Buildings Insurance

Some of the information in this article has been part-sourced from the Flat Living website, 'What Insurances Does An RMC Need?'.

Buildings insurance is a legal requirement that covers the structure of the building and the common parts that the leaseholders do not own individually, such as the roof, foundations, load bearing walls, gardens, landings,  stairways, gates, fences, drives and swimming pools as well as fixtures within the property such as shower trays and baths. The policy should however be checked as the latter is rather a grey area.

Some other types of insurance that can be covered by buildings insurance are:

1. Contents of Communal Areas
   For example communal carpets
2. Trace & Access Cover
   This is important because investigating the cause of a leak for example may involve stripping a kitchen to find and then repair a pipe.
3. Accidental Damage to Underground Services and Cables
   This insures gas, electricity, oil or water, as well as sewage pipes, against accidental damage. They are not insured against wear and tear.
4. Emergency Repairs
   Many policies cover the cost of temporary work.
5. Legal Expenses
   It is important to note that if this type of policy is issued solely in the name of the freeholder than this may not defend the management company.
6. Lift Insurance
   The law requires lifts to be inspected every 6 months by an approved 'competent authority' and appropriate reports to be held as confirmation. It is important to note that such cover is subject to VAT at the current rate. It is also common to cover lifts against sudden and unforseen damage which can be extended to cover other machinery such as electric gates and automatic entrance doors.
7. Terrorism Insurance
   Terrorism cover is not automatically included unless it is requested. Since January 2003, it has been offered on an 'All Risks' basis including damage caused by nuclear, biological and radiological  and is designed to reflect the perceived danger of contamination caused by terrorist activities i.e. the fall-out from a 'dirty bomb'.
8. Public Liability Insurance
   Flat owners, occupants, managing agents and freeholders all need to be protected from being held financially responsible for damage to the block and to persons. For example if a visitor to the property sustains injury after a trip or fall by slipping on a wet surface, they could possibly claim for compensation against the policyholder under the public liabilities section although of course, negilgence would have to be proven.

Such policies can contain many different sections such as the Buildings Section for example which is also known as the 'Insured Property', 'Property Damage', 'Building of the Flats' or 'Material Damage'. Whatever it is called it generally covers against  'specific risk' such as fire, flood, malicious damage, water leaks etc and extends to all area of the building (including indvidual flats). It does not however extend to contents as this is the responsibility of individuals. 

Meeting the Terms of the Lease and the Managing Parties

Insuring blocks of flats requires the policy holder to not only meet the terms of the lease and recognise the leaseholders but to also recognise the roles of managing agents, RMC's, Residents Associations and RTM Companies. In particular, managing agents handling buildings insurance (and any other insurance-related matters) are required to belong to the Financial Services Authority (FSA), become the appointed representative of a broker or join the RICs scheme. They have to pay a joining fee, then an annual fee and they also have to submit detailed 6-monthly returns.

Note: It is also recommended that RMC's hold employers liability cover (which is one of only a handful of compulsory insurances in the UK) whether the employees are paid, unpaid, full or part-time or temporary.

BUILDING & REINSTATEMENT VALUE

Neither the market value of the property or the council tax valuation band are an accurate guide to the rebuilding cost, therefore buildings insurance should contain automatic index linking. Most policies that contain this use the RICS Index but any other index linking that is used will show on the policy.

The RICS states that the building and reinstatement value is an ‘Assessment of Building Reinstatement Cost for insurance purposes.’ The Association of British Insurers recommend that after the first assessment is carried out (when the buiding is first completed), rebuilding revaluations are carried out every 3-5 years because building costs do not rise and fall with inflation. Additionally, whilst index linking is based on the national average of increasing construction costs, it doesn’t take into account regional and building variations.

The BRV is usually calculated on construction type, age, number of storeys, floor area, height, location and amenities.

Purpose

The purpose of the BRV is to ensure that the declared value of the property is correct on the insurance policy and that it is neither under or over-insured.

If the building is over-insured then the insurers won't pay out any more than the building costs to rebuild and leaseholders will have paid a higher premium for nothing unless they get a determination from the Leasehold Valuation Tribunal, requiring management to re-pay the leaseholders any premium over-payments.

If the building is under insured then insurers can restrict the amount they pay out in proportion to the under valuing (average). For example, if the cost of rebuilding the property was £120,000 but it was insured for 20% less, the insurer can say that the property is under-insured by 20% so it will pay out 20% less from the claim leaving leaseholders ending up paying towards the cost of the claim.

Related Costs

It is also important to remember that the BRV makes no allowance for anything other than the rebuild cost. Therefore any related costs that were incurred when the building was constructed such as the cost of the removal of debris, shoring up of party walls, professional fees or unrecoverable VAT may well not be part of the calculation.

The BRV will also need to include any other structures within the boundaries of the property as well as ground rent and alternative accommodation. Clarification on whether these have been included in the final figure will need to be obtained from the insurance company.

Note: Under many leases, the costs of the revaluations are usually recoverable from the service charges.

The website Service Charge Help UK suggests that after the first full assessment has been carried out, a desktop valuation should be provided each and every year just before the insurance policy requires renewing. If there is a change in surveyors then they should attend the development for the first valuation they carry out.
This will ensure 100% that the building is insured correctly in each service charge year, confirms that the policy leaseholders pay foris correct and minimises the risk to the landlord, agent and management company.

Landlords or RMC Directors who only wish to have the valuation carried out every 3-5 years as per the ABI recommendations should budget for this , rather than allowing a sudden spike to occur when the valuation is due.
The site also advises that best practice means having the surveyor carry out a desktop valuation each year as they cost significantly less. Using the same surveyor when the next assessment is due often means they are willing to provide a desktop valuation without the need to re-visit site.

WRITTEN SUMMARIES FOR LEASEHOLDERS

The following information is sourced from the LEASE website.

Where leaseholders pay a service charges which includes an amount payable either directly or indirectly for insurance, under the Schedule to s30a of the Landlord and Tenant Act 1985, they can request (in writing) a summary of the current insurance policy. They are entitled to see the policy and any associated documents at the office or request that copies be sent to their home address, or be made available for collection from the office.

If they are members of a recognised Residents Association, the Secretary can request it on their behalf. It must be provided within 21 days from the day on which the request is received by the landlord.

The summary must show:

• The amount for which the property is insured.
• The name of the insurer
• The risks that the policy insures against

Failure to comply without good reason is a criminal offence subjected to a fine of £2,500 on conviction.

Facilities To Inspect The Full Policy

Within 6 months of receiving the summary, leaseholders (or the Secretary) may request that facilities be available whereby they can not only inspect the full policy and associated documents but they can take copies and extracts. Compliance is required within 21 days from the day on which the notice is received.

The managing parties will need to arrange access to where the policy is held (which cannot be charged for). Proof of payment must also be made available for inspection. Alternatively leaseholders can request (in writing) for them to be sent or to be made available for collection.
Note: if the latter option is requested then a 'reasonable' fee can be charged under administration costs and the policy holder must respond within 21 days of receipt of the request.

Note: Referred to in Sections 15.10 and 15.11 of the RICS Service Charge Residential Management Code.

More information on buildings insurance can be found here.

THE ROLE OF THE LOSS ADUSTOR IN A CLAIM

Loss Adjusters (also known as Claims Adjusters) are impartial claims specialists that deal with investigating on behalf of insurance companies’ claims for damages arising from numerous causes, for example, fire (including arson), storm, flooding, accidents, burglaries and fraud.
Sometimes they are employees of the insurer and often independent, qualified experts.
Note: It is important not to confuse loss adjusters with loss assessors who work for the claimant and take a percentage of the final settlement as a fee.

On receiving an insurance claim the loss adjuster interviews the claimant (or client) to take evidence on the cause, or suspected cause, of the loss.
At this stage activities may involve:

1. Visiting the scene of ‘loss’ – fire, accidental damage, burglary, etc;
2. Surveying any physical damage;
3. Examining the causes of loss or damage
4. Confirming that claimants that they are covered by the insurance policy
5. Assessing the validity of the claim
6. Asking for valuation certificates;
7. Requesting copies of reports (from the police or fire brigade, and from relevant representatives of the claimant, such as security staff);
8. Obtaining and viewing film from security cameras;
9. Commissioning reports from experts, such as building surveyors or forensic investigators
10. Ensuring, when necessary, that the property is protected against theft or weather by arranging for the site to be boarded up or for builders to carry out repairs

The next stage of the process involves:

1. Advising the insured on procedures;
2. Liaising with clients insurers;
3. Preparing evidence to support claims agains third parties and verifying the claims;
4. Negotiating with the insured parties and advising insurers of settlements.
5. Writing claims reports and making recommendations on appropriate payment

Fraud?

If fraud is suspected, further investigations will need to be made, which may involve examining a company’s accounts or checking stock records to confirm the existence of goods for which the claim in being made.
Loss adjusters may also advise on the actions that the claimant should take, such as installing betters locks, security lights and cameras, stronger doors, stc, before the insurance policy is renewed.