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Is like-for-like reinstatement always the answer?

At a glance

  • Reinstating a building typically dictates the use of comparable materials and methods of construction
  • However, with technology and building regulations constantly evolving, a like-for-like rebuild may not be the best solution
  • Zurich takes a flexible and common sense approach to reinstatement, offering the best possible outcomes for its Real Estate customers

‘Reinstatement’ means repairing or replacing a building to the same specifications as before it was damaged – essentially, a like-for-like replacement. If the property was four storeys high and constructed of bricks and mortar, then it would be rebuilt to those specifications.

In most situations this is perfectly suitable; but what if there was a better way of doing things at no extra cost? Should insurers insist on a like-for-like reinstatement where there is an opportunity to reduce future risk, or where the customer may benefit from a different solution?

Tackling future risk

A major loss can be devastating, but reinstatement can present opportunities to make some sensible changes that can help manage future risk. With new methods and materials constantly emerging, some improvements can be made with little additional expense, or none at all.

For example, reinstalling electrical sockets higher up a wall is a very simple step, but could help minimise the risks associated with flooding. Replacing traditional plaster with Limelite – which has greater water resistance – could also reduce possible flood damage.

Fire hazards are particularly significant, especially when dealing with older buildings that may not have had the benefit of modern fire-engineering techniques. Knowledge and technology in protecting against fire is constantly developing, and considering potential changes to a building’s design could be beneficial for both customer and insurer.

How is Zurich different?

  1. Compliance – Zurich’s standard commercial policies cover the cost of complying with UK and EU building regulations
  2. Local requirements – Zurich’s policies can also cover the cost of complying with local authority requirements and levies
  3. Extended cover – Zurich’s adaptation clauses can provide extended cover, e.g. ensuring use of sustainable materials and adherence to Energy Performance Certificate recommendations
  4. Expertise – Through its work with third-parties, including environmental consultants 4see, Zurich is able to draw on a wealth of expertise in the area of sustainability
  5.  Joined-up approach – Zurich’s underwriting, major loss and risk engineering teams work together to provide pre and post-loss advice and support

The installation of a sprinkler system, for example, is estimated to reduce losses by 90%, compared to losses in unprotected buildings. Considering 99% of fires can be controlled with only two to four sprinkler heads, they can provide a very affordable way of managing future risk to a building. (Source: British Automatic Fire Sprinkler Association)

Becoming more sustainable

Sustainable construction and energy efficiency are particularly important issues for today’s regulators, and recent years have seen a variety of legislation being introduced to address these topics.

Under a provision of the Energy Act, for example, it will become illegal from April 2018 for landlords to rent out a property not achieving a minimum energy efficiency standard (currently an ‘E’ rating). The UK’s Building Regulations also lay down strict requirements for improving the thermal efficiency of buildings, both of which will impact the operations of Real Estate customers.

European regulations are also influencing the sector: the Energy Performance of Buildings Directive and the Energy Efficiency Directive, for example, are both directed at reducing the energy consumption of buildings, and the EU has set a target (which the UK has committed to) for all new buildings to be “nearly zero-energy” by 2020.

Local variations

The regulatory picture can change further depending on where you are in the UK, with local authorities free to draw up their own requirements.

The City of London Corporation, for example, requires a sustainability statement to be produced for all major new builds and refurbishments, while even smaller planning authorities need to demonstrate how they address climate change and sustainability issues.

Paul Redington, Senior Claims Adjuster at Zurich, cites the example of a health club which suffered a major fire. The local authority asked them to install a solar-powered heating system at a cost of £1 million. On another occasion, an authority insisted on an expensive air filtration system for a block of flats, where no such system existed previously.

“There are different agendas in different parts of the country, and it’s important for customers and brokers to understand the local requirements,” says Paul.

Meeting customer needs

To meet the regulatory complexities of a reinstatement project, Zurich’s standard commercial policies cover the cost of complying with minimum UK and EU building regulations. Zurich has gone one step further for Real Estate customers, offering adaptation clauses as well. These clauses provide cover over and above these minimum regulatory levels, giving the extra flexibility that customers might need in order to achieve greater sustainability or a better management of future risks.

Zurich is very amenable about having that conversation about putting a building back in a more sustainable way”

Paul Redington, Senior Claims Adjuster at Zurich

“In the event of a claim, Zurich is very amenable to having that conversation about putting a building back in a more sustainable or sensible way – whether that’s cost-neutral, or through taking advantage of one of our adaptation clauses,” says Paul.

“Zurich takes a very joined-up approach to dealing with a large property loss. We involve a number of different teams and external experts to work with brokers and customers to achieve the very best outcomes.”

Brokers and customers can therefore rest assured that, in the event of a major loss, Zurich will not only strive to repair any damage caused, but, where possible, put customers in the best possible position for the future.

For more information please speak with your local Zurich contact.

You can also find out more and access helpful guides and insight with our new Fire and Flood Risk Resources.

Image © Getty

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