Why is an RCA necessary?

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:

Declared Value £150,000 vs actual value at risk (as evidence by an RCA) £300,000 = 50% “insured”
A claim occurs for water damage to the inside of the building, and the cost to repair the building is estimated at £20,000.
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