Reinstatement Cost Assessments Explained (RCA)

A Reinstatement Cost Assessment for building insurance purposes is a professional calculation of the cost to rebuild a property, including, demolition, professional fees and VAT. This should be carried out by a fully qualified and RICS regulated  organisation / person, who will advise on the correct Declared Value which should be used for insurance purposes

A Declared Value is the value declared to insurers as the full cost to reinstate the building if this were totally destroyed (including demolition, professional fees and VAT). The Declared Value is one of the key factors used by insurers to calculate the insurance premium they require for the insurance cover provided.

The insurance policy contains an average condition that stipulates that if at the time of a claim, the Declared Value shown on the insurance certificate is less than the actual cost to reinstate, the insurer only needs to pay the same proportion of the claim as the Declared Value represents of the actual value at risk.

For example, should your property be insured for an amount which is 50% of the total cost to rebuild, then ANY claim made will be
settled by insurers at 50% of the total claim/reinstatement cost, as shown below:

1. Declared Value £150,000 vs actual value at risk (as evidence by an RCA) £300,000 = 50% “insured”
2. A claim occurs for water damage to the inside of the building, and the cost to repair the building is estimated at £20,000.
3. Insurers will settle this claim at £10,000 and require that the building Declared Value be increased and an additional premium paid for the increase

The average clause does not apply provided that valuations are carried out by qualified RICS members at regular intervals and the results provided to insurers, and an inflationary increase (index linking) is applied at each policy renewal in the years between an RCA.

‘It is prudent to incorporate recommendations within the report to the effect that the client needs to reassess the declared value on a regular basis, with an annual adjustment to reflect inflationary effects, and a major review and reassessment every three years, or earlier should significant alterations be made to the insured property.’
RICS GUIDANCE NOTE, FEBRUARY 2018

To protect against inflationary increases to the costs of material and labour to reinstate, insurers apply a UK average percentage increase to the declared value at policy renewal. Ensuring therefore, that the Declared Value remains true over the years.

The percentage increase is calculated using the RICS Building Cost Information Services – an industry recognised data set.

It is critical that Reinstatement Cost Assessments are carried out on a regular basis to ensure you have the appropriate level of insurance cover. Some insurance policies will specify maximum periods of time between each RCA, and others require these are carried out “regularly” but don’t specify how frequently this is.