Case Study: Block of Flats Undervalued by £2 Million.

Background.

The block, a purpose-built residential development comprising 24 flats across four storeys, had last been professionally assessed in 2018. Since then, the managing agent had relied on the insurer’s annual index-linking adjustment to maintain the sum insured. On the face of it, this appeared prudent: the declared figure had risen from £4.2 million in 2018 to £4.9 million by 2024, an increase of approximately 17%.

What the Assessment Found.

When we carried out a full RICS-regulated reinstatement cost assessment in early 2024, the picture was very different. The true reinstatement value, taking into account current BCIS labour and material indices, demolition and site clearance costs, professional fees, and the block’s specific construction specification, came to £7.0 million.

The shortfall was £2.1 million, representing underinsurance of approximately 41%. The index-linking applied by the insurer had tracked general construction cost movements but had significantly underestimated the true cost inflation for this type of construction in this region between 2020 and 2024, a period marked by exceptional material price increases and a severe shortage of skilled trades.

Why the Gap Was So Large.

• The 2018 base figure had been produced using a generic online calculator, not a professional assessment, meaning index-linking had been applied to an already understated starting point.
• Post-2020 construction inflation ran significantly above the general index used by the insurer.
• The block included a basement car park and communal plant rooms, specialist elements that generic indices do not adequately capture.
• External works, boundary walls, and landscaping had not been included in the original figure.

The Outcome.

The managing agent presented our RICS-regulated report to their broker the same day it was received. The broker submitted it directly to the insurer, who accepted the new figure without challenge and updated the policy at renewal. The freeholder and leaseholders were now adequately protected. Had a major claim occurred before this assessment, the shortfall would have fallen entirely on the building’s residents.