financial services

Insurance reinstatement valuations

"When preparing a valuation using rates from comparable buildings, it is important to establish the fundamentals of the specification."

Insurance reinstatement valuations

A reinstatement valuation is the calculation of the cost to reconstruct the building and associated external works to replicate what was originally there, by using modern building regulations & fire officer requirements.

We have to account for all works that are the responsibility of the employer to insure. This may not be everything that is visible on-site; some of the fitting-out works, for instance, may be the responsibility of the tenant. Alternatively, it may not be immediately apparent how much of the surrounding site works need to be included in the valuation. The specific scope of the valuation should be agreed upon with the employer at the outset.

Each element of the building is priced by applying an appropriate rate (rebuild rate) to a relevant functional quantity. Any special features or elements of work that might not automatically be assumed to be a part of the base building’s rebuild rates should be separately priced.

The most comprehensive method of calculating a rebuild rate would be to produce a fully quantified estimate. Rebuild rates will have to be derived from data obtained from other sources. These may include:

  • BCIS
  • Other published cost data including pricing books.
  • Tenders or final accounts for other similar projects; and the original build cost of the building being valued, which may be available if it is a recent completion.

The benefit of using BCIS

• Building costs are presented consistently, clearly setting out the scope and foundation of pricing associated with each analysed building.
• The original build cost will be accurate for a short time after construction, but changes to rates and regulations will render this less accurate over time.
• Whatever data is used, adjustment is always likely to be necessary to reflect the particular characteristics of the building being valued.

The rebuild rate will also be influenced by the specification. When preparing a valuation using rates from comparable buildings, it is important to establish the fundamentals of the specification including:

  • Whether the frame comprised steel or concrete construction
  • The quality of the external cladding; the level of fit-out in terms of quality of finish but also to what degree the building may be air-conditioned, etc.

All rates, however, sourced, should therefore be used with caution. Take care to ensure that all necessary adjustments are made to fully reflect the specific characteristics of the building being valued.

Valuations should generally be priced and presented on a ‘day one basis, i.e. the first day of insurance cover. This date should be advised by the employer. Insurers usually add their allowance to cover increased costs during the periods of insurance, design and tendering, and the rebuilding works.

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