A common question we encounter at Cardinus is, “If I base my insurance cover on the original development cost of constructing my property, isn’t that enough?” Unfortunately, the answer is often no.

The costs associated with reinstating a property after a disaster, such as a serious fire, are typically much higher than the original development costs.

Keep reading to understand why relying on development costs for insurance can leave you underinsured. This article highlights the key differences between development and reinstatement costs, the factors that drive up rebuilding expenses and the importance of accurate cost assessments. Learn from a real-life example to ensure your property is adequately protected and avoid costly surprises.

Factors driving up reinstatement costs

Reinstatement costs following a disaster such as fire can soar due to several critical factors, each contributing to the overall expense and complexity of restoring a property to its original state. This includes but is not limited to the following:

Urgency of commencement

When disaster strikes, time is of the essence. Immediate commencement of reinstatement works becomes necessary, especially when residents are displaced. This urgency often forces property owners to pay premiums for expedited services and resources.

Timescale pressures

The need for swift action can escalate costs as contractors charge higher rates for accelerated work schedules or for working under adverse conditions that may hinder efficiency.

Demolition and debris removal

Clearing the site of debris and demolished structures before rebuilding can commence is a fundamental yet expensive aspect of reinstatement not accounted for in initial construction budgets.

Changed surroundings

Over time, the environment around a property may evolve, introducing new challenges and costs not originally anticipated during the initial build phase.

Additional features and outbuildings

Properties often evolve post-development with added features or outbuildings, necessitating adjustments in reinstatement plans and costs.

Access challenges

Reinstating a property may require specialised access equipment such as scaffolding or cranes, which were not part of the original build and add substantial costs.

Protecting undamaged sections

Efforts to shield undamaged sections of a property from further harm or exposure during reinstatement increase both the complexity and expenses involved.

Inefficiencies in work programming

Unlike the streamlined workflow of planned developments, the reconstruction process is typically less efficient and more costly due to the urgent nature of reinstatement.

Protection of adjacent buildings

Ensuring the safety and stability of neighbouring structures during reinstatement efforts imposes additional expenses that were not factors during the initial construction phase.

Varied professional fees

Professional fees for architects, surveyors and project managers can vary significantly from those incurred during initial construction, reflecting the specialised expertise and urgency required in reinstatement scenarios.

Developer’s contractual advantages

Developers often benefit from fixed-price contracts negotiated well in advance for materials and labor, a luxury not available when responding to reinstatement needs where costs can fluctuate.

Bulk material savings

Bulk material discounts enjoyed by developers during initial construction are typically unavailable for reinstatement projects, driving up material costs.

VAT considerations

New builds benefit from zero-rated VAT, providing cost savings that do not apply to reinstatement projects, where VAT adds an additional financial burden.

Efficiency in planned development

Developers in a planned build also work efficiently across sites with fewer access issues. For instance, in larger buildings, the strategic placement of tower cranes plays a critical role.

A time-lapse photography series documenting the construction of a 300-unit Barratt development along the River Thames in London offers valuable insights into these practices.

Real-life example: The costly surprise of underestimating reinstatement costs

Imagine moving into a newly constructed apartment complex, expecting minimal unforeseen expenses. This was the optimistic view of a group of directors who took ownership of a 200-plus unit building just 18 months prior. Confident in their investment, they arranged for a professional valuation that factored in VAT, debris removal, and professional fees into their estimated rebuilding costs, declaring a value of £29 million.

However, reality soon hit hard. A comprehensive reinstatement cost assessment conducted on-site by a surveyor revealed a staggering £56 million, VAT included. This unexpected £27 million shortfall came as a profound shock to all involved, particularly compounded by the near doubling of insurance premiums for each resident.

This stark example underscores the critical importance of accurately assessing reinstatement costs. It serves as a poignant reminder of the potential financial risks of underinsurance, highlighting why thorough evaluation and preparation are essential to protect property investments effectively. Understanding the full scope of reinstatement costs ensures that property owners are adequately covered, mitigating the risk of unexpected financial burdens in the event of unforeseen disasters.

Get the right cover with Cardinus

Over the last three years we’ve rectified over £9 billion of underinsurance on properties. Ensuring your property is accurately assessed for reinstatement costs is crucial to avoid issues in case of a loss. Our RICS-regulated Reinstatement Cost Assessment service helps property owners, managers, insurers, MGAs and brokers to navigate the challenge of underinsurance.

Contact us to hear how we can safeguard your property against underinsurance.