Property Insurance Update
The Insurance Act 2015 came into effect on the 12th August this year. It requires those seeking insurance to make “fair presentation” to the insurance company.
Unhelpfully this “fair presentation” is not defined but is likely to include personal information on convictions, bankruptcy or county court judgements against the insured, and omitting information deemed to be of relevance could significantly affect the chances of getting a claim settled in full. Naturally for property insurance, accurate details of the property and claims history must also be disclosed.
If a property is underinsured ‘averaging’ would usually apply to any claim, so that the amount paid out would be reduced in the same proportion that the property has been underinsured, which can have serious consequences. However, if the property has been valued for insurance purposes (known as a ‘reinstatement cost assessment’) within the last 3 years by an RICS qualified Chartered Surveyor, averaging will often be deemed not to apply.
Reinstatement cost assessments are not market valuations and this is often a point of confusion when setting an appropriate insured value for a property, and there is often a significant difference between the two. For example for Listed buildings or those with unusual features, the reinstatement cost can frequently be higher than the market value. It is also important to include features such as fences, drives and patios, private services etc., in addition to the rebuilding cost of the buildings themselves. Sheldon Bosley Knight can provide assessments of value on both bases.
Once the rebuilding cost assessment has been made indexation would normally be applied by the broker or insurer upon renewal, however we would normally recommend that revaluation is undertaken at least once every 5 years, or preferably 3 years to take advantage of the potential averaging waiver. Building price inflation is currently running at around 3.5% per annum for residential property.
Insurance premiums will show some increase at renewal if only for the increase in Insurance Premium Tax (IPT), which has risen from 6% to 10%. The premium is partly based on a risk assessment that the insurance company will make, and the location in which the property is situated will have a bearing on the perceived risk. Another example perhaps of postcode lottery!
VAT is generally not included in a rebuilding cost assessment for a residential property, given that a total rebuild would be VAT exempt. A different approach is necessary for commercial property however, and also in our opinion for Listed buildings where in theory a repair may be imposed by the conservation authorities even when a property is nearly completely destroyed, since VAT is applicable to repairs.