For any organisation reliant on physical assets – whether buildings, machinery or equipment – having accurate insurance valuations is no longer optional. It’s a critical component of risk management.

The underinsurance crisis: A snapshot

As a leading firm specialising in reinstatement cost assessments, our team has compiled data from over 600 site inspections across the UK as part of our annual Underinsurance Report. Key findings in the analysis show:

• 88% of properties surveyed were underinsured on buildings and civil works.
• 35% had declared building values at less than half of the true reinstatement cost.
• 77% of plant, equipment, and contents were underinsured.
• 41% had declared values for these assets at under 50% of what it would cost to reinstate them.

These figures represent a wide range of sectors, including manufacturing, food production, logistics and services. Despite repeated calls by insurers and brokers to review declared values, gaps persist. This is often due to outdated valuation methods, lack of clarity on insurance responsibilities or technological change.

Why this matters more than ever

Underinsurance isn’t just a technical issue. It can have catastrophic financial consequences.

In the event of a claim, insurers typically apply the “average clause”, which reduces payouts proportionally to the level of underinsurance. 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 50% of any claim.

In today’s environment, this poses a real threat. Construction inflation, supply chain volatility, tariffs and labour shortages have driven rebuild and replacement costs dramatically higher. According to the UK’s Office for National Statistics, materials prices increased by nearly 30% between 2021 and 2023. Even if a business last reviewed its insurance three years ago, its cover could now be dangerously outdated.

The hidden pitfalls of inadequate valuation

Several factors contribute to chronic underinsurance:

1. 1. Online estimation tools
      While convenient, these tools often rely on outdated or generic data. They often fail to capture site-specific nuances, specialist plant, or regional cost differentials. Here’s why computer models may not provide all the answers for insurance valuations.
   2. Lease and rental confusion
      Many businesses overlook obligations around leased property or equipment. Assets thought to be the landlord’s responsibility may not be covered unless explicitly included in the policy and vice versa.
   3. Inclusion/exclusion errors
      Without expert guidance, it’s easy to incorrectly categorise assets or misunderstand policy terms. This can lead to overlaps in cover or worse, gaps.
   4. Changing business models
      In sectors such as food processing, IT or vehicle manufacturing, technological change can impact replacement costs for assets. 
   5. Movement of assets
      Equipment relocations or upgrades may not be reflected in the insurance schedule unless regularly updated. This is particularly common in sectors such as food manufacturing.

Sectors most at risk of underinsurance

Our data indicates that the insurance gap varies widely across sectors. For example, older industrial properties, facilities in high-demand urban areas, and sites with complex production equipment tend to show the largest shortfalls. These environments often require bespoke rebuild solutions, specialist contractors, or phased reinstatement. These factors can significantly raise true reinstatement costs.

According to aggregate data collected over the last 7 years where existing declared values were known, the sectors identified as having the largest average insurance gap in the UK include:

• Hospitals, care homes & clinics
• Food & food products
• Industrial & logistics
• Hotels & resorts
• Education

How to mitigate the risk of underinsurance with professional valuation

The case for insurance valuations is clear: businesses need accurate, independently verified reinstatement values. Professional assessments, such as those offered by Charterfields, consider:

• Up-to-date construction and material costs.
• Site-specific complexities.
• Compliance with planning laws and building regulations.
• Identification and inclusion of all insurable assets.

These valuations don’t just protect businesses from underinsurance, they can also guard against over insurance, which could mean excessive premiums without added benefit.

The role of brokers and risk managers

Insurance brokers and corporate risk managers have a crucial role to play. By recommending regular insurance valuations, and certainly at least every three years or following major site changes, they help clients ensure appropriate cover and streamline the claims process.

Regulatory bodies and insurers are also turning up the pressure. The Financial Conduct Authority (FCA) has made it clear that businesses are expected to take “reasonable care” in setting declared values. Failure to do so could jeopardise full recovery after an insured claim and lead to financial loss and reputational damage.

What’s next?

With economic conditions continuing to shift, the time to act is now. A professional insurance valuation is a modest investment compared to the cost of a denied or reduced claim.

To avoid the financial shock of underinsurance, Charterfields recommends the following steps:

1. Schedule a professional valuation
   Use accredited valuation experts who conduct on-site assessments and understand your sector’s nuances.
2. Review regularly
   Update valuations at least every three years or sooner after major changes in operations, acquisitions or refurbishments.
3. Understand policy terms
   Work with brokers to clarify responsibilities for leased properties and demarcate between contents and structures.
4. Educate stakeholders
   Ensure finance, facilities, and insurance teams align on declared values and reporting processes.

Conclusion

Underinsurance is a silent risk, but one with loud consequences. As the 2025 Charterfields Insurance Gap Report makes clear, most UK businesses are operating with a false sense of security. With businesses facing mounting costs and growing uncertainty, accurate insurance valuations are not just good practice; they are essential for survival.

Don’t wait until disaster strikes. Take control of your risk profile with a professional valuation today.

For a copy of Charterfields’ 2025 report, or to discuss your reinstatement cost assessment requirements, contact our team directly at enquiries@charterfields.com. Or come visit our stand at Airmic 2025 in Liverpool.

The post Mind the Gap: Underinsurance Report Reveals Major Risk to Businesses appeared first on Charterfields Limited.

As part of our ongoing series, we are addressing some of the most frequently asked questions we receive around reinstatement assessments.

In this article, we explore why accurate assessments are essential, particularly in the context of meeting legal and contractual obligations.

What is a reinstatement cost assessment?

A reinstatement cost assessment (RCA) is an independent assessment of how much it would cost to rebuild or replace your property or business assets if they were destroyed by an insured event. In reflecting the total reinstatement position this ensures adequate cover exists to cover partial losses that are more common.

Unlike a market valuation, reinstatement cost takes into account current construction and asset replacement costs, professional fees and any specific requirements linked to the property, to match with your insurance policy terms. Here’s how reinstatement costs are calculated.

Are there any regulatory requirements for insuring certain assets?

There is no legal requirement compelling businesses to carry out a reinstatement cost assessment. However, there may still be rules and obligations businesses must follow as set out in separate contracts. Often, bank, mortgage or secured lending agreements will include a proviso that requires a property or assets to be insured for full reinstatement cost. If you don’t meet those terms, you could find yourself in breach of contract.

Insurers may also set as a condition of cover that regular reinstatement cost assessments, especially for certain types of assessments, are undertaken. For example, listed buildings, listed buildings, or specialist commercial properties often need careful assessment.

So, while the law itself may not demand a reinstatement cost assessment, many contracts and insurance policies rely on or will expect one. 

Having an accurate, professional assessment in place can help protect you from the risk of underinsurance.

How does an assessment impact my compliance with insurance requirements?

An accurate, up-to-date assessment plays a key role in showing that you’ve taken reasonable steps to ensure that your declared values for property or assets are correct. It’s a simple but important part of meeting your obligations under the required duty of transparency to provide material facts to insurers and, therefore, protect your business.

If something goes wrong — whether it’s a fire or flood leading to loss or serious damage — insurers, lenders or stakeholders may want to see evidence that you’ve done everything possible to declare values that were appropriate for the insured assets.

Having a reinstatement cost assessment in place demonstrates that you’ve met those expectations and helps avoid disputes about whether cover was adequate.

What could happen if my business is underinsured?

Underinsurance is one of the biggest risks businesses face when cover levels are not up to date or accurate. Charterfields produce an annual ‘insurance gap’ report and we consistently find that nearly 80% of all business locations we inspect are underinsured to some degree. 

If your property or assets are insured for less than it would actually cost to reinstate, you could end up facing a significant shortfall in a claim event.

Most insurance policies include an ‘Average Clause’ which means that if you are underinsured, any claim settlement will be reduced in proportion to the shortfall. For example, if your property is insured for only 75% of the true reinstatement cost, an insurer may only pay out 75% of any claim, even if that claim is for partial damage.

This mechanism protects an insurer, given that the full premium has not been received and adequate cover has not been in place.

That outcome could leave you with a significant gap to cover, and in some cases, this could affect a business’s ability to recover and continue trading.

Could underinsurance have legal consequences?

In most cases, the immediate consequence of underinsurance is financial, however, contracts that are linked to a business having adequate protections in place could trigger legal implications. For example, commercial lenders often require adequate insurance cover as part of their lending terms. If your reinstatement cost assessment is out of date or inaccurate, and the insurance falls short, lenders may take legal steps to recover their losses. 

There are also risks for directors, who may have a fiduciary duty to ensure property is properly insured. If they fail to do so, and there is a shortfall, there is the potential that they could be held liable. 

The same goes for property managers. If they are responsible for arranging insurance and don’t make sure cover is adequate, they could face censure from property owners or other stakeholders.

What happens if an insurer challenges an assessment?

While uncommon, an insurer may question the outcome of a reinstatement cost assessment.

Ensuring that an assessment is carried out by experienced, qualified surveyors, like our team at Charterfields, means that challenges of this nature are rare.

Valuation specialists work closely with brokers and insurers, using proven methodologies and clear reporting to make sure the figures they provide stand up to scrutiny. If an insurer does have questions, it’s usually around what has been included or excluded from the assessment instead of the calculation itself.

How often should I get a reinstatement cost assessment?

There’s no strict rule about how often you need an assessment, but it is recommended that businesses get independent advice on reinstatement costs every three years. Some insurers may require more frequent assessments, particularly for certain types of property and this is prudent for complex facilities where costs can change rapidly. 

You should also arrange a new assessment if there have been significant change to a property. For example, if it has been extended, refurbished or altered, or if construction costs in your area have noticeably increased.

Avoiding the risks 

To avoid financial and legal risks, keeping your reinstatement cost assessments accurate and up to date is a must. This checklist covers best practice:

• Review your reinstatement cost assessment regularly

Industry best practice is to rebase your valuation every three years.

• Use qualified, experienced surveyors

Always use RICS qualified professionals to carry out your reinstatement cost assessment.

• Understand your contractual and legal obligations

Check the terms of any mortgage, lease agreement or insurance policy to make sure you’re meeting their requirements.

• Keep your insurance cover up to date

Once you’ve had a reinstatement cost assessment carried out, make sure it is updated regularly.

• Maintain clear communication and records

Make sure you always keep a clear record of assessments, valuations and insurance updates, and communicate any significant changes to your broker, insurer and, importantly, your advising surveyor.

Final thoughts

If your insurance cover isn’t enough, or if you’re not meeting stated obligations, it can lead to serious financial problems, and even legal issues. Having a clear, professional valuation in place ensures an individual or organistion is in a stronger position to deal with any issues in

a claim event.

Talk to Charterfields today

If you’re unsure whether your current valuation is accurate or if it’s time for an update, Charterfields can help. Our team of experienced surveyors and valuers can carry out a clear, independent reinstatement cost assessment tailored to your property or assets.

Speak with us today to arrange an assessment and make sure your business is adequately insured.

Our clients’ FAQs, answered

We’ve been answering your frequently asked questions spanning the entire insurance valuation lifecycle in this series of articles. Find the answers you’re looking for here:

• 9 key considerations when assessing reinstatement costs for insurance
• Everything you need to know about insurance valuation methods
• What are the implications of incorrect declared values in insurance?
• What to expect from an insurance valuation report

Get in touch with our team for the results of our 2025 Underinsurance Report, or follow us on LinkedIn to stay updated with more expert insights and answers to your insurance valuation questions. 

The post What Are the Risks of Incorrect Declared Values? appeared first on Charterfields Limited.

The declared value represents the cost to reinstate the property at the beginning of the policy period, excluding future inflation. Insurers use this figure, alongside the sum insured (SI) – which includes an allowance for projected inflation – to determine coverage levels and premiums.

Failing to declare the correct value can expose your business to the risks of over or under insurance and leave you vulnerable to significant financial and legal consequences, affecting both the policyholder and any third parties involved. Understanding these risks is crucial to ensuring adequate protection and compliance with insurance requirements.

As part of our Q&A series, our expert team has already shared top tips and advice on insurance valuation methods and key considerations for assessing reinstatement costs. In this article, we’ll answer our clients’ most common questions on the implications of incorrect declared values in insurance.

Declared values vs sum insured: what’s the difference? 

What are declared values (DV) in insurance? 

This is the value that policyholders report to their insurers as the current value at risk, typically determined by an independent valuation. It may be referred to as ‘Day One Reinstatement’, indicating the costs are as at the first day of the policy, excluding future inflation. 

Some key considerations here are that most policies are on a reinstatement basis, essentially ‘new for old’, so declared values ought to represent the current cost to rebuild or replace the existing property to the nearest modern equivalent, including allowances for any changes to building regulations and other legislation.

What is sum insured (SI)?

This term refers to the declared value plus an additional allowance to reflect the impact of inflation, during the policy term and the reinstatement period, ensuring adequate coverage. Essentially, it’s the maximum amount an insurer will pay in the event of a total loss. 

Insurers may adjust the inflationary allowance based on factors such as the complexity of the property and projected cost changes. We recommend consulting your insurance broker, who can help clarify how this calculation is handled.

Do I need to include demolition costs?

Yes, declared values should include the estimated costs of demolition and debris removal. This may need to include for the costs of shoring up adjoining properties, and for the licenced removal of asbestos or other contaminants that may be present.

What happens if your declared values are incorrect? 

Overstating or understating your declared values comes with significant risks. Here’s what may happen in these instances.

The risks of overstating declared value

If the declared value is higher than the property’s actual reinstatement cost, the policyholder might pay unnecessarily high premiums without receiving additional protection. 

In cases where third parties are involved, those responsible for arranging the insurance could face liability claims for incurring unnecessary costs.

The risks of understating declared value

An understated declared value can lead to underinsurance, exposing the policyholder to financial shortfalls in the event of a claim. 

Additionally, directors responsible for insurance arrangements could face legal consequences if shareholders or related parties hold them accountable for negligence. 

In extreme cases, insurers may consider an understated value as a misrepresentation, potentially voiding the policy and leaving the policyholder without coverage.

How do declared values affect premiums?

Insurance premiums are typically calculated as a percentage of the declared value or sum insured. While adjustments to declared values are common following an insurance assessment and may lead to premium changes, these do not always increase proportionally. 

Insurers may modify their rates based on risk management measures in place, the reliability of the valuation and the policyholder’s claims history. A thorough and up-to-date insurance valuation can instil confidence in insurers, potentially resulting in lower rates.  

How do insurers reference declared values in claims?

In the event of a claim, especially for significant losses, insurers will typically review the declared value. If it is found to be too low, the insurer may apply the “average clause,” leading to reduced payouts. In the worst-case scenario, if an insurer determines that the declared value was deliberately understated, they may deny the claim altogether.

A recent independent assessment by a reputable firm can provide assurance on the declared values to insurers and their loss adjusters, demonstrating that the declared values are accurate and reducing the risk of disputes.

What steps can you take to ensure accurate declared values?

1. Obtain professional advice on values – Regular independent reinstatement cost assessments ensure that your declared values remain accurate and aligned with current market conditions. Getting expert support with your valuations means that complex property such as heritage buildings, healthcare facilities, process plants, food facilities and aviation properties are fully covered in the event of a claim.
2. Review your policy regularly – To make sure that your declared value and sum insured are updated to reflect inflation and changes in property reinstatement costs.
3. Keep documentation – Maintain records of historic costs, valuations, policy renewals and any correspondence with insurers to support your declared values in the event of a claim. Maintaining a schedule of your current assets means you will have access to the details required by insurers quickly in the event of a claim.

What happens if your declared value is challenged?

If an insurer challenges your declared value, they may conduct their own valuation or appoint a loss adjuster to reassess the reinstatement cost. If they find discrepancies in your policy, you may be subject to reduced payouts or policy adjustments. 

Having a recent independent valuation can serve as strong evidence to counter disputes and secure a fair claims settlement.

Book an independent valuation today

Accurate declared values for your property and assets are key to securing appropriate insurance coverage – and avoiding the financial and legal risks associated with over or under insurance. 

Regular independent valuations and consultations with insurance brokers can help policyholders avoid costly mistakes and ensure adequate protection. At Charterfields, we specialise in independent insurance valuations, helping clients in a range of sectors establish accurate declared values and secure the right insurance coverage for their needs.

Ready to put your mind at ease with a thorough, independent insurance valuation? Access expert advice on declared values and insurance assessments by getting in touch with our team. 

Read more from our FAQ series:

• 9 key considerations when assessing reinstatement costs for insurance
• Everything you need to know about insurance valuation methods
• What to expect from an insurance valuation report
• What are the risks of incorrect declared values?

The post What are the implications of incorrect declared values in insurance? appeared first on Charterfields Limited.

While these tools showcase the power of artificial intelligence (AI) and advanced modelling, they have inherent limitations. Not all the factors impacting reinstatement costs can be captured from address data, plans, or satellite images alone. As a result, their outputs must be approached with caution.

In this article, we’ll explore the challenges in arriving at appropriate declared values using modelled assessments, and why some of the results from these platforms and tools might not deliver the accuracy, or peace of mind, policyholders expect.

The challenges with modelled assessments 

While desk-based assessments have a place in assisting policyholders review declared values there are a number of reasons why their use can be a challenge:

1. Relying on imagery to determine characteristics

AI models often use satellite or street level imagery to assess the characteristics and materials of a property. This can lead to…

Misinterpretation of use and design

With modern re-use and adaptation of buildings it is very easy to mistake a warehouse for a factory, or to assume a mixed-use city-centre office building is just an office, when it could also include a bar, restaurant and/or residential accommodation as well. 

Structural guesswork

Using Google Earth or similar to calculate the size and structure of a building means relying on variable quality imagery. Structures can be below tree cover or built into embankments or below ground. 

Material identification issues

Modern AI models claim to be able to determine the building type and materials used. However, buildings may be overclad, concealing their original finishes. What may appear to be brickwork can easily be brick-effect panelling, and internal structural frames are entirely hidden, requiring a physical inspection to verify the details.

2. Inaccurate address information 

Vague or missing information

Addresses for locations provided by policyholders may be missing or incomplete, e.g. only showing a street name or the industrial estate name rather than a specific address. This is a common issue with industrial and remote locations in particular. 

Errors in postcodes or building numbers

Mistakes in address details can mislead models, causing them to associate the risk with the wrong property entirely.

Unmentioned adjoining facilities

Addresses might not indicate or include nearby (insurable) structures like car parks, substations, pumphouses, or equipment stored offsite. These assets could still fall under the policyholder’s insurance responsibility, exposing them to significant underinsurance risks.

As a result of these issues, tools or models that rely on post office or other standard address data may struggle to match locations to insurable risks.

3. Insurance responsibility

Site boundaries, occupancies, and insurance responsibilities are rarely clear from desk-based assessments

Multiple-occupancy properties

There can be multiple occupancies within the same building or location. The demarcation between these occupancies may not be clearly defined in an address or in the location details provided.

Determining responsibilities of leased properties

Where the property is held under a lease, who is responsible for the insurance? Is the lease on a full insuring and repairing lease? 

Even if the lease addresses the building insurance position, it may be silent on who insures the tenant’s improvements. Depending on the property at the time the lease was granted, the extent of the tenant’s fit-out may be difficult to determine. 

Lease questions that most computer models and desktop assessments don’t answer include:

• Have previously installed improvements reverted to the landlord on a lease renewal? 
• Who is responsible for the previous occupier’s fit-out if these are retained by the new tenant? 
• Does the landlord insure the tenant’s improvements and then recharge the cost to the tenant, or is the tenant responsible for insuring their own improvements? 
• How have fixtures and fittings been treated? For example, does the value arrived at for the building by a model represent a bare shell structure or does it allow for internal partitioning, electrics, kitchen and toilets? 
• Does any demarcation adopted in these models match to the lease and insurance policy terms?

4. Inconsistent floor area data

Accurate floor area measurements are essential for reinstatement cost calculations, yet they are frequently misrepresented in computer models:

Measurement standards

Insurance assessments typically use gross internal floor area (GIFA), but policyholders regularly provide net lettable area (NLA) data from leases or recent property valuations, which may exclude common spaces, voids and other non-lettable areas. This discrepancy can skew cost estimates.

Overlooked features

Basements, mezzanine floors and canopies are frequently omitted in desktop assessments. Similarly, temporary structures like tented spaces or modular buildings, some of which may have been in use for decades, may not be picked up in floor area data.

5. Hidden factors

The specific conditions of a site will influence the reinstatement cost of a property and many of these can only be verified through a physical inspection on site. For example:

• Is the property on a sloping site or have other topographical characteristics that could impact reinstatement costs?
• Do the soil conditions in the area require piling or other substantial changes to the foundations?
• Are there easements across the site above ground or below ground such as utilities that could impact the cost or timelines needed to reinstate?
• Are there structures near to or abutting the property that could increase costs of reinstating or could mean that the expected costs of shoring up and protecting these properties in the event of an insured peril would be higher?
• Is the site close to underground infrastructure (e.g. Underground tunnels in London) that would impact costs.

These issues can lead to significant differences in the final assessment and many of these can only be determined through a physical inspection and verification on site.

6. The limits of satellite imagery

Several of the computer models used for desktop assessments state that they can automatically measure floor areas, building heights etc., and arrive at declared values from satellite and street level imagery. However, this imagery has inherent shortcomings:

Data staleness

Even the most sophisticated commercially available satellite imagery can be several months old at specific locations across the UK, meaning that recent structures may not show on these images.

Blind spots

Overhead views cannot reveal basement levels, void spaces, or mezzanine floors – features that significantly affect reinstatement costs.

Identifying materials

Several companies offering opinions on reinstatement costs based on AI models also state that they can automatically determine construction materials from external images (e.g. Google Street View) and satellite imagery. As mentioned, these models will struggle to tell the difference between a brick building and a steel- or concrete-framed building with brick effect wall panels, but they also won’t be able to categorically determine if a building contains asbestos which would materially impact the costs of demolition and debris removal. 

Internal finishes

Satellite and other external photography rarely gives any indication of the extent of the internal finishes. There is a big difference between the costs of reinstating a bare shell industrial unit and one with internal high-tech assembly areas with cleanrooms, HVAC systems and high end glazed partitioning.

Why a site survey is essential

At Charterfields, we recommend site surveys to ensure comprehensive and accurate reinstatement cost assessments. Unlike desktop tools, a site survey provides:

• Accurate structural details – Surveyors can confirm building structure, materials, and internal finishes, capturing nuances that remote tools might miss.
• Detailed floor area measurements – A site visit ensures all areas – including basements, mezzanines, voids, and temporary structures – are accounted for.
• Clarity on insurance responsibilities – A professional surveyor can review leases, tenant agreements and site boundaries to clarify coverage obligations.

By taking the same approach as loss adjusters would during a claim review, a site survey by a professional surveyor minimises disputes and protects policyholders from the financial risks of underinsurance.

Conclusion 

Online and desk-based assessments are only as good as the information provided. Even with the best and most accurate information (which is rarely available) they are still prone to miss aspects of the site and property that could have a substantial bearing on the correct reinstatement cost.

While desktop assessments and AI models offer speed and convenience, there are clear limitations in modelling reinstatement costs.

Policyholders relying on computer-modelled cost assessments should understand the limitations of these tools and avoid assuming they provide fully reliable declared values suitable for insurance cover.

At Charterfields, we provide expert site surveys that go beyond numbers, ensuring you have peace of mind and comprehensive coverage. If a detailed site survey is not possible, we offer desktop assessments which, unlike most computer models, are matched to analysis and reviews by senior surveyors. Get in touch to find out more.

The post Why Computer Models May Fall Short for Insurance Valuations 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.

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.

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.

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 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.

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.

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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.

The post What factors influence Reinstatement Costs? appeared first on Charterfields Limited.

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.

Key highlights

• Clients relying on independent assessment to set their declared values need to have confidence that, in the event of a loss, these assessed figures are accurate, defendable and can stand up to insurance market scrutiny​
• While property valuers and quantity surveyors have a role to play in fixed asset management and new construction costing, their limited knowledge of insurance policy terms and how insurers view property risks, could leave owners exposed​
• Insurers now expect higher standards from policy holders in terms of information on the risk provided prior to placement, including how declared values have been arrived at​
• Insurers are also more carefully reviewing values after an insured loss, which not only requires owners to be open on how the insured values were arrived at, but also requires them to provide supporting detail on the assets impacted​
• An independent advisor, specialising in reinstatement cost assessments for insurance, offers clients the comfort that, not only have they got the correct declared values, but that they will have the supporting information to respond to insurers quickly and easily during placement, and to speed up claim settlement in the event of a loss. 

Conclusion

While there is a role for property consultants, contractors and quantity surveyors in the management or development of a policyholder’s asset portfolio, this doesn’t always equate to the correct expertise to arrive at appropriate declared values for property damage insurance policies.  ​

If the assumptions adopted by a valuer do not match to what is expected by the various stakeholders, or what is stated within the insurance policy, the insured can end up exposed to underinsurance, or they could pay excess premiums. ​

This issue is of particular concern when figures are arrived at through computer modelling or by indexing up historic costs.​​

When choosing an advisor, best practice is to review their insurance track record, the experience of the individual team members, their independence in providing the advice and their ability to apply the correct approach to the reinstatement cost assessment of the assets. ​

Who is best placed to advise you on your declared values

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