At Charterfields, our team has decades of experience providing reliable insurance valuations to businesses worldwide. Below are the most common questions we get asked about insurance valuation methods.

What method is used for property, plant and machinery insurance assessments?

For property, plant, and machinery insurance, most property damage policies are ‘written’ on a reinstatement cost basis. Reinstatement costs represent the amount required to rebuild, repair or replace the damaged or destroyed assets with new items of similar value including allowances for professional fees and demolition and debris removal, taking into account all the factors that could influence these costs. 

Occasionally assets may be insured on alternative bases, for example actual cash value or indemnity value, but reinstatement is the most common valuation method.

How is the ‘reinstatement cost’ calculated?

To determine the reinstatement cost of buildings and civil works, a surveyor will typically conduct the following:

• Confirmation of areas: Surveyors calculate the gross floor area according to standard property measurement guidelines, which may differ from other valuation approaches or measurement standards (such as financial or property sales assessments).
• Assessment of Costs: Surveyors will assess rebuild costs taking into consideration recent costs for similar buildings, tender prices, material costs, labour rates and other factors.
• Component analysis: The building’s structural and aesthetic elements are analysed, including internal and external features. The surveyor reflects elements that may differ from average costs based on experience with similar structures, accounting for differences in materials, construction type and other building-specific features, e.g. heritage properties.
• Local adjustment factors: Local labour rates, regional material costs and site conditions (e.g. access and location challenges) are all factored in. As are conditions unique to the building’s location, such as topography and proximity to adjacent properties.

To determine the reinstatement cost of plant, equipment and contents, a surveyor will often conduct the following:

• Documentation of assets: Key assets are documented individually, while smaller items are grouped and assessed area by area.
• Cost analysis: Costs are based on databases of similar assets and discussions with suppliers, including production and origin details.
• Reflection of Foreign Exchange: Unlike property, currency exchange rates and trade tariffs can have a fundamental impact on reinstatement costs for contents and can vary significantly year-to-year.
• Local adjustment factors: Again local labour rates, regional material costs and site conditions that could impact installation costs (e.g. access and location challenges) are factored in.

For both property reinstatement costs and plant, equipment and contents reinstatement costs, surveyors include allowances for fees, demolition and debris removal. Professional fees can vary by region and asset types so need to be adjusted to the subject assets.

Do I need to include VAT in my Declared Values?

Value Added Tax can be complex and its inclusion in your declared values depends on specific circumstances. It’s important to determine the correct level of inclusion or exclusion within the overall declared value, as an inaccuracy could contribute to under-insurance, over-insurance or unnecessarily high premiums being paid.  

As part of our service, our team would consult with your finance department, or tax consultants, to confirm the correct approach.

How are multiple buildings treated?

For businesses whose portfolios have multiple buildings or cost centres, reports would usually show separate values for each building, helping with budgeting and managing insurance across different properties.

Figures can also be broken down between buildings, civil works, contents and IT equipment to ensure that they match to individual policy wording.

Can reinstatement cost assessments be done without a visit?

Desktop assessments can sometimes be a reasonable approach for standard assets, but we always recommend on-site surveys since these are likely to yield more accurate declared values, reducing the risk of under- or overvaluation. Here are some of the challenges you can face when using computer models to estimate reinstatement costs.

Site inspections provide a clearer understanding of a property’s specifics, including finishes and internal features that desktop models may miss. A site inspection can also often identify issues that may not be apparent from plans and documentation.

For large portfolios, surveyors might inspect a sample of locations and estimate values for the rest. However, the accuracy of this method depends on the quality of the data available.

Can I insure for a modern substitute for an older building?

You may decide that you would replace a brick building with a modern steel alternative if the original building is lost, and set declared values on that basis, but what happens in a partial loss situation. In practice insurers expect the declared value to represent a building’s original size, construction and materials. 

Listed buildings may also require like-for-like reinstatement due to their heritage value and the regulatory environment covering reinstatement. 

Failure to insure appropriately can leave a policyholder vulnerable. 

What happens if assets change after an appraisal?

Leading insurance assessment firms offer an annual review option to clients where they will review capital expenditure and adjust reported figures for a set number of years after an appraisal. This can be an effective way of keeping declared values updated over the period after a full inspection-led appraisal. 

If there have been substantial new construction, new locations added, or purchase/movement of contents assets, we would usually recommend a reinspection and update of the original assessment.

Get in touch for an insurance valuation

Regular, accurate insurance valuations are essential to protect businesses that have fixed assets from financial risk. Whether you’re an insurance broker, risk manager or insurer, our experienced team is here to help. We provide detailed assessments tailored to your needs.

Get in touch with Charterfields today if you have any questions on valuation methods, reinstatement cost assessments or if you would like a no-obligation proposal.

Follow us on LinkedIn to stay updated with more expert insights and answers to your insurance valuation questions. Don’t miss the next post in our FAQ series, where we’ll be answering questions on insurance coverage implications.

Read more:

• 9 key considerations when assessing reinstatement costs for insurance
• What are the implications of incorrect declared values in insurance?
• What to expect from an insurance valuation report
• What are the risks of incorrect declared values?

The post Everything you need to know about insurance valuation methods appeared first on Charterfields Limited.

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.

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.

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.

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.