WITH the property market rapidly improving, under-insurance is sure to raise its head once more.

It hasn’t really been an issue for quite a while.

If there was a potential problem it was masked by the world financial collapse and subsequent recession when property prices were falling, not rising.

Yet already professionals like underwriters, brokers, managing agents and property owners are getting nervous.

Market values are picking up and seem likely to continue to do so.

And as the wider economy improves and contractors get busier they are bound to start raising charges – long frozen during the tough times – in a bid to restore margins.

If, as a result, a building ends up under-insured then a nasty surprise could be in the offing.

Most insurance policies will have an “indexation clause” that in theory will automatically increase the sum insured in line with construction costs each year. Except that this can all too easily lag behind a fast-moving market.

The warning lights are flashing but will they be heeded?

The Royal Institution of Chartered Surveyors, of which CPBigwood is a big supporter, put it thus: “Your chartered surveyor can undertake a reinstatement cost assessment. This tells you what it would cost to rebuild the premises if they were to become a total loss, including the cost of demolition and clearing the site plus professional and local authority fees.

“However, you must make allowance for inflation in construction costs. Make sure that your insurance provides cover for disturbance and relocation costs should your premises become unusable following serious damage. You should also ensure that you have insurance cover for continuing to pay rent in the event that the building is damaged and you are unable to run your business from it.

“How do I keep my insurance up-to-date? You should ask your chartered surveyor to review the reinstatement cost every three to five years.”

I would totally endorse this stance; indeed a desktop update is advisable on an annual basis.

These are matters which are easily overlooked and, given we are talking a cost and not an asset, it can be tempting to gamble and put the money to earning its keep on the investment side of the balance sheet. That would be a mistake.

If something were to go disastrously wrong, you could suffer severe financial consequences. You would also likely end up in a legal wrangle eating up your precious time. And time is money.

Some people think insurers have deep pockets, but insurers weren’t born yesterday. You may well have forgotten the fine details of the insurance policy but they won’t have.

Wise property owners don’t take these sorts of risks but play it straight.

Make sure you do not become a victim of under-insurance. Appoint a surveyor to review your property portfolio on a regular basis.