The RICS published data on 19 November 2021 with the headline construction material costs increase reaching a 40 year high. The data behind the headline RICS costing figures showed that material costs alone had increased 4.8% over the course of 2021; however, these costs are projected to increase 17.6% over the course of 2022.
This has profound consequences for one area of work which RES Property Surveyors are heavily involved with, which is Insurance Reinstatement Cost Assessments. This is further likely to be extenuated by the fact that labour shortages will see the costs of labour also rising.
Increases at this level in 2022 would immediately test the difference between the Declared Sum and Insured Sum listed on most policies, which is generally at 10.00%. Furthermore, it would mean that even up to date Insurance Reinstatement Cost Assessments would likely be underwater.
The RICS generally consider that a reinstatement cost every three years is acceptable albeit it is clear that this is not acceptable in extraordinary times, such as these.
The message is that Reinstatement Cost Assessments should be up to date. Clients should be correctly advised on portfolios as to a strategy of review, we commonly do this in tranches to achieve full inspections over a three-year timeframe. It is then much more efficient ad cost affective to rebase the Insurance Reinstatement Cost Assessment without further inspection at regular, annual intervals.
Much like the RICS material uncertainty clause in respect of Market Valuations, this is equally applicable to Insurance Reinstatement cost assessments and, to avoid mass market under insurance on property assets, clients should seriously think about a strategic programme of reassessment.
RES Property Surveyors is available to discuss with clients’ their Insurance Reinstatement Cost strategy and other Building Surveying matters.