Many property insurance policies are underwritten on a reinstatement basis. Reinstatement means repairing (or replacing) a building to the exact specifications as before it was damaged.
In most situations this would be perfectly suitable, but if there is a better way of reconstructing or repairing the building at no extra cost, then should this be considered? Is it appropriate for insurers to insist on a like-for-like replacement, especially where there is an opportunity to reduce future risk?
Some insurers adopt a common sense approach offering the best possible outcomes for real estate customers; making sensible changes at very little additional expense. For example, placing electrical sockets higher up the wall so flooding won’t damage the electrical system a second time, improving fire systems in older buildings e.g. better sprinkler systems, and using different materials suited for the Energy Act 2013.
Commercial insurance policies may include adaptation clauses i.e. a clause in the policy that allows changes to the building to be made during reconstruction. These clauses provide cover above normal minimum regulatory levels, giving extra flexibility that clients may need in order to achieve greener buildings, more efficient working conditions or to protect themselves from future incidents.
A major loss can be devastating, but reinstatement can present opportunities. With new methods and materials constantly emerging these can significantly reduce the risks associated with flooding and fire especially.
New building methods can also enhance sustainability and energy efficiency. In recent years there has been a variety of legislation introduced to address these topics. Some local authorities can insist that clients install expensive sustainability elements, such as solar panels, in a reconstruction project where nothing existed previously.
Brokers and customers can therefore be rest assured that, in the event of a major loss, their insurer will not only strive to repair any damage caused, but, where possible, put customers in the best possible position for the future.
Zurich Insider ‘Is like-for-like reinstatement always the answer?’ article