The recent storms and floods that have swept across the UK have brought into sharp focus the vulnerability of property and the need to have adequate buildings insurance.
Simon Hickman, managing director of the specialist broker and underwriter Access Insurance, is aware of at least two charities affected by the recent bad weather that face repair bills running into tens of thousands of pounds because they were not adequately insured. In both instances, the charities had recently acquired properties and had failed to inform their insurers. Hickman says that such examples show how it can be a false economy for a charity to keep insurance costs down if that means exposing itself to higher risk.
An important first step is to ensure the building is insured for an adequate sum and that valuation is kept up to date (see below). It's a view supported by the Charity Commission's CC49 guidance on insurance, which warns trustees that they might have to make up the shortfall if a property isn't adequately insured and is subsequently damaged.
Mark Ingram, operations director at Case Insurance, says that it is also important for charities to keep buildings in a good state of repair. "If roof tiles get blown off and are found to have been loose, the insurer might refuse to pay," he says. He adds that charities need to consider whether their buildings cover is relevant to their activities: for example, if an employment training charity runs a welding course that requires the use of gas cylinders, the insurer will want to know that it complies with health and safety requirements.
It can also be important to inform the insurer about how different parts of the same building are occupied and linked, because this affects how the risk is viewed by insurers. This is particularly relevant, for example, to care charities where part of the property might be used for nursing care and other parts for office work.
Alyson Pepperill, head of charities at Oval Insurance Broking, says that in some cases the insurer needs to know about separation between buildings. "If there is sufficient physical separation, that reduces the risk of fire spreading and can significantly cut the insurance premium," she says.
The way a property is described can have a significant effect on the perception of risk, and therefore on the premium, says Pepperill. She recommends that any charity that uses an insurance broker should have the broker's surveyor accompany the insurer's surveyor on site assessments to help protect the charity's interests.
Charities need to be particularly careful if they have unoccupied buildings because their insurer might impose restrictions, such as excluding cover for burst pipes or requiring security measures. Pepperill believes some of the conditions can be unreasonable: "We had a charity with a large, unoccupied buildings complex that had been well managed, but the insurer's surveyor wanted the charity to screw down all the windows to prevent intruders," she says. "Our surveyor pointed out that this was pointless because an intruder could simply put a brick through the window. So the insurer dropped that requirement."
Charities need to be aware of the obligations to which they are agreeing in their insurance policies. For example, there might be an obligation not to leave waste lying around because it could be a fire hazard. But suppose a fire was caused by an electrical problem through no fault of the charity: the insurer might still refuse to pay if the charity is found have left rubbish lying around, even though it was not a factor in the fire. Pepperill says: "We think that kind of penalty is unfair, so we try to get warranties in buildings insurance policies removed and changed to 'conditions', so that a charity is penalised only if a condition it has not abided by is relevant to the fire or other outcome."
Understanding the meaning of full reinstatement value
A common misapprehension is that a building should be insured for its market value rather than its reinstatement value.
The latter can be significantly higher than the former because it includes site clearance, professional fees for architects and surveyors, for example, and other add-ons.
The Charity Commission recommends that trustees insure buildings for their full reinstatement value, even though there is no legal requirement to do so.
Using a building surveyor, at least initially, is the best way to ensure that the amount insured is appropriate. The commission recommends that the surveyor be asked to confirm every two years or so that the current valuation is adequate.
Some brokers and insurers provide their own valuation service or have links with valuers. Access Insurance, for example, is willing to take a view on whether an amount seems appropriate, based on a photo and description of the property and its location.
After the initial valuation, a charity might choose an insurance policy that is index-linked so that the amount insured is adjusted each year in line with the building costs.