80% of commercial properties at risk due to underinsurance

Akim Kamangira, Head of Building Consultancy at KWB

Landlords and their managing agents are putting their commercial property investments at risk by failing to insure them fully, according to a leading building surveyor.

Akim Kamangira, Head of Building Consultancy at Birmingham independent commercial property agency KWB, says the insurance industry estimates that up to 80% of commercial properties are under-insured by between 20% and 45%, reducing pay outs for damage because the wrong valuation figure was submitted to the insurance company when the policy was bought.

He says: “With company administrations and insolvencies rising, especially in the retail and leisure sectors, and indications that a no deal Brexit would push more tenants across more sectors to the brink, there is an increasing risk of damage as occupiers neglect or simply abandon commercial properties, leaving them open to risk of fire, vandalism or other damage.

“When buildings are under insured, insurance companies will only pay out on a pro-rata basis. This means if they are under-insured by 45%, then any claim will be reduced by the same amount. This will leave landlords struggling to make up the shortfall to repair or rebuild a devalued asset.”

According to Mr Kamangira, the reason so many landlords and owner / occupiers get insurance cover wrong is that insurance companies require an accurate rebuild cost, which has nothing to do with the freehold value of the premises.

“Building materials and other costs have been increasing at a tremendous rate in the past few years, so it is impossible for a lay person to provide an accurate rebuild figure,” says Mr Kamangira.

“Particular risk factors for not having sufficient insurance cover include: not having property professionally valued for the past three years; carrying out alterations or extensions to property; a listed building; not factoring professional fees into the rebuilding costs.

“To ensure you submit the correct rebuild cost to your insurance company when renewing your policy each year, you need an Assessment of Building Reinstatement Costs for Insurance Purposes, carried out by a Chartered Surveyor,” concludes Mr Kamangira.