Repairing a damaged property after a major loss can leave you better positioned for future growth.
It is difficult to look for the positives in the days after a business has gone up in flames or been flooded. Many policyholders instinctively want to get things back to how they were, and to do it as quickly as possible.
But a like-for-like approach to repairs and reinstatement is not always the best option, for several reasons, says Craig Deane, from Echelon Claims Consultants.
“The business may be expanding, so larger premises could support that growth. Perhaps the layout could be improved or room sizes changed to better accommodate equipment, machinery or new processes.”
Know the costs
The options available will depend on the policy wording and the proposed form, location and timing of the reinstatement. For example, some policies may allow reinstatement on a different site, but stipulate that it has to be the nearest available alternative site, or have other restrictions. Others will make no mention of where the alternative site is located.
So long as it will not cost insurers more, most will be open to discussing the reinstatement wording and how it will be applied.
Before any negotiations can begin, however, policyholders need to establish the notional cost of reinstating the property to its pre-loss state as this will provide the measure of the insurer’s liability.
“They will then need to price the cost of repairing or reinstating differently and get agreement from the loss adjuster and insurer that such an approach is acceptable,” says Ian Fulton, from Echelon Claims Consultants.
“This work may create some professional fees for activities like design drawings or specialist inspections and pricing, which the insurer will not usually pay for.”
Making the business case
Where the cost of reinstating differently is more than reinstating as was, it is the policyholder who will have to make up the difference.
“If you want to reinstate differently, you still need to agree the extent of the damage and the notional cost of reinstating as was,” explains Fulton.
“Then you need to find out the cost of what you want to reinstate – the difference between the two figures is down to you.”
It is therefore important to know exactly how much is at stake and whether there is a business case to support the expenditure. It may also be that the reinstatement is not more expensive.
Ultimately, a business may decide to reinstate its property as it was prior to the loss, but at the very least it is worth considering what options are available and whether there is a silver lining to take advantage of.
For more information, please contact Ian Fulton, Claims Consultant on +44 20 7558 3233