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.

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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