Building Reinstatement Cost Assessments: Why They Matter and How to Get Them Right

A BRCA is a professional estimate of the full cost of demolishing and rebuilding a property following a total or substantial loss. It is used to set the declared value and sum insured for buildings insurance and is not the same as a market valuation.

The Royal Institution of Chartered Surveyors (RICS) standard Reinstatement Cost Assessment of Buildings (3rd edition) sets out the current professional guidance. A BRCA should take account of:

• Net rebuild cost – the cost of rebuilding the structure and fabric, usually based on Gross Internal Floor Area (GIFA) 

• Demolition and site clearance – removing damaged materials, dealing with debris and making the site safe. 

• Professional and statutory fees – architects, surveyors, engineers, planning, building control and other approvals, often 15–20% or more of construction cost

• Compliance with current Building Regulations – modern standards for fire, structure, accessibility and energy performance, often much tougher than at original construction.

• Other associated costs – such as temporary accommodation, business relocation and specialist or heritage requirements that increase complexity.

The reinstatement cost is about what it would cost to rebuild from scratch in today’s market, not what the property might sell for. For older or listed buildings, the reinstatement cost can be substantially higher than market value

The Scale of Underinsurance

Recent industry reviews show that underinsurance is not a marginal problem; it is widespread. Allianz has reported that only 52% of owners know the rebuild value of their business property, and of those, only 59% had a professionally qualified valuation. That leaves a large proportion unaware of the true cost of reinstatement, see https://www.allianz.co.uk/news-and-insight/insight-and-expertise/exploring-underinsurance-finding-the-balance.html

 Common causes include:

• Confusing market value and rebuild cost - using purchase price or loan security valuations instead of a BRCA.

• Construction cost inflation - where materials and labour rise quickly but sums insured do not keep pace

• “Roll-over” renewals - with the same base figure and modest index-linking, turning small gaps into large ones over time

• Unrecorded alterations - where extensions and refurbishments increase rebuild cost but insurers are not informed

• Limited understanding - figures are not based on a professional assessment.

• Insuring with or without VAT - incorrectly, particularly where property VAT status is misunderstood

• Weak understanding ‘Index Linking’ or ‘Day One’ basis - when declaring rebuild values

Index linking tracks the insurer’s monthly percentage movement in property materials and labour costs. Day One cover is a declared value at policy start, with a percentage margin applied by the insurer to allow for changes in fees, labour and materials when a claim arises. 

Over Insurance Pitfalls

While underinsurance attracts most attention, overinsurance has its own problems. If the reinstatement cost is overstated, premiums are inflated year after year, tying up cash in cover that can never be recovered because insurers will only pay the reasonable cost of reinstatement, not the declared value

A good BRCA should therefore be a “Goldilocks” assessment – not too low, not too high, but a well-balanced figure that reflects the real cost of reinstatement in today’s market.​

How the Average Clause Reduces Claims

Most UK property policies include an “Average Clause” (or “Condition of Average”), which is how insurers handle underinsurance. If you only insure a percentage of the true reinstatement cost, the insurer pays the same percentage of any claim, including partial losses

Example

• True reinstatement cost: £1,000,000

• Sum insured: £600,000 (60% of what is needed)

• Loss: £150,000 (e.g. serious flood or fire damage)

With Average, the missing 40% is treated as self-insurance. The claim settlement is reduced to 60% of the loss:

• Insurer’s payment: £150,000 × 60% = £90,000

• Uninsured shortfall: £60,000, which the owner or occupier must fund. 

Even if the Average Clause is not highlighted, the Insurance Act 2015 allows insurers to apply proportionate remedies where there has been a breach of the duty of fair presentation, such as using outdated or plainly inadequate rebuild figures. In practice, “guesstimates” and historic valuations create real financial exposure, not just technical arguments

A major benefit of obtaining a desktop or site-based BRCA is that many key insurers (such as Allianz, Aviva and AXA) will consider waiving Average if they receive and accept the report. Equally, if a survey identifies underinsurance and the sum insured is not adjusted, that becomes a material fact which could potentially invalidate the policy altogether

How a Professional BRCA Should Be Carried Out

The RICS standard sets out clear expectations for how surveyors should conduct a BRCA. In outline: 

• Site inspection - a physical visit is expected for a full assessment, with desk-only updates used between full inspections, but not indefinitely

• Accurate measurement - using IPMS: All Buildings or RICS’ Code of Measuring Practice to capture GIFA on a level-by-level basis. 

• Current cost data - using recognised sources such as BCIS, adjusted for location, building type and specification

• Recognition of complexity - including listed status, complex M&E, access constraints, phasing and unusual construction methods

• Clear documentation - setting out assumptions, exclusions, the basis of valuation (for example, day-one reinstatement) and recommended review intervals.

Best practice is:

• A full BRCA at least every three years. 

• Annual desktop updates using appropriate indices in between. 

• Immediate reassessment after significant alterations, changes of use or major regulatory shifts

Professional Duty and Liability

For surveyors, property managers and directors of Residents’ Management Companies, BRCAs are not just technical exercises; they sit within duties of care and governance

• Surveyors

Surveyors undertaking BRCAs owe a duty to exercise reasonable skill and care and to follow relevant professional standards. Negligent underestimation can lead to professional negligence claims if clients face major shortfalls after a loss and Average is applied. Risk points include:​

• Relying on outdated cost data in periods of high inflation. 

• Failing to inspect where a visit is clearly necessary

• Not allowing adequately for professional fees or Building Regulations compliance. 

• Omitting known alterations or extensions. 

• Directors and Managing Agents

For Residents Management Company (RMC) directors and managing agents, adequate buildings insurance is usually a core contractual and fiduciary responsibility. Failing to commission appropriate BRCAs or ignoring advice to update valuations can expose them to claims from leaseholders when a major shortfall emerges in a claim.

Insurance brokers and intermediaries also have duties to advise clients clearly about the importance of professional valuations and the implications of Average and the Insurance Act 2015.

Practical Recommendations

For anyone responsible for a building - owner, director, manager or adviser - a few practical steps make a significant difference

• Always base sums insured on a professional BRCA for anything beyond the simplest structures

• Set a formal review timetable - full assessment every three years, annual desktop updates and immediate review after major works

• Keep a clear audit trail - retain BRCA reports, cost data sources, board or client decisions and insurer correspondence

• Read and question policy wordings - especially Average Clauses, index-linking provisions and any minimum percentage conditions on declared values

• Educate stakeholders - ensure boards, leaseholders and clients understand the difference between market value and reinstatement cost and the potential impact of underinsurance.

Final Thoughts

When BRCAs are done well, they tend to disappear into the background; when they are neglected, they often sit at the centre of the most difficult conversations after a major loss. Given current levels of underinsurance in the UK, there is a strong case for treating BRCAs as an essential part of governance rather than a discretionary extra.

A relatively modest investment in a robust, well-documented BRCA can prevent life-changing financial exposure when things go wrong.

Anthony Walker FRICS FCIOB MIFireE, Director, Sircle