LEGAL MATTERS - ARE ALL YOUR BUILDINGS CORRECTLY INSURED?

When it comes to insuring your buildings can you be sure that they are insured for the correct amounts and in the event of a claim you’ll be fully covered?
A recent survey by RebuildCostAssessment.com suggests that about 79% of all commercial properties in the UK are under insured with around 17% over insured, which means only 4% are actually insured for the correct amount.
So, what does that mean?
On average, according to the survey, under-insured buildings are covered for only 63% of the amount they should be, with those over insured coming in at 122% over value. Although the council sector is generally better than some sectors, there is still an over reliance on incorrect figures by many. Remember, if you are under insured you may have to meet the difference between the insurance valuation and the actual cost in the event of a claim.
What can you do to get it right?
Firstly, you need to understand what figure to insure for.
When it comes to property surveys, councils may need surveys for different purposes; there may be a condition survey carried out by a surveyor to determine what maintenance work is needed and time-scales, there may be a survey carried out by an estate agent to find out the sale price or potential rental income.
When it comes to insurance you need to have a reinstatement valuation carried out and, as a general rule, you’re looking at demolition, site clearance and rebuild costs including professional fees and VAT if applicable (you should seek appropriate professional advice on VAT as to your own individual situation as it can vary depending on usage).
Where can you get one from?
A professional reinstatement valuation can now often be obtained online from specialist firms for a relatively small cost, depending on the type and size of the property concerned, especially for buildings of standard construction. It is recommended reinstatement valuations should be undertaken about every three years to ensure they remain accurate.
However, if your buildings are non-standard construction, are listed buildings, or have other special circumstances applying, then a physical survey may be appropriate. Your insurance provider can help you with deciding what is needed.
What has changed?
If you think back to pre-2020 there had been a long period of stability in the construction industry.
As Covid hit, the energy crisis and the various conflicts in the world escalated, rebuilding costs started to increase at a higher rate than general inflation, due to increased raw material and transport costs.
This resulted in shortages and delays in obtaining goods, which had a massive impact on rebuilding costs. Added to this was the shortage of available contractors due to a backlog of work as a result of the various lockdowns around the world.
While this is now starting to settle, the increased NI costs and increases in minimum wages is anticipated to kick-start further inflation of rebuilding costs.
What happens if you are not insured for the correct figure?
Firstly, if you are over insured then you are simply paying more than you need to be, that said a small amount of over insurance is never a bad thing.
Secondly, if you are under insured then you run the risk of something called ‘average’ being applied by your insurer to any valid claim.
Most insurance policies have something called an average clause that simply means that cover is offered by the insurer on the basis that the declared amount is the correct figure to deal with a total rebuild (as explained above). If it is not then any claim settlement would reflect the same percentage of under insurance.
To keep the maths simple, if your building is insured for £500,000 but the correct figure is £1 million then any valid claim would be reduced by 50%. So, in the event of a major fire, etc, resulting in a total rebuild you’re only going to get £500,000, less any excess applicable.
Similarly, if there is some storm damage to the roof that costs, say, £10,000, you’d only get £5,000, less the excess.
As I’m sure readers will appreciate, it’s when you need to make a claim that the true value of your insurance policy is found.
If you have kept your covers up to date and accurate then you can anticipate a full settlement.
If, however, under-insurance is found, not only will you have the damage to sort out anyway, you may also have to find substantial additional funds to get the work completed.
What else?
Along with the reinstatement value, many valuers will also comment on anticipated rebuild periods, which should be used when looking to protect any loss of income under the business interruption cover or loss of rent covers to ensure a long enough indemnity period is chosen.
When it comes to listed buildings especially, there can be long delays in obtaining the relevant permissions before any work actually starts.
Along with buildings, the same sort of formula can be used for other property, such as play equipment and surfaces, skateparks and other infrastructure items.
For infrastructure items such as benches, bins, street lamps, signs, notice boards, etc, it’s also worth pointing out that the sum insured needs to represent the total value of all of those items, not just what you think could be damaged in one claim to avoid the risk of the average being applied.
I’ve recently been asked by several of my council clients to increase rebuild figures for war memorials and statues because they seem to suffer more from not having proper valuations done in the past. Some of these increases have resulted in doubling, tripling or even more of their current figures. Thankfully these valuations were not as a result of a claim.
For contents, you should generally insure for new replacement values, although it may be more appropriate to have regular valuations undertaken for things such as antiques, paintings, artwork and especially regalia and silverware. In the event of any claim, it’s important that you can prove loss and a value of the item.
Regalia is also something that can be overlooked when it comes to having valuations carried out. One of my councils, after my suggestion that they should have their regalia valued, was shocked to find that its current figure of £20,000 should actually be well over £200,000 with the mayoral chain itself valued at £198,000.
In summary, please remember an insurance policy is just a piece of paper or an email until you need to make a claim. At that point the figures on the email come into play and you need to have confidence that those figures accurately reflect the total at risk. Otherwise you run the risk of being disappointed in the outcome of your claim, and that’s something everyone wants to avoid.

Colin Raffell is the local council scheme manager at James Hallam Insurance Brokers and has been involved in the sector for the last 15 years, providing independent insurance advice to anyone who needs it.
As an independent broker, we at James Hallam pride ourselves on providing our council clients with good advice and look beyond just the price. We are committed to providing best value, but not at the cost of incorrect advice and incorrect covers. Having the correct cover in the event of a claim is key for us and our claims department will work with you to make the process as straightforward as possible.
Colin.Raffell@jameshallam.co.uk; 07731 604177; https://jameshallam.co.uk

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Written by Colin Raffell, James Hallam Insurance Brokers
As appeared in Clerks & Councils Direct, May 2025
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