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With energy prices skyrocketing and the cost of doing business increasing dramatically, companies are struggling to keep up. Care homes are no exception, and the increase in construction costs is having a significant impact on their insurance coverage.
When you insure your care home building, the sum insured value is based on the reinstatement valuation, which is the cost of completely rebuilding the premises if a total loss occurred. It's important to note that this value is different from the market value of your property. If your building is underinsured, you may not receive the full value of your claim in the event of an incident, as insurance contracts contain a clause called "average." This means that if you're underinsured, you'll only be paid out proportionally.
Modern building requirements are significantly driving up reinstatement costs beyond traditional construction price inflation. Energy-efficient upgrades such as solar panels, heat pumps, improved insulation, and sustainable materials increase rebuild costs significantly. The New Future Homes and Building Standards mean that any rebuild must meet higher energy standards, further inflating costs compared to your original building specifications.
Buildings now must meet enhanced environmental and efficiency requirements, not the previous dated specifications they were originally constructed to. The specialist materials needed for these upgrades are more expensive, and this trend will continue with the increasing requirement for energy efficient materials and designs. Even a £50,000 retrofit can shift rebuild value enough to make an existing policy inadequate.
For example, let's say your care home is insured for £1 million, but the true rebuild value is actually £2 million due to the increase in construction costs. If there's a claim for roof damage, and your building is insured for only half of the correct amount, you'll only receive half the value of the claim. So, if the claim is for £100,000, you'll only receive £50,000. Can you afford to spend £50,000 out of pocket? How would you feel if you've paid for insurance, but it doesn't provide the cover you thought it would?
The statistics around underinsurance are alarming. Up to 76% of UK buildings are underinsured, with many only covered for 60-65% of their true rebuild value. Just 4% of properties are correctly insured, leaving most owners significantly exposed to financial risk. Complaints about buildings insurance are rising, with many linked to outdated or inaccurate valuations that fail to account for modern building standards and increased construction costs.
It's crucial to make sure that your building's sums insured are reviewed regularly to ensure you're not underinsured. The only accurate and safe way to find out the true reinstatement valuation is to have a survey from a RICS certified provider. At QCG, we can help with a desktop assessment (depending on the property value), but it's always better to have a physical survey done for complete accuracy.
The increase in construction costs, combined with new environmental building standards, has had a significant impact on insurance for care homes. Underinsurance is a real danger that could present a significant financial risk to your business. It's crucial to review your building's sums insured regularly to ensure that you're not underinsured and that you have the right level of coverage to protect your business from potential losses.
To find out more about reinstatement cost assessments for care home buildings, I will contact you back if you take a minute to complete this short form.
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