risk management
Valuation and underinsurance: are you covered?
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lthough not a new phenomenon, underinsurance remains an ongoing concern in the insurance market. The hardening attitudes of underwriters is seeing property pricing increase and claims being settled in strict accordance with policy wordings. This change has been driven by global factors and more local events such as the tragedy of Grenfell.
Paul Latham Client Development Executive Public Sector & Education Gallagher’s (logo style)
Policyholders may not realise that underinsurance may have a direct impact on the claims payments they may receive in the event of a property damage claim.
What impact can underinsurance have?
If a claim payment does not cover the full property repair/ rebuild cost or reinstatement, it could mean funds may not be available to complete the rebuild. This may result in:• Unbudgeted call on reserves • Protracted and complex negotiations with insurers; • Discontented stakeholders such as leaseholders and tenants which may result in legal action • Extended rebuild times with an impact on service delivery; • Damage to reputation within the community
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How does a building become underinsured?
Underinsurance can become an issue as a result of several factors:• Reinstatement Cost Assessment was completed many years ago with a reliance on insurer’s index-linking ever since. • A reliance on insurer’s valuation when changing insurers. Insurance valuations are generally not transportable between insurers due to the methodologies used. • No professional valuation or Rebuild Cost Assessment has ever been undertaken • Sums insured are based on a notional market value • Incorrect estimation based on historical information • No account has been made for structural changes which may have been made to the building • No allowance for fluctuating costs of raw materials and labour. Availability of materials has a significant impact on their costs, particularly at the moment • Developer’s costs are adopted instead of the true reinstatement cost Underinsurance is an issue that is likely to always be
Scottish Local Authority News