80% of commercial properties at risk due to underinsurance

Landlords and their managing agents are putting their commercial property investments at risk by failing to obtain full commercial property insurance, according to leading building surveyor, KWB’s Akim Kamangira.

Akim, who is Head of Building Consultancy at KWB commercial property agents, says that the insurance industry estimates up to 80% of commercial property insurance policies are underinsuring by between 20% and 45%. This is reducing payouts for damage because the wrong valuation figure was submitted to the insurance company when the policy was bought.

Akim said: “With company administrations and insolvencies rising, especially in the retail and leisure sectors, and indications that a no deal Brexit would push more tenants across more sectors to the brink, there is an increasing risk of damage as occupiers neglect or simply abandon commercial properties, leaving them open to risk of fire, vandalism or other damage.

“When buildings are underinsured, insurance companies will only pay out on a pro-rata basis. This means that if they are underinsured by 45%, then any claim will be reduced by the same amount. This will leave landlords struggling to make up the shortfall to repair or rebuild a devalued asset.”

Akim claims the reason that so many landlords and owner occupiers get insurance cover wrong is that insurance companies require an accurate rebuild cost, which has nothing to do with the freehold value of the premises.

Akim continued: “Building materials and other costs have been increasing at a tremendous rate over the past few years, so it is impossible for a ‘lay person’ to provide an accurate rebuild figure.

“Particular areas of risk when you have insufficient insurance cover include: lack of a recent professional valuation of the property; carrying out alterations or extensions to property without full consideration of factors; overlooking a building’s listed status; not factoring professional fees into the rebuilding costs.

“To ensure that you submit the correct rebuild cost to your insurance company when renewing your policy each year, you need an Assessment of Building Reinstatement Costs for Insurance Purposes, carried out by a Chartered Surveyor.”

KWB provides a range of valuation and survey reports for commercial properties across the West Midlands, including those for commercial property insurance purposes.

For more information on obtaining an Assessment of Building Reinstatement Costs for Insurance Purposes or any other valuation report or building survey, contact Akim Kamangira on 0121 233 2330 or akamangira@kwboffice.com.