Words by: Rick Riyat, Senior Valuation Surveyor for BCQS International
Although Cayman is well acquainted with the threat of hurricanes, the 7.7 magnitude earthquake that struck on 28th January 2020 was an unexpected and, for many, a frightening event. Thankfully there was no major damage although sinkholes opened up on roads and driveways and there were multiple reports of minor damage to homes and property, including cracked walls and ceilings, plumbing pipe breakages, window breakage, and structural damage to docks.
Natural disasters of any kind reinforce the importance of being fully insured to avoid the stress related to the event itself being compounded by financial losses. Unfortunately, the insurance claims following the earthquake revealed that many property owners were underinsured which impacted the payout they received, even if the damage was relatively minor.
The only way to guard against this is to ensure that your insurance policy accurately reflects the replacement cost of your home. To be clear, this is not the market value of the home, but the amount it would cost to rebuild in the event of a total loss.
In order to do this, most insurance underwriters require a professional assessment of a property’s rebuilding cost, known as an Insurance Valuation
or a Reinstatement Cost Assessment (RCA)
. This is the basis adopted by the RICS
for undertaking an appraisal of property and contents for building insurance purposes. Through this assessment, a surveyor determines a calculated estimate of the cost to rebuild a property based on total loss and situations of substantial damage where complete building demolition and rebuilding might be necessary.
The accuracy of this assessment is crucial in ensuring that a property is adequately insured at the optimum level and that the correct insurance premium is paid.
Surveyors will work with property owners to determine the extent of what is to be insured and included in the final assessment. Particular care should be taken concerning fixtures and contents, including tenants’ fixtures and fittings and external areas.
Before undertaking an initial RCA
, surveyors will need an accurate address and permission to access all areas of a property for the inspection. Building plans may also be required, in addition to other documentation and relevant information.
The final Reinstatement Cost calculation
will take into account the building’s size, construction, age, location, environment and associated services and utilities. The more information provided, the more accurate the RCA
Be aware that, RCA
s should be carried out every two to three years and be reviewed annually due to escalating construction costs in the Cayman Islands. If there are any substantial changes made to the property, including enhancements and renovations, then a re-assessment should be carried out in full to ensure there is adequate insurance cover.
Carrying out an RCA
is a highly technical exercise. It is crucial that you work with an RICS Chartered Surveyor
for an accurate cost assessment to ensure your building asset is insured for the correct amount, avoiding situations of under and over insurance. If a property is undervalued, insurance payments may not adequately cover the cost of rebuilding. Likewise, if the building is overvalued, your insurance premiums will be higher than they need to be.