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

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.

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.

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