Last year Cardinus identified a worrying trend in how people own and insure their properties.

Our findings indicate the widespread issue of underinsurance among UK properties, putting property owners at significant financial risk.

Keep reading as we share underinsurance trends, discuss the impact of rising prices and explain the potential solutions for property owners.

Underinsurance trends

Our findings from last year revealed that a staggering 95% of introductions from insurance partners pertained to properties lacking adequate coverage. More notably, over 35% of these cases were identified as being over 60% underinsured, resulting in a cumulative underinsurance figure of £1.1 billion.

As if underinsurance weren’t challenging enough, inflation further complicates the landscape for property owners. The costs of essential components like building materials, labour and supply chains have seen a 25% surge compared to the pre-Covid era.

Implications for building owners

Insurance usually covers expenses for clearing, rebuilding, and professional fees. The problem arises when the evaluation of reinstatement costs is outdated. Current market conditions increase the risk of insurance not being enough.

Insurers may use an average clause, deducting a percentage for underinsurance. For example, a £1m claim with 25% underinsurance would only get a £750,000 payout, creating a £250,000 shortfall. Severe shortfalls, ranging from 35-50%, could lead to insurers denying claims for misrepresentation.

Addressing the challenge of underinsurance

Due to uncertain global economic conditions, property owners should regularly assess their property values. It’s advisable to conduct a Reinstatement Cost Assessment (RCA) and yearly reviews accounting for inflation. Having a formal RCA every three years by RICS certified valuers is important. Seek guidance from a trustworthy broker or insurer to ensure accurate assessments, as market value and reinstatement cost value may vary, especially for older or listed properties.

Assessing the value of your property

Consider additional factors when assessing property values. Take into account the cost of replacing unique technology or features, such as new green heating and eco-electricity systems, as they can impact property values. Additionally, be aware of changes in building regulations, especially those related to energy efficiency, as they can also affect property values. Failure to comply with updated standards might necessitate rebuilding to meet the new regulations.

Real world example of underinsurance

The owner of a converted industrial unit in the Northwest had an RCA when buying the building. However, when a fire happened five years later, despite regular increases linked to inflation, the insurance coverage was 35% lower than the current rebuild cost. The building had undergone upgrades and renovations during those years, but none of the new improvements were taken into account.

Protect your property with Cardinus

Ensuring your property is accurately assessed for reinstatement costs is crucial to avoid issues in case of a loss. Our RICS-regulated RCA service helps property owners, managers, insurers, MGAs and brokers to navigate the challenge of underinsurance.

Contact us to hear how we can safeguard your property against underinsurance.

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