Inflation isn’t something that any of us like, but it’s been an ever present issue in recent years in the landscape of soaring building costs.  This means that calculating the correct building sum insured for your Commercial insurance has never been more critical.  Underestimating the sum insured for your building can have dire consequences when a claim is presented. I want to explore the significance of accurately determining the sum insured for your commercial insurance policy and why the inflation-driven surge in building costs has made this an even hotter topic. There are actions we can take to help you manage this risk and I’ll advise how you can ensure you have the right sum insured and how Park are able to help our clients through a Desktop or full RICS (Royal Institution of Chartered Surveyors) valuation, and the importance of conducting valuations at least every three years.

The Importance of Accurate Sum Insured

Adequate Protection:

At the heart of getting the sum insured right is to guarantee that your business is adequately protected. If you underestimate the value of your property, you risk not having sufficient cover to rebuild, repair, or replace it in the event of damage, loss, or theft.

Financial Resilience:

Accurate insurance cover acts as your financial safety net, providing the necessary resources for your business to recover as quickly as possible after an unforeseen event, fostering business continuity and minimizing disruptions.

Why is it more important now than in the past?

It’s always been important to have the correct level of cover in place but building costs have become a hot topic, primarily due to the impact of inflation in recent years. Inflation erodes the purchasing power of money, driving up the prices of materials, labour, and construction-related services. This inflationary pressure significantly impacts the cost of rebuilding or repairing commercial properties. Here’s why this is relevant:

Cost Escalation:

Inflation can lead to unexpected cost escalations during the reconstruction or repair process. If your sum insured doesn’t account for these increased costs, you may face a substantial cover gap.

Valuation Accuracy:

The accuracy of valuations, whether conducted through desktop or RICS, is intertwined with keeping pace with inflation. Valuations conducted a few years ago may no longer accurately reflect the current cost of rebuilding or replacing your property.  This is why bit’s important to review and obtain a new valuation at least every three years.

Ensuring Accurate Sum Insured: Desktop or RICS Valuation

To ensure you have the correct sum insured amount, consider these valuation methods:

1. Desktop Valuation:

A desktop valuation relies on information sources like property records, local market data, and other relevant data to estimate your building’s value. It is a cost-effective and expeditious way to ensure your sum insured is accurate.  It is usually more suitable for buildings with a sum insured under £5M

2. RICS Valuation:

A RICS valuation is conducted by a qualified chartered surveyor who conducts a physical inspection of your property. This method provides a highly precise assessment of your building’s value, accounting for factors such as location, construction, and market dynamics. While it is more time-consuming and costly than a desktop valuation, it is often the preferred choice for high-value or intricate properties.

The Importance of Regular Valuations

It’s vital to remember that valuations should be conducted at least every three years. The dynamic nature of property values and construction costs means that the figure you had a few years ago may no longer accurately reflect your current reality. Regular valuations ensure that your insurance remains current and effective in the face of changing circumstances.

Ensuring that your commercial insurance policy includes the correct sum insured is a pivotal component of risk management for any business, especially in today’s environment of escalating building costs due to inflation. Accurate insurance coverage is your business’s financial safety net, assuring resilience and fostering business continuity. Do not underestimate the importance of getting it right from the start, as it can be the difference between a smooth recovery and a catastrophic setback, particularly in the current climate of rising building costs due to inflation. Whether you opt for a desktop or RICS valuation, the key is precision in a landscape where building costs are continually on the rise. Regular valuations will help you stay on top of the evolving insurance needs of your business.

For more information please contact a member of the Park team here and we will be happy to discuss with you.