Accurate assessment of reinstatement costs: key messages when using asset registers

Accurate assessment of reinstatement costs using asset registers is always challenging.

Most property damage insurance policies are on a replacement with new basis. This means that the insured must declare a value at risk that reflects the current cost to replace the assets with new on a like for like basis.  

Unless revalued, the net book value of a fixed asset in company accounts is typically based on the acquisition cost of the asset, less depreciation.

Historic costs or net book values therefore may have little correlation with the correct values to be declared to insurers under replacement as new policies.

More sophisticated analysis of the contents of fixed asset registers and indexing of historic costs using composite and focused specific indices may address some of these challenges but will not address all the reasons why historic costs may not reflect replacement. We have produced a specific whitepaper on the use of indices here.

This is especially true if the base accounting data is limited in terms of description or if the entries are not fully representative of the insured assets.

Moreover, asset registers often include items that would be considered as non – insurable or may omit third party assets where an equity position is not held but liability for insurance exists with an insured.

By their nature, published indices are ‘averages’ of cost movements. They will not reflect the characteristics of individual sites and the more bespoke or unique a location, the less relevant any published indices will be.

Conducting a regular independent and detailed insurance assessment is still the most defendable way to ensure that declared values submitted to insurers are an accurate assessment of reinstatement costs.