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This article discusses the importance of setting buildings declared value accurately and the factors that are currently affecting this, how regular Reinstatement Cost Assessments (RCAs) are more important than ever and the insurance consequences.

What an RCA covers?

An RCA also known as a ‘Rebuild Cost Assessment’ is an estimated amount it would cost to rebuild your property if it is destroyed. An RCA should be carried out by qualified surveyor.

RCAs take into account the full scope of rebuilding costs, including internal features, boundary walls, outbuildings, footpaths, carparks, landscaping and environmental surroundings. Professional fees, such as those for architects or legal services, and demolition or ‘make safe’ costs must also be considered. It is important to ensure that VAT is correctly included in these assessments too.

The RCA process also evaluates factors such as the size and complexity of the building, the materials used in its construction, adherence to building regulations and the building’s age. Listed buildings, for instance, often carry higher rebuilding costs due to the need for specialist materials and traditional construction methods.

Why regular RCAs are essential

You may think that you don’t need an RCA as you know the market value of the property, however the market value and RCA are very different figures. The law states that ‘Property owners must have the right insurance to cover a rebuild, otherwise you could be liable for negligence.’ As the property owner it is your responsibility to inform your insurer of the value of your building, which is why the importance of Reinstatement Cost Assessments is stressed, to ensure that you have the correct level of insurance. A recent survey found that 43% of commercial properties in the UK are underinsured, with an average shortfall of 53%.

Stuart Reynolds, Senior Account Executive, at Independent Chartered Insurance Broker Hazelton Mountford explains: “Ensuring that your business premises are correctly insured is vital, as the property often represents one of the most valuable assets in a business portfolio. Simply holding an insurance policy is not enough—properties and their contents are often underinsured, leaving owners exposed to financial risks, or overinsured, leading to excessive premium payments.”

Rob Cant, Associate Director at GJS Dillon, who has 25 years’ experience in building surveying adds: “We recommend that all commercial property owners carry out Reinstatement Cost Assessments (RCAs) to determine the cost of rebuilding or repairing a property in the event of damage or destruction. Accurate assessments are key to ensuring that properties are neither under nor over insured, which is why it is important that an RCAs carried out by someone who is experienced, has professional qualifications and complies with industry standards (RICS). It may be old school, but GJS Dillon carry out all initial RCAs on-site, so we can take exact measurements and assess all aspects of the property including its condition. We are then confident that we can provide a comprehensive and accurate assessment.”

Impact of economic factors on RCAs

Several recent global and domestic factors have had a notable effect on RCAs:

1. Brexit has driven up material costs and led to labour shortages, contributing to increased construction expenses.
2. The COVID-19 pandemic caused supply chain disruptions and inflationary pressures, leading to higher costs for materials and labour.
3. High inflation has further exacerbated the cost of construction, while rising interest rates have increased financing costs for building projects.
4. The Ukraine war has disrupted global energy supplies, driving up material costs and affecting construction timelines.
5. Changes in government have led to shifts in economic policy and regulation, affecting construction costs and insurance requirements.

These factors have collectively increased the cost of reinstatement, meaning that property owners must reassess their insurance coverage more frequently to ensure it remains accurate.

The hidden risk of underinsurance

Insurance policies often require regular RCAs to ensure that the insured sum reflects current conditions. Construction costs fluctuate due to inflation, labour market changes and material price shifts. A building that was adequately insured several years ago may now be underinsured if rebuilding costs have increased. Regular reassessments also account for any renovations or improvements made to the property that could raise its reinstatement cost.

RCAs are generally recommended every three years, with annual adjustments for inflation and changes to building costs. This ensures that the insurance coverage remains up to date, aligning with any significant changes in the market or property.

Underinsurance can have significant financial consequences. If a property is not insured for its full value, insurers may apply the ‘average clause’ to a claim, reducing the payout proportionately to the level of underinsurance. This can delay the claims process and leave property owners with a shortfall in funds, impacting business continuity and financial stability. In extreme cases, insurers may not cover the loss at all. So the importance of Reinstatement Cost Assessments is once again highlighted.

Regular RCAs mitigate this risk by ensuring that the property’s reinstatement value is correctly aligned with current market conditions and rebuilding costs.

In an unpredictable economic environment, regular RCAs are essential for ensuring accurate and adequate insurance coverage. Property owners who neglect to reassess their insurance risk and are underinsured, can lead to financial difficulties in the event of a claim. By staying proactive with RCAs, owners can protect their investments and ensure that their properties are appropriately insured.

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