Are your properties underinsured?

You will be very familiar with the recent press regarding inflation figures. You may also be aware that the perfect storm has been brewing in the construction industry, where a combination of Brexit and Covid has seen a shortage of skilled workers and double-digit increases in materials and costs. 

Insurers apply an indexed linked uplift, this year being the highest for many years, but if you have not had an insurance valuation undertaken for some time, you may well find your cover is below what is required to reinstate the building. 

We have recently instructed a firm of building surveyors to update the building cost reinstatement valuations for a parade of 9 shops in North London. The outcome was that the shops were, on average, 22% underinsured. Put another way, there was a shortfall of cover of between £57,000 and £87,000 for each retail unit. In this case, the previous reinstatement valuation was done in 2016 and the sum insured has been index-linked (increased) annually since then. The difference between the 2016 and 2022 reinstatement sum was about 50%.

Understandably some property owners put off their reinstatement valuations due to Covid not wanting to put additional financial pressure on their tenants. However, if any property is underinsured, a building owner must make up the deficit in funds out of their own pocket to rebuild or repair the affected premises. It is therefore easy to see how a revelation of underinsurance at the time of, for example, a fire or flood, could be a shock to the owner who assumed their premises were covered. 

We strongly suggest that landlords look at this now. Our team is here to discuss this with you and review any leases.