THE IMPORTANCE OF INSURANCE REPLACEMENT VALUATIONS

Ensuring you have the correct building replacement cost selected on your insurance policy is critical, in fact it's probably the single most important section for strata and commercial property. If a major claim occurs and your property is under insured, the insurer is within their rights to pay out on a fraction of the total damage value - depending on the what percentage the building is underinsured by.

Insurers want to know that are collecting a fair premium for the risk they are insuring, which can only be confirmed by carrying out an insurance replacement valuation - recommended to be done every 3 years for accuracy.

What is an Insurance Replacement Valuation?

Put simply, the when buying or selling any type of property you refer to the market price of the building and land.

When it comes to an insurance valuation, you must establish the cost to reinstate and/or replace only the structural aspect of the land e.g. building, retaining walls, carports etc.

This figure must be accurate.

The market price or value of a building can be higher or lower than the replacement value depending on a number of factors including location, accessibility (for rebuild) and materials.

An insurance replacement valuation must be carried out by a qualified professional

Why is an Accurate Insurance Replacement Valuation Important?

There is a clause in your insurance policy called the co-insurance or average clause which requires you to accurately reflect the true insurance value of your property.

If not implemented, the insurer is within their rights to greatly reduce your claim payment should a loss occur.

The insured value is required to be no less than (commonly) 80% of it’s true replacement cost.

What’s Included in an Insurance Replacement Valuation?

• Demolition following a loss

• Removal of debris

• Estimated current like for like construction costs, including structure, services, and finishes.

• Access and location

• Provision for cost escalation during rebuild period

• Additional costs to comply with any By Law or Regulation of any Local Government or other Statutory Authority

• Professional fees

Demolition and removal of debris are just some items included in an insurance replacement valuation, that are not included in a sales valuation

Access to high density locations can really slow the rebuild process down and increase rebuild cost - all of which needs to be factored into the insurance replacement valuation.

If your building has a recent professional Replacement Cost Valuation, it can make claim processing faster - here's why:

The claims process is smoother

When you lodge a claim, insurance companies often ask you to prove the value of the assets that you are claiming for. Your valuation is an easy and reliable way to show this. It is much quicker than trying to assess value on the spot – especially if you do not have access to your building or records.

There is less chance of a dispute

A recent and reliable building valuation limits the likelihood of your Insurer disagreeing over the value of your property. Your Insurer may not need to do their own valuation. If they do, you would expect their professional to come to a similar conclusion as yours.

You are protected if the valuation is inaccurate

It is rare, but the valuation can have an error. In this situation, the liability for any shortfall will fall on the valuer and their (Professional Indemnity) insurance for providing the incorrect figure. It's likely the claim will be paid out in full, with their insurance policy responding accordingly.

It’s also extremely important to factor in potential Rental Income lost during the rebuild (indemnity) period, recommended to be no less than 24 months on the policy - this figure should include the annual rent plus any statutory outgoings.