Most people understand the importance of getting their insurance proposal right and want to avoid the risk of finding that they are not fully covered because of an omission or error.
We’ve all heard horror stories about holidaymakers falling ill abroad and finding they are not covered because they didn’t tell their insurers about a known medical condition.
With buildings insurance, while you may be unlikely to find you are not covered, you could find that insurers are not prepared to pay out 100% of your claim if you have not insured for the right amount.
And this might happen if the Buildings Declared Value (BDV) you declared is inaccurate. For example, if you insure for 50% of the correct value of your property, only 50% of your claim could be paid.
BDV is the cost of completely rebuilding your property following a total loss. The onus is on you to make sure that the BDV is as accurate as can reasonably be expected at the outset and, while the insurers will automatically index link the sum year on year, it is worth checking that it doesn’t need readjusting every few years.
Why? Because while index linking should account for changes in the costs of materials, it won’t necessarily allow for changes in, for example, Building Regulations which may result in higher costs for some works.
One of the worst cases we ever came across was a block of flats in Glasgow. When they switched to Deacon, we noticed what looked like an anomaly in their BDV. A valuation revealed the block was underinsured by over £1 million – a staggering 24% of its value! While legal action might be taken against the individuals arranging the cover, this doesn’t help where the leaseholders each own a share of the freehold!
It may well be that you are more likely to suffer water or storm damage, rather than a total loss but, if you are underinsured, it’s worth remembering that the loss adjusters may pro rata any pay out and you may end up getting less than you expected.
So how do you determine a current BDV? On first switching to a new policy, it’s advisable to have the building professionally valued. In fact, the new insurer may well require that you do so. You can find a surveyor yourself or we can help you. Our new desktop valuation service, while not suitable for all properties, can make property valuations more affordable.
What about Buildings Sum Insured? Don’t be confused by the ‘Buildings Sum Insured’ (BSI) figure on your policy documents. This is your BDV plus an amount that takes into account factors such as inflation, changes in Buildings Regulation requiring more costly works, and currency fluctuations (a lot of building materials are sourced overseas).
Let’s say you take out a policy on 1 January and suffer a loss on 31st December. There’s been a whole year when costs may have risen. It could then take a lot more time – up to two years if it’s a large block – to reinstate it and all the time costs could be creeping up. At Deacon, you can be assured that we have policies that can give you a BSI uplift of up to 50%, while still remaining competitive.
The key take away from this article is to remember that it is your responsibility to check your Buildings Declared Value is accurate. This is why it’s worth considering using a specialist flats insurance broker like Deacon.
We understand the complexities of residential block insurance and offer a competitively priced valuation service. Get your BDV right, and you could enjoy the peace of mind that comes from knowing you are adequately covered.
Donna Hunter, Underwriting Manager at Deacon
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein