Getting reinstatement costs right: where declared values often fall short

After a loss, most property owners ask two simple questions: am I insured, and am I insured for enough?

Declared values (DV) are rarely wrong because of one decision. More often, they drift over time. Assumptions creep in. Data becomes outdated. And the figure no longer reflects what it would cost to reinstate the property on a like-for-like basis.

That matters because the accuracy of a declared value may only become clear when a claim occurs.

Why accuracy matters

A DV should reflect the full cost of reinstatement following a total loss. That means more than construction costs. It can include costs for demolition, debris removal, professional fees and compliance with current regulations.

If it falls short, underinsurance may apply, leaving a business with less protection than expected after a loss.

Where reinstatement costs fall short

Inaccuracies tend to build gradually. They often come from methods that do not fully reflect how a building would be reinstated in practice, or from values that have not been reviewed as buildings and cost environments change.

Common issues include:

• Using informal estimates or personal opinion – figures that are not based on a structured assessment are unlikely to reflect true reinstatement requirements
• Using market value as a proxy – market value is driven by location, land and demand, not rebuild cost
• Relying on a builder’s estimate – this may reflect construction costs, but not the wider scope of reinstatement
• Applying indexation alone – if the starting point is wrong, indexation will not fix it
• Using original build cost or developer cost – these are based on different assumptions and can miss key elements of reinstatement
   

A more reliable approach

Improving accuracy is less about fixing one issue and more about getting the foundations right.

In practice, that means:

1. Considering a professional reinstatement cost assessment – a suitably qualified specialist can help provide a more accurate basis for declared values
2. Checking the full scope of reinstatement is included – not just construction, but all associated costs
3. Using a methodology designed for insurance purposes – so the figure reflects reinstatement requirements, not sale value or development cost
4. Reviewing DVs regularly – so they stay aligned with the building and cost environment
5. Using indexation between full reviews – as a supporting adjustment, not a substitute for a full assessment

A stronger basis for cover

When a DV is built on the right foundations, it can help reduce the risk of underinsurance and overinsurance. More importantly, it helps reduce the chance of issues arising from inaccurate declared values at claim stage, when it matters most.

For more information on getting accurate reinstatement costs, email the team at [email protected]