Reinstatement Cost Assessments (RCA) for Landlords

When managing a property portfolio, landlords often face a myriad of responsibilities. One critical task is ensuring that their properties are adequately insured in case of damage or destruction. This is where Reinstatement Cost Assessments (RCA) come into play. An RCA determines the cost of rebuilding a property from scratch, including materials, labor, and professional fees. In this post, we'll explore the importance of RCAs, the differences between desktop and in-person surveys, and how factors like material inflation impact these assessments.

Desktop Surveys vs. In-Person Surveys

Landlords have two primary options for obtaining an RCA: desktop surveys and in-person surveys.

Desktop Surveys

Desktop surveys involve assessors reviewing data and images of the property remotely. They use property plans, photographs, and other available information to estimate the reinstatement cost. While this method is quicker and more cost-effective, it comes with some caveats. Since surveyors aren't physically present to inspect the property, they usually add around 20% to the estimated cost to cover any unseen issues. This buffer aims to compensate for any details that might be overlooked in the absence of an on-site inspection, such as structural issues or unique architectural features.

In-Person Surveys

In contrast, in-person surveys provide a more accurate assessment. Surveyors physically visit the property, enabling them to identify issues and nuances that a desktop survey might miss, like bespoke materials, non-standard construction methods, or hidden damage. While in-person surveys are generally more expensive and time-consuming, they can result in a more precise reinstatement cost, potentially saving money in the long run by preventing over-insurance.

Overinsured vs. Underinsured: The Implications

Overinsured Properties

If a property is overinsured, landlords may pay higher premiums unnecessarily. Since insurance companies only pay out up to the actual reinstatement cost, any excess coverage becomes an unnecessary expense. This is where desktop surveys can sometimes lead to over-insurance due to the additional buffer added to cover unknowns.

Underinsured Properties

On the other hand, underinsured properties pose a significant risk. If a property's insurance coverage falls short of its actual reinstatement cost, the landlord could face considerable out-of-pocket expenses in the event of a total loss. Insurance policies often include an "average clause," which can reduce the payout proportionally to the level of underinsurance. For instance, if a property is insured for only 80% of its reinstatement cost, any claim will be reduced by 20%, leaving the landlord to cover the shortfall.

The Impact of Material Inflation on RCAs (Reinstatement Cost Assessment)

Material inflation can significantly impact RCAs. The cost of construction materials like timber, steel, and concrete fluctuates due to market demand, supply chain issues, and economic factors. During periods of high inflation, reinstatement costs can rise sharply. Landlords need to ensure that their RCAs are updated regularly to reflect these changes.

Insurers may allow certain materials to be substituted if cost-effective alternatives exist. For example, if steel prices soar, insurers might permit the use of reinforced concrete as a substitute, provided it meets safety and regulatory standards. This flexibility can help control costs, but it's essential for the RCA to accurately reflect the chosen materials to avoid complications during a claim.

When to Get a New RCA

Landlords should obtain a new RCA every three years, as construction costs and material prices can change significantly over time. However, certain changes to the property may necessitate an earlier reassessment. These changes include:

• Building Extensions: Adding new rooms or floors.

• Structural Alterations: Conversions of garages, lofts, or basements.

• Outhouse Constructions: Adding outbuildings, sheds, or summerhouses.

Each modification affects the property's overall reinstatement cost, so an updated RCA ensures that the insurance coverage remains adequate.

Which Buildings Should Have an RCA?

RCAs are crucial for all buildings, including:

• Residential Properties: Flats, houses, and multi-unit dwellings.

• Commercial Properties: Office buildings, retail units, and warehouses.

• Mixed-Use Buildings: Properties with both residential and commercial spaces.

• Listed Buildings: These often require specialized materials and craftsmanship, making an accurate RCA vital.

  
  

Final Thoughts

Reinstatement Cost Assessments are essential for safeguarding your investment and avoiding costly pitfalls. Whether opting for a desktop or in-person survey, it's crucial to understand the trade-offs and ensure that your properties are neither overinsured nor underinsured. Regularly updating your RCAs to reflect material costs, inflation, and any property changes will help you maintain appropriate insurance coverage and protect your assets effectively.

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