Reasons to be Thankful for Increased Property Insurance Premiums

The cost of buildings insurance has risen sharply in recent years, affecting not only individual households, but also the commercial insurance required for blocks of flats and residential estates managed by Property Management Companies or Resident Management Companies (RMCs).  

Significant increases in the cost of buildings insurance have understandably led to a great deal of concern, especially in an environment where people’s budgets are already stretched. For blocks of flats and managed estates, it has become a major service charge item, subject to increasing scrutiny from residents and directors alike. Premiums have seen substantial rises, with some reports indicating a 25% year-on-year increase – even when, to the average householder, nothing much appears to have changed in how their block is managed. So why is this happening? 

There are many factors insurance companies take into account, from inflation and extreme weather to previous claims. One of the most important, and often overlooked factors, is the rising cost of rebuilding a property. That is why a Reinstatement Cost Assessment (RCA) is essential. An RCA is a professional surveyor’s assessment of how much it would cost to completely rebuild a property if it were completely destroyed. This needs to be undertaken for commercial insurance policies, including blocks of flats and residential estates managed by a Property Management Company or Resident Management Company, where buildings insurance is arranged collectively. 

The Royal Institution of Chartered Surveyors recommends that an RCA be carried out at least every three years and that it must assume a worst-case scenario – that a property is ‘razed to the ground’ i.e. it needs to be completely reconstructed with a number of consistent assumptions to provide a basis for assessing the cost and what should be included or excluded.  

Without a current RCA, there’s a very real risk that insurance cover won’t be sufficient to meet rebuilding costs. In that case, leaseholders or directors may be left with a financial shortfall – potentially running into hundreds of thousands of pounds. So, while an up-to-date RCA may increase your premium, it does so for the right reasons: to protect householders, property investors, and their assets. 

Failure to carry out an appropriate RCA can leave owners exposed, not just financially, but from a regulatory and liability perspective too. The Health and Safety Executive (HSE), which serves as the primary regulatory body for the construction sector, has seen a significant increase in prosecution rates for health and safety offenses over the past few years. In 2022/23, HSE carried out 216 criminal prosecutions with a 94% conviction rate and in 2023/24, there was an increase to 248 prosecutions, with a 92% conviction rate.  

The UK has been adversely affected in recent years by extremely high build cost and labour cost inflation, meaning the cost of site clearance and rebuilding a property has increased year on year. Whilst under insurance may result in lower premiums, it may not cover the cost of replacing property, should the worst happen. 
 
At Innovus, we insist that a physical site visit takes place when producing a Reinstatement Cost Assessment (RCA). Desktop reviews – based solely on floorplans, satellite images or mapping tools – may be cheaper, but in our view, they carry significant risk. Without physically inspecting the building, it's easy to overlook critical details that affect reinstatement costs and risk exposure. 

If a property has been inspected by the surveyor in the past and accurate details are already held on file, one could argue that this is acceptable, but only if there can be a guarantee that nothing has changed.  

In reality, things do change. Properties are extended, basements and car parks reconfigured, and nearby infrastructure is developed. All of which can impact the property and increase liability if damage occurs. These factors must be considered in the RCA, as they directly affect the rebuild cost and, ultimately, the insurance premium. 

Going back to where we started, no one ever thinks a situation like the Grenfell Tower will happen, or imagines that a hidden design defect or unsafe commercial use of space could put lives at risk. But these scenarios do happen. People lose homes, belongings, even their lives. 

If taking steps like an accurate RCA helps avoid those outcomes, and drives insurance premiums for the right reasons, then it’s a necessary price to pay for protecting what truly matters.