Most insurers require a Reinstatement Cost Assessment (RCA) – a professional evaluation of a property’s rebuilding cost in the event of complete destruction.
Carrying out an RCA is complex and technically challenging, but vital to ensuring a building is fully and correctly insured.
A good RCA surveyor achieves the required high level of accuracy by using specific building costs, as opposed to generic average rates.
Owners are advised by the Royal Institute of Chartered Surveyors (RICS) to review their RCA every three years. Even so, RCAs should be carried out whenever there are major changes to a property, or its contents, such as downsizing plant and machinery.
How surveyors carry out an RCA
Reinstatement is defined as the repair, reconstruction or renewal of assets to a condition that is equal – but not superior – to the condition when new.
Undertaking an RCA involves a surveyor visiting the property, where building schedules and schedules of main plant and machinery or contents are completed on site.
Reinstatement costs cover rebuilding the property, as well as any demolition costs, professional fees, and statutory authority fees.
The importance of expert knowledge
Non-typical buildings – for example, listed properties, laboratories and sporting venues – can be especially challenging because many surveyors are used to evaluating conventional properties like factories and office blocks.
Capable and experienced surveyors frequently collaborate with industry experts when ascertaining rebuild costs.
The importance of providing the full cost of demolition and rebuilding, together with any other allowances stipulated by the lease, cannot be overstated. This enables the owner to ensure the appropriate level of cover is in place. Failing to do this can lead to a negligence claim.
If the building or plant and machinery and other contents are significantly under-insured, the insurer can use the ‘Condition of Average Clause’. This means the total claim is reduced in proportion to the value of under-insurance. This situation should be avoided at all costs as it leaves the policyholder liable for the shortfall in the settlement, with potentially ruinous consequences.