INSURANCE Advice rebuilding
COSTS– What
REALLY Mean?
do they Many insurance products
for flats and apartments in theUKhave evolved over the last twenty years, originally designed by insurers from
commercial policies, says BelIndathorpe
Insurance protectIon has been enhanced over theyears butthe risksfaced by Residents’Management Companies (RMCs) andtheir PropertyManaging Agents (PMAs) continue to increase dueto environmental andgovernmentalchanges, changingweather conditions andamore
litigioussociety.Inthe thefirst of two articles we aim to help you ensure that your insurance coverextends to therisks youand yourRMCmay face in 2011.
Whyyoushouldnot rely onindex linking to stay
Therisks facedby RMCs continue to increase
adequately insured… Followingarecentsurvey,wefoundthatthe majority ofRMCs rely on indexlinking to ensure theirbuilding’s suminsured remained adequate. SomeRMCs thatwequestionedhad nothad an insurance valuationfor morethan 10 years! Premiumsarenot alteredduringthe
period of insurance, butare recalculated for the following year by applying the “current” insuranceratetothe adjusted suminsured. This appearssuitabletosafeguard your property untilyou look in to it alittledeeper. Weapproached four insurance companies
who provided us with their index linking percentage for August 2011:
Flat Living Autumn2011
aviva
axauk Zurich
4% 7% 4.5% rsa4%
soWhythevariations? According to the insurers’ policy documents, thefiguresquotedare derivedfrom “the generalhouse building indexfrom the Building Cost InformationService (BCIS)”, or “use of suitable or alternativeindices”tocover inflation in rebuilding costsduringthe period of cover! JoeMartin, ExecutiveDirectoratBCIS, whichhas beenthe principalsourceof
rebuilding cost informationand house rebuilding cost inflation statistics in the UKforthe last30years,comments“there is no single indexthatiscompletelyright forupdating therebuilding cost of ablock of flats - each of the indices available have theiradvantagesand limitations”.The use of different indices by insurancecompanies could quickly lead to quite extreme discrepanciesinaccuracyofyourbuildings suminsured. Joe comments “This uncertainty could
be overcomeif, starting froma reliable reinstatementcost assessment,the sum insuredisupdatedconsistentlyfrom year to year.EveniftheRMCweretochoosea
25
Jargon Buster
IndexlInkIng isamonthly
adjustment basedonthe latest percentage changeusually
fromindicesproduced by the BuildingCostInformation Service (BCIS), a divisionofthe
Royal Institution ofChartered Surveyors.
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