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Inaccurate declared values don’t just pose a financial risk – they could potentially lead to legal and compliance consequences for businesses. From breaches of contract to non-compliance with regulatory requirements, under declaring the reinstatement cost of assets under property damage insurance policies can expose organisations to liabilities that extend far beyond insurance shortfalls in a claim event. Conversely, overvaluing exposes an organisation to unnecessary expenditure.

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:

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.