Insurance

Failing to insure your building for the correct value can be disastrous.  If you under-insure the buildings the insurers can reduce your claim in proportion to the under-insurance.  For example, if you insure for 50% of the correct value and the insurer applies an average clause then only 50% of your claim will be paid.

Whilst many policies make provision for cost increases over a period of time, if the base value is wrong this can be unhelpful.  We recommend you get the buildings valued by a surveyor with experience of insurance valuation.  The valuation exercise should be repeated every three to five years, as although insurers may index-link the sum insured each year, this is based on national indices and the actual cost changes can vary on a regional basis over time.  So over time, your declared value may vary from the true building’s true value.

The costs of materials and labour usually increase over time due to inflationary factors and as a result the cost of repairing or rebuilding property becomes more expensive.  To ensure that you are adequately insured, the policies that we place with our broker include an allowance for costs increasing due to Index Linking during the policy period.  The amounts by which the index linked is increased will be based on widely published data such as the building cost information service inflationary figures published by the RICS (Royal Institute of Chartered Surveyors). 

Policy schedules often show two values on the buildings: ‘declared value’ and ‘sum insured’. The important difference between these two is how the policy protects you against inflation in rebuilding costs.

When you calculate the declared value, it is the same as calculating the sum insured except that you do not need to add anything for possible inflation which may occur during the policy period or during the time taken to repair/rebuild following a claim. The policy then includes an allowance (typically adding a maximum of 50%) for inflation during the year and, more importantly, during the rebuilding period, which, in the event of a serious loss, could be a number of years. The insurers will then pay the maximum of the declared value, plus the amount by which inflation has increased the declared value stated at the start of the policy period the added allowance protecting you from inflation, without you paying more premium. Declared value is often referred to as ‘day-one value’. We always recommend you arrange cover on a ‘day-one declared value’ basis.

The buildings sum insured shown in your policy schedule is the maximum amount the insurers will pay for rebuilding in the event of a loss. It should represent the total cost of re-building assuming a total loss, including damage to outbuildings, car parks etc, and should also have an allowance for debris removal costs and professional fees that will be incurred. Additionally, there should also be an allowance for inflation during the period of insurance and any period of rebuilding. As this inflation allowance is difficult to estimate for future years, we recommend you arrange cover on a ‘declared value basis’.

Recently we have seen an increase in premiums being offered by insurers.  These increases have arisen as result of:

• Rebuilding and repair costs – RICS (Royal Institute of Chartered Surveyors) provide an index which looks at the rebuild cost.  How these changes can have a direct impact on premiums, which we understand is due to an increase in the cost of materials, energy and labour shortages.  All insurers have a maximum declared value they are permitted or comfortable insuring.  It is not uncommon, that once limits are reached, it is likely in turn to push premiums up by a similar amount.  Insurers apply increases to premiums offered so they know they can cover the cost of repairs or rebuilding over the course of the year.

• Claims – in our experience, the frequency and number of claims have been increasing in recent months/years. 

• Some insurers have become more risk averse and selective in what they will insure. 

• The risk presented may not be the target market for the insurers eg grade listed locations, conversions from former mills, cladded/external wall insulated locations, timber frames, location prone to high flood or subsidence.

Each year our buildings insurance is put out to tender with multiple insurers via our brokers.  This helps ensure that we can secure the lowest premium available to us on your behalf.

For insurance purposes blocks of flats are treated as commercial premises. Block buildings insurance will not usually include cover for terrorism, and if you request it the insurer will charge you an additional premium.

You don’t have to buy it, but in making that decision, please think about:

1. Your lease may make it a requirement. Older, pre-1990s leases may not mention it specifically, but if there is a requirement for full or comprehensive cover, or similar, they would expect it to be included.

2. If you have a mortgage on the property your lender may insist on it.

3. Even if these do not tie you to buying it we still recommend it. People often think they are not the target but consider:

• Another resident may be targeted due to their occupation

• Terrorism could include animal rights and environmental activists

• Your block may not be the target, but another flat in the block could be used to make and/or transport a bomb to its target

In city centres the extra cost can be quite expensive, reflecting the higher perceived risk in built-up areas.

The definition of ‘buildings’ includes permanent fixtures and fittings in the communal areas and in the flats. Most (but not all) policies automatically provide cover for communal contents in common areas, but normally only for a fairly low limit. Policies are not designed to cover leaseholders or tenants’ personal property. They should arrange their own cover for this.

In blocks of flats, water damage is one of the biggest causes of claims.  We often see situations where water damage has been caused, but the source of the water leak is not apparent.

To find and solve the cause of the loss can be a time-consuming and expensive process.  It could involve dismantling walls and drilling holes in floors throughout a building.  If you have ‘trace and access’ cover, the costs of finding the leak and repairing the damage made while finding it can be covered.  This can be essential cover for a block of flats.

This is for internal issues in blocks only and is not covered for water ingress from external sources.