The Building Cost Information Service (BCIS) warns insurers that buildings insurance arranged for individual flats carries a significant risk of underinsurance.
Commonly, buildings insurance is taken out on the whole block by the freeholder of the property and the premium split between the various leaseholders. Unfortunately, for a variety of reasons, this is not always the case and individual leaseholders are left to arrange their own cover.
Leaseholders who take out buildings insurance for their individual flat believe, in the event of a catastrophe, they will be protected and covered for the building to be restored to its original state. Unfortunately, unless all leaseholders in the block have adequate buildings insurance cover, this is not the case.
BCIS warns that if there were to be a total loss and not all of the flats were insured, there is a distinct possibility that the block could not be rebuilt. In such a case, the insured leaseholders would receive a cash settlement from their insurer but the settlement would be equal to the rebuilding cost of the individual flat and this, in many areas of the country, will be far short of the market value.
The risk doesn’t only apply to total losses. If damage occurred to a common part such as the roof or foundations, the insurers of each flat would look to split the cost of the claim between them. If some of the flats were uninsured, the insurers of the remaining flats may not be willing to meet the full cost of the claim, leaving the uninsured leaseholders to fund their part of the work themselves. However, those that
are not insured may not have the means to cover the cost of the repairs themselves.
Andrew Thompson, BCIS Director, comments: “This is a serious issue and could lead to a significant financial loss for the policyholder, not to mention the reputation and commercial risk for the broker or insurer. In a total loss situation, policyholders may receive a payout far short of the market value of their flat but they would still need to continue to pay their mortgage.”
BCIS is the Building Cost Information Service of the Royal Institution of Chartered Surveyors (RICS) and the UK’s leading independent expert on rebuilding costs. Its residential rebuilding cost models are accepted as standard by surveyors and insurance loss adjusters.
BCIS supplies a range of bespoke risk solutions to the insurance industry with services tailored to suit the business models and operational practices of insurers, online providers, aggregators and brokers. The organisation provides over 20,000 rebuilding cost figures to brokers, insurers and aggregators on a daily basis. Real-time residential rebuilding cost estimates enables insurance providers to accurately assess risk and competitively price products, whilst supporting the FSA ‘Treating Customers Fairly’ guidelines.
For further information on BCIS services for the insurance industry visit www.bcis.co.uk/risksolutions.
