There are, in the main, two types of insurance you can get for buildings. Domestic or household policies and commercial ones, including those residential properties that are let. For your own house policy you always used to have to declare a certain sum insured, sufficient to rebuild. Then, around 10 or 15 years ago most insurers started to offer cover on blanket sums insured. This meant that, for example, any house up to 6 bedrooms was automatically covered up to, say £400,000 sum insured. This saved the household the need to work out their individual rebuilding cost. One of the major UK insurers used to give you an indicative sum insured, based on your postcode, age of property, number of bedrooms, number of storeys and whether the property was detached, semi-detached or terraced. Having worked at that particular insurer, albeit on a short term project basis, I saw exactly how much time they spent administering that process. It was much easier for them to turn around and change the way they covered domestic buildings to the blanket sum insured basis.

For commercial properties, there has always been a difficulty in working out what the sum insured should be. You could have two very similar commercial properties in the same street, with the same square footage, where the rebuilding cost would be very different. The reasons being that the construction materials used are different, roofs have been replaced, internal changes have been made and a whole host of other amendments. For this reason it is very, very difficult for a commercial insurance company to give a recommended figure for the rebuilding costs.

The difficulty is, that it is down to you the owner of the building to insure for the correct amount. Previous blogs have explained the difficulties of claims when average is applied. This is another reason why you should, wherever possible, deal with an independent business insurance broker. If we are approached by a client who is looking for a quote on a commercial building and we are asked to quote for a sum insured that appears to be low, or even very high, then we will tell them this. A sum insured is not just to cover the rebuild costs, but also the architects, surveyors and legal fees, as well as the costs to clear the site of all debris that remains from a previous loss.

If you went to one of the websites that offers to compare business insurance, many of them will also offer commercial buildings insurance. Just try a couple of them, you can put in risk details for the centre of London, and a sum insured of £50,000 and they will still quote without raising any questions about the suitability of the sum insured. Speak to a broker though and they will explain the problems with inadequate sums insured and will recommend that a quote on an increased sum insured is taken out.

When we are asked for a commercial property insurance quote, there are many questions we fire back at the customer. As a broker, we planto market someones business around to get the best price possible, for the widest cover. The slight problem being that not every insurer asks the same questions. We therefore need to ask for all the relevant information so that we can approach a range of insurers, because that is what a broker should do.

Mainly though, quotes are based on three key pieces of information. Firstly, the address, secondly, how the building is occupied and thirdly the sum insured. Contrary to the way domestic policies are sold, for commercial insurance, you need to tell us the sum insured for your building. There are no online calculators or easy means of calculating the exact rebuilding cost. The only usual way is to pay a valuation expert otcome in and see the building. Otherwise, you just use a rough guide of between £100 and £200 per square foot.

The problem, for the policy purchaser, you, is that if you under insure, or do not have an adequate sum insured, you can be penalised in the event of a claim. The relevant clause in your policy wording is called Average. If you have a building that should cost £1,000,000 to re-build and you only insure it for £100,000 then you are only paying one tenth of the required premium. You can understand that if there is a claim above £100,000 then you will not be covered. But, the way average works, quite correctly, is that if you have a claim for £100,000 then your insurers will only pay out one tenth of that loss, is £10,000.

The good news though, is that insurers do build some leeway into these figures. They understand that rebuilding costs are changing on a month by month basis. Most average clauses do build in a leeway of 10 to 15%. It depends on the insurers, as mentioned above. Make sure though that you are working with an independent business insurance broker, who can get you all of the different options.