Insurance Reinstatement Cost Assessment 

Determining the correct value to insure your commercial property can be a tricky issue and without expert knowledge you may fall foul of a clause known as the “average” principal.

The insurance principle of average, in simple terms, means that if you have an insurance policy and you don’t insure your property or belongings for their full value, the insurance company may only pay you a proportionate amount if you make a claim. This is often used when dealing with property insurance.

What is a Reinstatement Cost Assessment?

Let’s say you have a property that is worth £200,000, but you only insure it for £100,000. If your property gets damaged by a covered event, like a fire, the insurance company may apply the principle of average. They would calculate the proportion of the insured value to the actual value (in this case, £100,000 divided by £200,000, which is 0.5 or 50%).

Based on this proportion, the insurance company would only pay you 50% of the repair or replacement costs. So, if the damage costs £20,000, the insurance company would only pay you £10,000 (50% of £20,000), and you would need to cover the remaining £10,000 yourself.

The principle of average is used to encourage policyholders to insure their property for its true value, ensuring that they are adequately protected in case of a loss.

Protecting your Business

We can put you in contact with professionals who can assess your property and provide an insurance valuation known as an Insurance reinstatement cost assessment (IRCA) which will provide an UpToDate insurance-based valuation.  An insurance-based valuation works out the cost of demolition, debris remove, professional fees, labour materials and taxes.

For any help and assistance with your commercial insurance, please feel free to contact Nick Taylor Ward.