The importance of commercial property valuations

A commercial insurance valuation is an assessment carried out by a registered valuer to determine the estimated cost of rebuilding or replacing a property in the event of a total loss due to fire, natural disaster, or other insurable risks. This can cover several types of properties including office, retail and industrial.

The outcome is a report or certificate stating the following:

• Reinstatement value – estimated cost to rebuild the property
• Reinstatement inflationary provision - estimated inflationary rebuild increase over a 12 month period
• Demolition cost - site clearance and clean-up which needs to be accounted for in case of a claim

It is generally the total of these three figures which is used by property owners to insure their properties (the sum insured). You can add multiple property features and specific site details, however the land or market value is often not included.

Valuations play an important role in determining the right level of insurance cover for your properties. Here are some of the key reasons why.

• This is an effective way to determine an accurate rebuild value (the sum insured) for your property in the event of total loss such as a natural disaster or fire. This highlights its value for risk management and business continuity planning purposes.

• Insurers generally require a professional valuation at least every two years to order to provide insurance cover. This assures the insurer that the cover amount is based on an accurate assessment of the rebuild costs and will cover all costs necessary to meet current Building Act 2004 requirements including council fees.

A professional valuation review for your commercial properties should be carried out at least every two years and supported with adequate inflation and demolition cost provisions for a two year period. During hard market insurance cycles, which we are currently experiencing, insurers often require this valuation in order to provide insurance cover.

Inflation, rising construction costs and increased extreme weather events are driving changes in commercial property insurance premiums. To help protect your business, it is appropriate and prudent risk management to consider reviewing your valuations annually. Your broker can discuss which options are best for you as this is dependent on your business needs and risk tolerance.