Having the right insurance cover
Protecting your assets
If your building has not been valued for insurance purposes for some time, you could find yourself in the position of being significantly under or over insured, both of which can have serious financial implications.
Quite often property owners insure their buildings based on market value. However, the insurance amount should be based on the total rebuild cost, including allowance for current building regulations, demolitions, debris removal and fees. Even if a building is believed to be insured on the correct basis, it should be regularly revised; especially when legislative and governmental changes can have such an impact (VAT increase was one such example). Although tender prices have reduced during the recession, cost prices to contractors have continued to increase - and will affect the valuation.
In the event of a claim, if a building is found to be underinsured, the Condition of Average may apply and the amount payable reduced in proportion to the degree of underinsurance – in short, there may be insufficient funds to reinstate.
With the introduction of the Insurance Act on the 12th August 2015, insurers can void the contract, keep the premium and refuse to pay a claim if misleading information is provided by the client.
If the insurers believe the incorrect information was provided deliberately, they can adjust the claims pay out in accordance to the premium they would have charged.
A block of four flats managed by a Right to Manage Company suffered a fire, due to no fault of their own. Two of the flats were detrimentally damaged and the other two flats had also suffered smoke damage.
When the policy was taken out, the properties rebuild cost was valued at £300,000 with a total premium cost of £6,000. But due to inflation and other aspects affecting the claim, the total rebuild cost was found to be in excess of £500,000, meaning the block of flats was underinsured by over 40%.
It was found that the information presented was not deliberately misleading. However, the insurer, had they known the true value, would have priced the premium at £10,000. The outcome was that the insurer issued a condition of average to the RTMs claims pay out.
Fortunately for this RTM in this case, they were able to raise the additional funds needed to repair the property through themselves.
The question is: if you are an independent Right to Manage company, would all your members of the RTM be able to afford such a costly sum?
Undervaluing and underinsuring your property may seem to be cost saving in the short run. However, in the event of a claim, you could be the one to seriously suffer.
Insurance is vital to any business. When insuring properties, it affects more than a business’s income: it affects the livelihood of those involved.
There are many different types of insurance that blocks of flats require, ranging from Engineering Inspection and Directors’ and Officers’ Liability Insurance to Accidental Damage and Buildings Insurance.
To ensure that you and your block of flats are not underinsured, you should speak to an appropriate insurance broker or expert with experience with dealing with property managers.