Press Release

Property owners need to check insurance valuations in wake of build cost hikes

Jack Cawthra


3rd Aug 2023

Published by CoStar 02.07.23

  • Rapleys warns cost of rebuild in face of total loss may not be covered.
  • Material costs have increased on average by 40.2% between July 2020 and July 2023.
  • Disasters such as fires may affect tenant businesses if landlords don’t have sufficient cover.

UK, August 2023 – Property consultancy Rapleys has issued a warning to property owners and tenants alike over the reinstatement valuations on existing insurance policies. With material costs up on average 40.2% according to the BCIS*, businesses who haven’t upped their valuations are at risk of being under insured in the event of total loss or of such substantial damage that a building will require demolition and rebuilding.

The ICMS (International Cost Management Standard) Coalition defines reinstatement as “The process of returning a constructed asset to its original or intended state of use” – something that is particularly important to those who operate from a built to suit premises.

Rapleys advise that clients should reassess their reinstatement sum insured on a regular basis, with an annual adjustment to reflect inflationary effects, and a major review and reassessment every three years, or earlier should significant alterations be made to the insured property. However, with costs increasing so dramatically in recent years, a reassessment may be necessary annually.

The property specialist also highlighted that structures that have high proportions of steel and glass, such as car dealerships, city centre office buildings, industrial assets, science & healthcare structures and residential new build tower blocks, are most at risk of the rebuild costs having hiked and thus may be significantly undervalued if insurance policies are not checked. 

Jack Cawthra, Partner of the Cost Consultancy and Project Management team at Rapleys, explains: “While the property industry has been focussed on various challenges such as EPC targets, energy price hikes, mortgage constrictions, development viability and material costs amongst other things, it’s likely that a proportion of owners and asset managers haven’t got around to examining their insurance valuations. It’s crucial that insurance reinstatement costs are kept up to date in the wake of material costs increases surpassing 40% over the past three years. We welcome the Construction Leadership Council (CLC) reports in May 2023 that for the first time since the Construction Product Availability group began meeting in the height of the pandemic, there is good availability of the vast majority or building materials, with increasing reports that availability is back to pre-Covid levels. The BCIS TPI panel also reports generally better material availability and that some materials are still seeing price escalations whilst others have levelled off. For example, prices for concrete, cement, bricks, tiles and screws have been rising, whereas the cost of steelwork, reinforcement, imported plywood and particle board have gone down. Materials’ cost growth is expected to ease, with forecasts of 2.0% in the year to 2Q2024 and 2.2% in the year to 2Q2025.”

Rapleys cites a scenario where a new industrial and logistics property was constructed at a cost of £114m for a major global retailer. Based on the BCIS General Build Cost index, the rebuild cost today could have ballooned by as much as £30m without the consideration of relocation either temporarily or permanently and any additional land costs.

Rapleys Building Consultancy team provide full insurance reinstatement valuation whether this be for a single property or a portfolio across the country and are therefore able to make sure you have sufficient cover.

*BCIS Material Index Jul-2020 Index 289.9 July 2023 Index Forecast 406.5

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