David Taylor, Insurance Executive, highlights the importance of making sure that farm buildings are correctly valued for insurance purposes, and the dangers of underinsurance when it comes to rebuilding agricultural properties.
It’s not exactly news that the price of building materials has spiralled over the past couple of years. Disruption to supply chains, a shortage of shipping containers and rocketing fuel prices have all meant that demand for building materials such as concrete, steel, timber, cement, plastics and roofing tiles has vastly outstripped supply – and prices have risen accordingly.
All this has meant that the rebuild costs of farm buildings has increased by 25% or more over the past two years, but many farmers have not taken this into consideration when renewing their policies.
Pre-pandemic, the rebuild costs for farm buildings used to rise steadily by about 3% a year, but the events of the past two years have thrown the ‘indexation’ figures, which are used to calculate insurance costs, into turmoil. And while insurers use index-linked polices which are formulated to consider the increases in building costs, the amount paid out on a claim will depend on the value of the building(s) being insured being correct in the first place.
How will this affect my claim?
The consequences of undervaluing the rebuild costs of a building could be significant, as the policy holder could find themselves falling foul of averaging clauses. This means that the claimant will receive a proportion of the declared value of the item or property that has been insured. This is fine if the item in question has been correctly valued, but in the event of a claim on an underinsured building, the claimant will only receive a percentage of the claim, since they have only paid that percentage of the premium due on the policy.
For example: The roof of a large barn has collapsed and needs to be replaced. This will cost the farmer £40,000 to repair. The barn is insured for £100,000, but in fact the barn’s realistic rebuild value is £200,000. This means that the insurer will only pay out £20,000, or 50% of the farmer’s claim, since they (the policy holder) have underinsured the rebuild cost of the barn and only paid 50% of the premium they should have.
The solution to this is to reappraise the rebuild prices of farm buildings to ensure that the increases in building costs have been taken into consideration – and to do this ahead of renewing farm building insurance. It is the policy holder’s responsibility to ensure that the insurance sums are correct, and we recommend that a surveyor is used. As insurance brokers we can assist and advise, but we cannot accept responsibility for the accuracy of the insured values declared by the policy holder.
What should be included when calculating the rebuilding cost
Your broker can help with advice on insurance for rebuilding farm and/or agricultural properties, but these will usually include the following elements:
- Debris removal and any works to the site including environmental clean-up costs
- The main structure of the building ie walls, floors and roof
- Fences, hedges, walls and gates which affect or relate to the building (these can sometimes be insured under farm contents)
- Fixtures and fittings within the building
- Small buildings and structures which pertain to the main building, such as footpaths, drives, yards and forecourts
- Service equipment such as plumbing and lifting apparatus, belts, pipes and cabling
- External equipment such as water tanks and solar panels, fire escapes and gangways.
What shouldn’t be included in calculating rebuild costs
- Grain silos, fertiliser and fuel tanks should all be specified separately
- Outbuildings used for domestic purposes such as garages and utility rooms – these should be included in home buildings insurance
Please don’t hesitate to contact us if you are unsure about the farm building cover you have in place, and we will be happy to advise you. We have a long-standing association with the agricultural sector and understand the opportunities and challenges facing our farming clients.