market demand or technological advancements. 

• Policy changes with insurer renewals: If an insurer has changed at the last renewal, the details of an insurance policy may have changed, including changes to inclusions and exclusions, definitions of buildings, and average clauses. These may have impacted how declared values ought to be shown.

• Evolving regulatory requirements: Building codes and regulatory standards for airport facilities continue to evolve, sometimes significantly altering replacement costs for certain assets. For example, enhanced fire safety requirements, environmental standards, or updated zoning laws may require costly adjustments during reinstatement.

• Foreign exchange rate volatility: Many high-value airport assets, such as baggage handling systems or security scanners, are sourced internationally, making their replacement costs vulnerable to currency fluctuations. Declared values should account for changes in foreign exchange rates, which could significantly impact the funds required to replace overseas-sourced equipment in the event of a loss.
• Site-specific valuations: Airports are dynamic environments with assets frequently moved across different buildings and zones. Although the overall sum insured may remain accurate, relocating assets can lead to imbalanced valuations across specific locations. This situation becomes critical if an insurer imposes policy limits on individual buildings, potentially exposing the business to underinsurance risk for certain high-value areas.

In conclusion…

Regular reviews and updates of insurance coverage and declared values are essential in ensuring operational resilience for airports and aviation-related facilities. Staying vigilant against these considerations will better position airport operators to set appropriate reinstatement costs and maintain adequate insurance coverage.

Speak to the aviation team at Charterfields if you would like to discuss any aspect of reinstatement cost assessments for airports and related assets.

The post Key Considerations When Assessing Aviation Sector Reinstatement Costs appeared first on Charterfields Limited.

Unlike modern buildings, heritage properties require a more nuanced approach for both valuation and risk management. Here, we’ll explore the challenges of assessing heritage properties for insurance, addressing why standard insurance methods fall short and outlining the key considerations involved in obtaining accurate valuations and coverage for these irreplaceable buildings.

Why standard insurance methods are insufficient for heritage properties

The process of insuring historic or listed buildings may resemble standard property insurance valuations at first glance. However, there are several critical differences that make these properties more challenging to assess. 

1. Legal and regulatory requirements – listed building status and consent

What does listed building status mean?

Heritage properties are frequently ‘listed’, meaning they have been placed on a statutory list due to their special architectural or historical significance. 

Listed status places legal obligations on the property owner regarding any alterations, repairs, or reconstructions. For example, listed building consent is required for any changes to the structure that could affect its character. Listing may cover both the exterior and the interior, and any object or structure fixed to the building. Listing also applies to buildings or structures not physically attached but which are part of the property.

This is overseen by the local planning authority, which may also consult central government agencies or national heritage bodies. Importantly, listed buildings may not be demolished, extended, or significantly altered without prior permission.

How are listed buildings graded?

In England and Wales, listed buildings are categorised in three grades:

• Grade I – Buildings of exceptional interest and merit, and of national interest. Only 2% of listed buildings are classified on this level.
• Grade II* – Particularly important buildings of more than special interest, and of more than regional interest. This accounts for roughly 4% of all listed buildings.
• Grade II – Buildings of special interest, and of special regional interest. This covers the remaining 94% of all listed buildings and is the most likely grade of listing.

In Scotland, listed buildings are categorised into three groups based on their importance:

• Category A – Buildings with national or international significance. These are outstanding examples of a particular period, style, or building type.
• Category B – Buildings with regional or more than local importance. These are major examples of a particular period, style, or building type.
• Category C – Buildings with local importance. These are representative examples of a period, style, or building type. 

It is important to note that their assessment criteria may also differ slightly.

This creates further complications for insurance, as any reinstatement work must align with legal and regulatory standards. Insurance assessments for heritage properties must take these regulations into account, ensuring that sufficient coverage is in place to meet legal requirements, especially in the event of major damage.

The impact of legislation on insurance costs

Due to the need for regulatory compliance, the costs involved in rebuilding or repairing a listed building can significantly exceed those of a modern property. 

As well as legal or planning obligations to use traditional methods and materials, adding both time and expense to any work, professional fees for architects, historic building consultants, planning consultants, and project managers who specialise in heritage properties are higher, contributing to inflated reinstatement costs.

As such, heritage property owners need their insurance coverage to reflect these potential reinstatement costs.

2. Rebuilding and reinstatement complexities

Standard property cost assessments focus on modern rebuild costs in the event of damage or destruction. These estimates are generally based on current construction methods, materials, and labour costs, such as those provided by the Building Cost Information Service (BCIS). However, these rates do not meet the reality of the costs of reinstating heritage buildings and structures. As a result, using standard rebuild rates can expose listed property owners to significant underinsurance, leaving them unprotected in case of loss.

For example, the BCIS state themselves that their residential rebuild cost rates do not apply to:

• Houses built of stone
• Houses with more than three storeys
• House of a size greater than those given in the tables (approx. 320 square metres)
• Listed or historic buildings which will have to be built to their original design using identical material’

In practice, in the event of a loss, owners may have to rebuild the property in materials of like kind and quality, or as required by the Conservation Officer or English Heritage. 

3. Specialist materials and craftsmanship

One of the major challenges in insuring heritage properties is the requirement to use original materials during reinstatement. Heritage bodies and local authorities often insist that repairs are carried out using the same types of materials and methods as the original construction, meaning that traditional craftsmanship may be required to restore a property to its previous state. These materials and skills can be rare, difficult to source, and expensive, often requiring bespoke (and costly) solutions.

In some cases, a quarry may even need to be reopened to source the exact stone originally used for the building. Plus, certain architectural features, such as sculptures or bespoke wood carvings, may be impossible to replace outright. Instead, they may need to be carefully reproduced by specialist artisans, a process that can be both time-consuming and costly.

4. Demolition and debris removal

In the event of an insured incident, the costs of demolition and debris removal may be considerably more for a listed building than for standard buildings. 

When damage occurs, heritage bodies may place restrictions on how debris is handled. This can include requirements for storing, cataloguing, and potentially reusing materials, which adds significant costs and complexity to what might otherwise be a straightforward demolition.

Often listed buildings are in conservation areas or close to adjoining heritage assets. In these cases, any demolition work must ensure that adjacent properties are protected, both during and after the demolition. This may require additional safety measures, such as shoring up structures or erecting protective scaffolding, all of which comes at a cost.

5. Rebuild periods and delays

The timeline for rebuilding or repairing a heritage property is typically much longer than that of a modern building. This is due in part to the various legal and regulatory hurdles that must be cleared before work can begin, including obtaining listed building consent and ensuring compliance with building regulations. Additionally, the specialised materials and skilled labour required for the project may not be readily available, leading to further delays.

For some properties, an archaeological excavation may be necessary before any repairs can be carried out. This involves documenting and preserving any historical artefacts or features uncovered during the restoration process, adding both time and cost to the project. 

How do you assess the insurable value of a listed building?

Accurately assessing the insurable value of a heritage property requires specialised knowledge and expertise. A standard approach to property valuation will almost certainly result in underinsurance, as it cannot account for the unique complexities of these heritage properties.

Valuation based on total loss scenarios

Most heritage property valuations are prepared based on a total loss scenario, which assumes that the entire property is destroyed, and reinstatement is required from scratch. This is the most practical approach, as it is impossible to predict the exact nature or extent of any damage that might occur.

A qualified insurance valuer with expertise in heritage properties will carefully review the building’s listing details, ensuring that any reinstatement aligns with the required standards. This involves factoring in the costs of sourcing original materials, the need for skilled artisans, and the elevated professional fees associated with heritage properties.

Valuers will also consider the costs associated with adhering to modern building regulations, even though heritage properties are often exempt from certain standards. For instance, an assessor might need to account for installing additional fire safety measures or ensuring compliance with energy efficiency requirements, all while preserving the historical integrity of the building.

The importance of specialist insurance valuers

Heritage properties require more than just a standard insurance policy—they require a tailored approach informed by expert knowledge. Professional insurance valuers with experience in heritage properties understand the unique challenges involved and can provide accurate valuations that reflect the full extent of the costs associated with rebuilding or restoring a listed building.

By conducting thorough assessments that account for specialist materials, traditional craftsmanship, and compliance with heritage regulations, a qualified valuer can help ensure that the property is adequately protected. This not only safeguards the owner’s financial interests but also helps preserve the property’s historical and cultural significance for future generations.

In conclusion…

Heritage properties offer an invaluable connection to the past, but insuring them presents challenges that are far more complex than those associated with modern buildings. Owners of listed buildings must navigate a maze of legal, regulatory, and logistical challenges, all of which contribute to higher costs for reinstatement, demolition, and even debris removal.

It is critical for owners, trustees, and insurers to engage with specialists who understand these challenges. Accurate valuations and comprehensive insurance coverage are the keys to ensuring that these iconic properties are protected against loss, without leaving their owners exposed to significant financial risk. 

Get in touch to find out how Charterfields can provide tailored building consultancy and advice backed by proven experience working with these historic assets.

The post The Challenges of Assessing Heritage Properties for Insurance appeared first on Charterfields Limited.

In this article, we’ll explore the challenges in arriving at appropriate declared values, the critical implications of underinsuring assets, and highlight the importance of maintaining adequate insurance coverage.

In recent years higher inflation has exacerbated the issue of underinsurance which has been a characteristic of property damage insurance for decades. 

Surveyors carrying out formal assessment of rebuild costs are finding today that properties, and their contents, are regularly underinsured, with recent research from Charterfields indicating that some 80% of all business locations assessed are underinsured, and more worryingly 40% are insured for less than half of what the true reinstatement cost would be.

Why is this happening?

Many firms have not adjusted declared values to reflect inflation. Even where companies have adjusted for inflation, not all asset costs have behaved the same over recent years and standard ‘indexing’ of values using consumer inflation, or typical building cost changes, may not be appropriate for specific facilities or locations.

Many firms confuse capital expenditure movements and accounting values with the sums they ought to declare to insurers. Reinstatement insurance policies require insured values to be on a ‘new for old’ basis, often having no bearing to current book or market values. Some capex is also replaced by nature (e.g. an office refurbishment) that can have little or no impact on values at risk. 

Businesses often forget to include expensed, or leased and rented, assets in their declared values to insurers. While not appearing in fixed asset registers, a business would need to replace these items following a loss. For locations with large numbers of pallets, forklift trucks, vending machines, etc, these amounts can be substantial and a significant proportion of the total value at risk.

If an insurer has changed at the last renewal, the details of an insurance policy may have changed, including changes to inclusions and exclusions, definitions of buildings and average clauses. These may have impacted how declared values are to be shown.

Building and other regulations are continually evolving, and these changes may not be reflected in current declared values. 

International trade and supply chain dynamics could impact the replacement costs of building materials and equipment due to shifts in tariffs, transportation costs, and duties.

Changes in foreign exchange rates could materially affect replacement in the event of a loss for overseas sourced equipment.

Construction methods and technology also continually change, meaning that the cost to reinstate facilities could be different to previous estimates.

Finally, if a client has multiple sites, contents and equipment can move around locations meaning that while the overall sum may be correct, individual site values may be incorrect, exposing the business to risk of under (or over) insurance.

What is an average clause in insurance?

In the event of an insurance claim when there is a total loss of an asset, insurers typically apply what is known as the average clause, or condition of average. When this is invoked, it means that an insurer will reduce the payout proportionally to the level of underinsurance, regardless of whether the claim is for total destruction or minor damage.

If your assets are insured for only half of their actual reinstatement cost, you will only receive 50% of the claim. For instance, if a business declares a building value at £1 million but the true reinstatement cost is £2 million, the insurer may only pay half of any claim, leaving your business short by funding the remaining cost of reinstating the asset.

So why is adequate coverage an issue for businesses?

1. Financial Security 

Insufficient insurance coverage for fixed assets exposes businesses to the risk of inadequate financial protection. In the event of unforeseen circumstances such as natural disasters, accidents, or theft, a shortfall in insurance coverage may leave companies shouldering the burden of additional replacement or repair costs.

2. Operational Resilience

Where insurers may perceive underinsurance, there can be delays to settlements which can impact a business’s ability to quickly recover from an incident. Negotiations with insurers can be protracted, leading to delays in recovery efforts, in turn causing operational disruptions. Businesses can experience significant downtime, resulting in lost revenue, customer dissatisfaction, and potential damage to their reputation. 

A comprehensive insurance policy with adequate coverage ensures a faster and smoother recovery process, minimising operational disruptions.

3. Impact on Company Valuation

Inadequate insurance coverage after a loss can negatively impact a company’s valuation. Investors and stakeholders may perceive the business as riskier, potentially leading to a decrease in market value. This, in turn, can affect the company’s ability to attract investments and secure favourable financing terms.

4. Legal and Regulatory Compliance

Meeting industry-specific insurance requirements is crucial to avoid legal and regulatory consequences. Non-compliance may subject businesses to fines, penalties, or legal action. Companies must stay informed about and adhere to insurance regulations to maintain a robust risk management strategy.

5. Rebuilding and Replacing Assets

Insufficient insurance coverage may hinder a company’s ability to fully rebuild or replace assets. This scenario can have long-term implications, affecting competitiveness and hindering recovery efforts after significant losses.

6. Meeting Contractual Obligations

Contracts with lenders or business partners often mandate specific insurance coverage for fixed assets. Failure to meet these contractual obligations can result in breach of contract issues, exposing companies to additional liabilities.

Conclusion

To enhance your business’s risk management strategy, it’s essential to regularly reassess the value of property and contents. Periodic reviews of insurance policies and declared values ensure that your business stays adequately protected against potential risks, contributing to overall operational resilience and long-term success. Speak to the team at Charterfields for a declared value health check to expose any areas of weakness in your policies and make sure you have adequate coverage for your business.

The post The Importance of Adequate Coverage for Property and Contents appeared first on Charterfields Limited.

It’s vital for those relying on the outputs of these models to be aware of these limitations to ensure that a model-based analysis produces the required comprehensive and accurate assessment. 

Some common weaknesses include:

1. Assumption Sensitivity:

Modelling often relies on generic assumptions on certain elements, such as construction type, base materials, building heights, site and soil conditions and construction labour markets. Small changes in these assumptions can lead to significant variations in the estimated rebuild costs.

2. Data Accuracy and Availability:

The accuracy of results produced by a model depends on the quality and reliability of the input data used. If the data is outdated, incomplete, or inaccurate, it can compromise the accuracy of the rebuild cost estimate. Getting accurate details on floor areas, equipment/contents and even site boundaries is usually not as straightforward as expected.

3. Complexity of Risk Factors:

Modelling and analytical approaches may struggle to incorporate all relevant factors, such as site topography, local building codes, site access constraints, conservation area regulations, environmental considerations, and potential economic changes. These complexities can significantly alter reinstatement costs and may not be captured in a modelled assessment.

4. Dynamic Market Conditions:

Fluctuations in local prices of construction materials and labour costs, as well as changes in market conditions, can affect the accuracy of rebuild cost estimates. Many creators of models use historic unit rate cost data from third party sources. The fact that this data is based on tenders or procurement agreements from 2 or 3 years ago can mean that these costs are not indicative of current costs.

5. Specialised or Unique Assets:

For machinery, or buildings with unique features or specialised functions, it can be challenging to find accurate benchmark data for modelling. Standard models based on averages cannot capture the intricacies or challenges of such assets.

6. Underestimation of Soft Costs:

Models may focus on tangible costs such as construction materials and labour, but they can often underestimate soft costs like design fees, permits, legal fees, and other associated expenses.

7. Inclusions and Exclusions:

How has a model accounted for inclusions and exclusions. For example with leased property, the terms and obligations in a lease in terms of responsibility for insurance and the definition of insurable assets can differ, and can change if a lease is renewed. Does a modelled value include for tenant’s improvements or fixtures such as mezzanine flooring, internal partitioning, HVAC systems etc. 

8. Dependence on Historical Data:

Models often rely on historical data to make predictions about future costs. However, this approach may not fully account for changes in technology, construction methods, or other factors that can impact costs over time.

9. Human Error and Bias:

Errors in modelling assumptions or biases in the selection of underlying data can introduce inaccuracies. It’s essential to critically evaluate the modelling process to minimise the impact of human error.

10. Lack of Local Expertise:

 Models may not fully capture the nuances of local conditions, regulations, or construction practices. Local expertise and site inspection led assessments are therefore often crucial for ensuring accurate assessments.

What is a Reinstatement Cost Assessment (RCA)?

A reinstatement cost assessment (RCA), also known as an insurance valuation, is a professional evaluation report commonly carried out by a RICS-qualified surveyor (Royal Institution of Chartered Surveyors) 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.

Conclusion

To mitigate these weaknesses, it’s advisable to use modelling and analytics as one component of a comprehensive approach that includes inspections, validation of underlying data, and a thorough process for evaluating the assumptions in the models used. 

Regular reviews and updates of models based on real-world data and experiences can also help improve their accuracy over time. If you’d like support with assessing reinstatement costs, see our insurance services or contact our team for information on how our specialist team can help create a robust approach.

The post The Limitations of Modelling when Assessing Reinstatement Costs appeared first on Charterfields Limited.

A common error in commercial property insurance that can cause these inaccuracies is confusing market value with declared value. Market value is the estimated amount for which an asset should cost on the date of valuation. Whereas, declared value (or the reinstatement cost) is the total cost to rebuild the asset in the case of a total loss – this figure also includes demolition, site clearance, and professional fees.

Confusing the two frequently leads to severe underinsurance (or, in same cases, overinsurance), particularly in areas where market values are lower than real-world construction costs.

A key question we’re often asked is…

How should policyholders ensure that they get declared values correct for property damage insurance cover?

To help commercial property policyholders get their declared values right in their next Reinstatement Cost Assessment, here is a handy checklist to consider:

1. Check all assets are included.

• Do you understand the extent of your assets?
• Have you allowed for leased or rented assets where you have a responsibility to insure?
• The cost for replacing mobile items such as pallets, containers, shipping containers etc., can be substantial but may not be considered as ‘assets’ by your finance or engineering team.
• Have you included in your building values for external works such as car parks and fencing?

2. Don’t forget to include for professional fees and debris removal.

• Tender costs and quoted rebuild costs often do not include for professional fees such as architects, engineering, environment, planning and other fees. These can typically add 10% to 25% to an overall project cost.
• If your location has asbestos containing materials present, the costs for demolition and debris removal will be considerably higher than a location without these materials being present.
• Waste disposal costs have increased significantly over the years, and this has pushed up debris removal costs.
• If a site adjoins other properties, there can be added costs after a loss in terms of shoring up and protecting these properties.
• Similarly, if a site adjoins or is close to water, there can be extra costs in terms of protecting fresh water from contamination.

3. Adjust values annually.

• Adjust for any capital expenditure but check if this work should be considered as like-for-like replacement or additional items. Like-for-like replacement would mean that these costs do not need to be added to your declared values.
• Have you adjusted for reinstatement cost inflation? This may not be the same as the published consumer price index or even the producer price index.
• If you have a high volume of overseas sourced equipment, do you need to adjust the declared values in your policy currency to reflect foreign exchange movements?
• Check where contents assets are – plants and machinery can often move between sites or buildings meaning significant changes to individual values at risk.
• Are any assets redundant that would not be replaced in the event of a loss, that need to be declared to insurers?

4. Do declared values reflect your policy definitions?

• Have you included spare parts, consumable items and other assets that may not appear on your asset register but may not be considered as ‘stock’ under your insurance policy?
• Assets in fixed asset registers or maintenance schedules will rarely match with your policy terms. What you consider as tenants improvements or buildings in your accounts is unlikely to match the insurer’s definitions for those items in your policy.

5. Recent costs may not equate to insurable values. 

• If you have recently finished a project or building, you may be tempted to just add that cost to your declared values but there are a number of reasons why this may not be correct.
• Historic costs can include for one-off costs that would not be reincurred after an insured loss, e.g. soil investigation, planning, environmental impact assessments, local authority payments.
• Tender rates can change quite quickly and the circumstances after a loss may not allow for the same negotiating position that you may have previously enjoyed.
• Building codes and other regulations are constantly changing, meaning that a new building or facility may have to be built to different standards.
• For plant and machinery, suppliers may go out of business, merge or change manufacturing location, all of which can impact prices.

6. Reinstatement costs for insurance is not the same as worth or value. 

• The value of a property, or worth to an individual owner, may have little bearing to its reinstatement cost for insurance purposes.
• This is particularly true for heritage properties, older assets or properties in high value locations such as Central London.

7. Use the right consultant. 

• Property consultants may include estimated reinstatement costs in market value reports for property, but these reports usually state that these figures are not suitable for insurance!
• Online tools that purport to provide assessments using modelling usually produce ‘average’ costs based on information the policyholder enters. Locations are very rarely ‘average’ in practice.
• Insurance policies can be complex. Internal finance, engineering or construction teams will not interpret costs the way that insurers would do after a loss. 
• A reputable independent insurance valuation firm can arrive at appropriate reinstatement costs as well as the correct demarcation of buildings and/or plant to match to your policy terms.

Need help getting your declared values right to avoid underinsurance?

Speak to the experienced team of chartered surveyors at Charterfields and find out how we can support you with accurately calculating your declared values with a professional valuation.

The post Seven Ways to Get Your Declared Values Correct appeared first on Charterfields Limited.

Charterfields were recently interviewed by Strategic Risk‘s sister publication Insurance Times on the issue of under insurance and the risks to business. You can read the full article here.

For more information on our insurance reinstatement cost assessment services please click here.

The post StrategicRisk article on Underinsurance appeared first on Charterfields Limited.

Join us at BIBA 2024

This year’s BIBA Conference theme is ‘What’s Next?’ – driving discussion around what’s on the horizon for insurance brokers in an evolving political, economical and technological landscape. This is a key question for the insurance industry now more than ever, as both our team and our clients are well aware of the importance of innovation when it comes to risk management and financial protection.

With more than 9,000 insurance professionals anticipated to be in attendance, we’re looking forward to catching up with new and old clients and partners, including our specialist partner, the leading UK insurer Aviva, who are principal sponsors of the event. 

“We are thrilled to be attending the annual BIBA conference next month. The event is set to be a great opportunity for insurance industry professionals to come together, share insights and explore opportunities. As a leading surveying practice focused on insurance valuations for more than 30 years, we’ve never been in a better position to support our clients in 2024.” Andrew Slevin, Charterfields Director.

Mitigating the risk of underinsurance

While headline inflation rates have eased, costs are still rising and the insurance gap (between existing declared values and realistic reinstatement costs) remains extremely high. As a result, many firms continue to risk exposure to underinsurance, and the possibility of a claim being settled at below the true rebuild cost of their assets. 

As such, determining the accurate value of assets through a survey driven reinstatement cost assessment (RCA) remains key to securing critical cover or risk facing potentially significant costs in the circumstances of an unfortunate event. 

Calling all insurers, brokers or risk managers! Are you ready to find out #WhatsNext? Get in touch to arrange a meeting with Charterfields Directors, Andrew Slevin and Joe Higgins, to answer any questions on reinstatement cost assessments or updating declared values.

The post Charterfields are attending The BIBA Conference 2024 appeared first on Charterfields Limited.

Changes in markets and supplier dynamics can have a significant impact on asset replacement costs. These influences are often interconnected and can affect asset costs in various ways.
Here are some of the key factors to consider:

Supply and Demand: Changes in market conditions, such as shifts in preferences, technological advancements, or changes in demographics, can alter the demand for specific assets. If demand increases, asset prices tend to rise, and if demand decreases, prices may fall. Likewise, changes in supplier dynamics, such as disruptions in the supply chain or the entry of new competitors, can affect the supply of assets, which in turn can impact prices.

Input Costs: Global dynamics play a crucial role in determining the cost of inputs required for asset production. If the cost of raw materials or labour increases due to supplier-related factors (e.g., shortages, labour strikes, geopolitical events affecting suppliers), it can raise the cost of producing assets. These increased production costs may then be passed on to customers in the form of higher prices for the assets.

Competition: Changes in suppliers dynamics can affect competition within the market. For example, if a new supplier enters the market and offers a lower-cost alternative, existing suppliers may be forced to reduce their prices to remain competitive. This can lead to lower asset costs.

Regulation: Government regulations can significantly impact both buildings and contents. Regulatory changes can increase compliance costs for reinstatement, which may be passed on to customers in the form of higher rebuild costs or asset prices. On the other hand, regulations may also open up new markets or create incentives for suppliers to adopt more cost-effective practices, potentially leading to lower asset costs.

Global Economic Factors: As has been seen over recent years, changes in global economic conditions, such as fluctuations in exchange rates or shifts in international trade policies, can influence the cost of imported goods and materials. This, in turn, can affect the cost structure of assets that rely on these inputs.

Technological Advancements: Advances in technology can lead to increased efficiency in production processes, potentially reducing production costs and, consequently, asset costs. Suppliers or contractors that adopt innovative technologies may be able to deliver reinstatement at more competitive prices.

Market Sentiment: Market sentiment and investor perceptions can have a psychological impact on asset prices. Positive or negative news about market conditions or supplier-related issues can lead to price fluctuations. For example, rumours of a supplier’s financial instability may lead to concerns about the availability of key inputs, causing investors to sell assets, which can drive prices down.

Supply Chain Disruptions: Events such as natural disasters, pandemics, or geopolitical conflicts can disrupt supply chains, causing shortages and price spikes for certain assets. These disruptions can be temporary but may have lasting effects on supply and demand dynamics.

Long-Term Contracts: In some industries, long-term contracts with suppliers can provide stability in pricing. However, changes in market conditions or supplier reliability can impact the terms of these contracts, leading to cost adjustments.

In summary, changes in markets and supplier dynamics can influence asset costs through their effects on supply and demand, input costs, competition, regulations, global economic factors, technology, market sentiment, supply chain disruptions, and contractual arrangements.

Policyholders and insurers need to monitor these factors closely to make informed decisions, and adapt to changing market conditions, to ensure the appropriate declared values for property damage insurance policies.

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1. Determine Adequate Insurance Coverage: An insurance valuation helps a policyholder determine the replacement value of its assets, including buildings, equipment, plant, and other property. By knowing the replacement cost of these assets, the company can ensure that it has adequate insurance coverage to protect against loss or damage.
2. Ensure Accurate Insurance Premiums: Insurance premiums are based on the value of the assets being insured. An accurate insurance valuation ensures that a policyholder is not paying too much or too little for insurance coverage. Paying too much for insurance can lead to unnecessary expenses, while paying too little can result in inadequate coverage.
3. Support Claims Settlement: In the event of a loss or damage to property, a valuation can help support the company’s claim by providing immediate confirmation to insurers and loss adjusters that declared values were correct. If a detailed inventory of the assets was prepared as part of an insurance valuation exercise, that information will assist all parties in determining what was lost or damaged. This can help the policyholder receive the appropriate compensation from its insurance provider.
4. Comply with Regulatory or Third Party Requirements: Certain regulatory bodies may require policyholders to have an insurance valuation to comply with guidelines or regulations. In other situations, lenders may require an insurance valuation to be regularly carried out to ensure that any assets used as collateral for a loan are adequately insured.
5. Protect Directors and Officers: In the event of a loss, a third party independent assessment can help Directors and Officers demonstrate that they took all reasonable measures to ensure that assets were adequately insured, protecting them from personal exposure.

Overall, having an insurance valuation or reinstatement cost assessment is an important part of risk management for policyholders. It helps ensure that they have the appropriate insurance coverage, accurate premiums, and can provide detailed documentation to support a claim in the event of a loss or damage.

The post Why have an Insurance Valuation? appeared first on Charterfields Limited.

While increased computing power and access to large volumes of location data is adding increased sophistication to these analytics tools, one key issue we regularly see with these models is the underlying assumptions. In our experience, the assumptions in these models are rarely consistent with the insurance policy terms, or circumstances, of the policyholder.

Often these insurance valuation models exclude or ignore:

• heritage aspects, e.g. listed building status;
• demolition and debris removal, or if included the possible high costs of shoring up adjoining properties if an urban location;
• Architects, engineering and other professional fees;
• interior fitout works, e.g. internal partitioning;
• building services, e.g. if property is sprinklered;
• site access issues;
• asbestos or other hazardous material removal;
• VAT;
• piled or unique foundations; and
• cost escalation during the policy term or during reconstruction.

In omitting these essential elements, or not reflecting the specific policy terms, these models may be giving false assurance to brokers and policyholders that the outputs are suitable as the declared values, potentially leaving them severely exposed.

Does the output match to the subject assets and more importantly the insurance policy terms? If not, then you may need to adjust the figures produced by these models to ensure that you are arriving at the correct declared values.

The use of data to model reinstatement costs for insurance offers insurers, brokers and policyholders an ability to review large portfolios consistently and quickly. It is particularly useful in identifying outliers and unique locations across large numbers of locations.

However, if you are looking at establishing the reinstatement cost of a specific location or locations, in a situation where you are being presented with an ‘answer’ based on modelling or data analysis, always read the small print!

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