Fire Insurance Valuations

OUR SERVICE

Hodgson Elkington provide advice on the assessment of building reinstatement costs for insurance purposes.  The firm also can prepare and negotiate claims with loss adjusters and implement reinstatement work.

TYPE OF BUILDINGS

We calculate the “bricks and mortar” sum insured for:

• Single houses and flats
• Blocks of flats
• Commercial buildings

BASIS OF VALUATION

Reinstatement is the method normally applied.  It reflects the cost of replacing the building irrespective of its age, size or suitability.

Reinstatement cost includes the cost of demolishing and clearing away the existing structure and rebuilding it to the existing design in modern materials, using modern techniques, to a standard equal to the existing property and in accordance with current Building Regulations and other statutory requirements.

Fire insurance and special perils

Insurance policies provide cover in the event of loss or damage to the buildings caused by some or all of the following:

• Fire
• Lightning
• Explosion
• Earthquake
• Storm
• Flood
• Collision
• Impact
• Riot
• Theft and malicious acts
• Subsidence
• Ground heave
• Terrorism
• Loss of rent

SUM INSURED

The basis of valuation is that the assessments will include all items except lessees’/tenants’/occupiers’ contents.

Open market value is not the sum insured, except in the case of some commercial property.

Specifically the valuations will include:

• Kitchen fittings and appliances
• Outbuildings
• Garages
• Fences and gates
• Paths
• Swimming pools (including heating and filtration equipment)
• Site clearance
• Architects’, engineers’ and surveyors’ fees.

The rebuilding cost will be the cost of demolishing and clearing away the existing structure and rebuilding it to its existing design in modern materials, using modern techniques, to a standard equal to the existing property and in accordance with current Building Regulations and other statutory requirements.

Where buildings are listed, or in a Conservation Area, allowance will be made for reconstruction in accordance with the likely requirements of the Local Authority.

Allowance will be made for professional fees payable in connection with the rebuilding of the property.

No allowance will be made for inflation.

AVERAGE

This is the “rule” by which allows the insurers to pay only a percentage of the loss if a building is underinsured.

If the building is only insured for half of what it would cost to rebuild, the payment will be half of the loss.

If, however, the building is over-insured the reverse does not apply and there is no profit, simply a wasted over-payment of premium.

It is therefore worthwhile ensuring that the reinstatement cost is correctly calculated.

BETTERMENT AND INDEMNITY

The principle is not applied to reinstatement (new for old) policies.  Cover for some commercial properties can be arranged on an indemnity basis.

When a policy is on an indemnity basis the insurers will require a contribution towards the costs of any improvements resulting from the works.

For example, if an item is 50% of the way through its expected life, the insurers will pay half the cost and the building owner must pay the balance.

INFLATION

It is most important that the sum insured increase in line with building costs, because if it does not do so the building might be seriously underinsured.

Many commercial buildings are insured on a “Day One basis”.  It is not the method normally used for the insurance of residential property.

Insurance on a “Day One basis” assumes that all necessary works of reinstatement can be carried out for building costs applicable on day one of the reinstatement can be carried out for building costs applicable on day one of the policy, the “declared sum”.  That cannot happen.  The “declared sum” has to be adjusted for various price rises and other factors:

• Loss at the end of the insurance year
• Delay during demolition
• Delay prior to obtaining tenders
• Delay due to obtaining planning and listed building consents
• Rebuilding period

VAT

The basis of a rebuilding cost valuation is the cost of totally rebuilding the insured property.  It will not include VAT.

VAT has to be paid on professional fees and may be payable on the reinstatement work.  The rate of VAT will depend on the nature of the building and the extent of the building work required. 

Building Owners are therefore advised to obtain confirmation from Customs and Excise that in the event of a loss the VAT element would be recoverable.  When the insured is unable to obtain such confirmation, or knows that VAT would not be recoverable, then the sum insured should include VAT.

FEES

SINGLE HOUSES AND FLATS

The RICS scale fee below will normally apply.

BLOCKS OF FLATS

A fee to be confirmed, depending upon the size and number of buildings, the sum insured and the risk.

For portfolio valuations our fees are typically 75% of the RICS scale fee.

RICS SCALE BS5

The Royal Institution of Chartered Surveyors publishes a recommended scale of charges for such work, Scale Bs5.

The RICS scale fees are exclusive of expenses and disbursements.  All charges are exclusive of VAT.

Our fee will be assessed on the reinstatement cost before VAT is applied, i.e. our fee is not charged on the VAT element.

Please contact Peter Hornby for further information.