What is a Reinstatement Cost Assessment (RCA)?
Put simply it’s an assessment on how much it would cost to rebuild a property from scratch, like for like and on the exact same piece of land. The reinstatement value is the maximum risk the insurers are insuring and what they base the annual insurance premium on.
What can affect a Reinstatement Value?
Demolition costs, materials and labour costs, architect and surveyors fees, modern construction and building techniques, land, location, school catchment areas, supply and demand are all factored in. Costs fluctuate so it follows that reinstatement value do. Economy changes, the pandemic, the war in Ukraine, material shortages, and inflation have all impacted / increased reinstatements values over the past few years. Articles from The Building Cost Information Service explore this in more depth Could materials cost inflation continue to drive up reinstatement costs? and How does labour availability impact reinstatement costs?
How frequent should an RCA be done?
The Royal Institution of Chartered Surveyors (RICS) recommend a full RCA (boots on the ground type) is done every three years or if you make structural changes, extend, covert lofts, or other such projects that add extra value to the property, with a table top valuation in between.
Will an RCA affect the insurance premium?
Yes but not always by increasing it. Rebuild costs fluctuate up and down so it follows that rebuild valuations and premiums can go up and down. If your RCA are updated regularly you are likely to pay the right level of premium, avoiding drastic hikes and hugely increased Budgets and service charges. The Property Institute 2024 Service Charge Index found building insurance along with inflation and building safety to be the main drivers for increased service charges, which is a common complaint Alexandre Boyes block management receive from leaseholders / shareholders.
What happens if you are underinsured?
Insurers use reinstatement values to work out the premium and level of cover. They rely on the policy holder’s ‘declared value.’ Declaring a lower value can lower the annual premium (and service charges) but it can lower claim payouts and even invalidate policies. Insurance companies can apply an ‘average clause’ or ‘condition of average’ clause which reduces their pay out sometimes as much as 50-75%. This can leave Management Companies and service charges contributors to plug the gap, or worse…not able to complete the rebuild. The reinstatement value should cover worse-case scenarios (think aeroplanes falling out of the skies, lightning strikes, subsidence, landslips, explosions, earthquake) and the maximum amount of loss possible. RICS Journals explore this topic further Why building cover relies on correct reinstatement cost | Journals | RICS and BCIS Negating the average clause – what can insurers and brokers do?
Who can undertake Reinstatement Valuations?
Often for standard properties the calculator provided by BCIS is used https://abi.bcis.co.uk/ by specialist companies, however, for anything more complicated, listed, commercial or multi-use, a RICS chartered surveyor services should be employed. Alexandre Boyes block management can arrange both full and table top RCA and provide the insurers with the reports to keep your premiums and cover in line.
As with all Alexandre Boyes blogs, these are intended to be a general overview of topical issues and should not be relied upon for formal purposes. Posted 9/01/2025. You can read our previous posts on this topic here
