Castleacre Insurance Director, Hugo Johnsen, explains:

‘People do not always realise that if you are starting a building project at your home you need to advise your household insurer first. If you do not, this can invalidate your existing cover.

If you undertake major building works which exceed a certain value your household insurer will suspend cover during the works because of the increased risk. Homeowners can end up relying on their contractor’s insurance during a build project without realising that it puts them in a vulnerable position.

What happens if your builder walks off the project, goes bankrupt or doesn’t pay their insurance premium? If you have to prove that your contractor has been negligent any settlement could take months and you may need to fund alternative accommodation. The contractor’s insurance generally will not provide cover for other perils unrelated to works or provide the full cover for your buildings which is an essential requirement for mortgage providers.’

Renovation or Building Work policies cover your existing property, works, your liability as a homeowner and, on a joint names basis, both yourself and the contractor if required – this means you are unlikely to experience long drawn-out disputes if something goes wrong. If you live on a terrace, own a semi-detached house or have neighbours in close proximity these policies can also be extended to offer a vital add-on, called ‘non-negligence’ cover.

Hugo adds:

‘in 1996 the Party Wall Law was introduced, partly in response to the popularity of basement and loft conversions. The law was designed to protect neighbouring properties when structural changes like excavations or extensions were undertaken and liability was placed on the property owner undertaking the construction rather than the contractor. Non negligence cover is a technical term for party wall protection; it ensures you are covered if your project creates any structural issues for neighbouring property.’

If you would like advice on insuring your Renovation or Building Project contact:

Hugo Johnsen
hugojohnsen@castleacreinsurance.com
01787 211 155

COVID 19 and Brexit have both had huge impacts on the UK economy but since the end of lockdown, many UK businesses recovered much faster than expected. Construction, which was buoyant pre-pandemic (and one of the few industries allowed to continue operating during lockdown), has been slowed by a string of problems which has had a knock-on effect on all homeowners. Just two years ago RICS reported that the rise in building materials had reached a 40 year high and since then the costs of rebuilding have risen further:

• Labour shortages and wage rises connected to the cost of living crisis have meant the cost of reconstruction and repair has risen dramatically and this is how underwriters and insurers determine indexation.
• Production lines stalled during the pandemic have largely recovered but building materials are still in high demand and delays in supply can stall and delay rebuilding work.
• Energy costs also remain high and this affects both raw material extraction and production.

Collectively this has inflated the cost of building work and created delays in supply which leads in the case of any rebuild project to additional costs. If you do need to move out of your home due to an insurance claim your insurer will normally cover the cost of your accommodation until the repairs are completed; if the repairs take much longer because of delays and difficulties in reconstruction then the cost of the alternative accommodation will also rise and so will the cost of the claim.

The cost of reinstatement of any building following a serious claim will certainly be much higher now than it was pre- pandemic. Insurers are taking the increased cost of building into account and this is leading to increases in premium at renewal.

Insurers have also been impacted by an increase in natural, climate related disasters and as the re-insurance market demands higher premiums in response to these broader risks, insurers are inevitably passing some of this increased cost of insurance onto their clients.

What are the consequences of underinsurance?

Property owners need to be aware of these increased claim costs and the significant changes in rebuild values – which differs from market value. This is particularly relevant for listed or period property, where the rebuild value can sometimes exceed the market value due to the obligation to reinstate with exactly the same specialist building materials and craftsmanship.

If your insured rebuild value is less than the actual rebuild value your insurer may be entitled to reduce compensation for a serious claim proportionately. One insurer, particularly experienced in insuring listed buildings, has expressed concerns about basing rebuild values for older properties on out of date and inappropriate standardised rebuild rates. They cite a case where owners had submitted a rebuild value of  £410,000 for insurance purposes. When a subsequent claim arose for £48,000 it emerged that the building was underinsured and the actual rebuild value was in excess of £1,200,000. Consequently, the claim compensation was reduced to £17,000, leaving the owners to find the remaining £31,000 to complete the repair.

If you think your original insurance cover was based on a relatively old rebuild value or you think it may have been confused with the market value it is particularly important in the current climate to query this with your insurer or broker. If the insurer requires an up to date rebuild value they sometimes supply their own surveyor at their expense to ensure the risk is properly covered.

If rebuild increases are not considered carefully at renewal there is a serious risk of underinsurance.

Being clear at the outset, when you start a building project protects not only the client but architectural and design consultants and project mangers, but it isn’t always obvious what the best course of action is – particularly where the project is high value and involves multiple contractors.

Most household insurance policies will normally cover minor works to a private residence up to a reasonable limit, allowing homeowners to undertake small building projects without having to inform insurers – but large scale renovation and extension projects, which fall outside Standard Insurance, require a completely different approach.

High-value refurbishment, renovation and extension projects are complex and most are managed under a Joint Contracts Tribunal (JCT) Design and Build Contract (DB), where it is determined at the start who will be held responsible for the design, delivery and insurance.

We help contractors, owners  and consultants responsible for the management and delivery of a building project find the right specialist policy before the contract and final JCT is agreed so do contact us if you would like advice or you can Download our Guide to Insuring Renovation and Extension projects