A portfolio schedule may contain several addresses and a substantial total buildings figure. That large number does not necessarily mean every property is adequately insured.
If one rebuilding value is based on the wrong floor area, outdated information or an assumption carried over from a previous policy, the error may remain hidden until a claim. Portfolio landlords must examine individual figures as carefully as the total.
Rebuilding cost is not market value
The rebuilding cost is the estimated cost of reconstructing the property after a major insured loss. It is not the purchase price, sale value, mortgage valuation or outstanding loan.
Depending on the property and policy basis, the figure may need to reflect:
- Demolition and debris removal
- Materials and labour
- Architects’, surveyors’ and engineers’ fees
- Planning and building-control requirements
- Work needed to comply with current regulations
- Party-wall and access complications
- Reinstatement of external structures or services
- Allowances for inflation during the rebuilding period
A modestly priced property can still be expensive to reconstruct. A high market value does not automatically require an identical rebuilding figure.
Why a portfolio total can be misleading
Portfolio policies are not all structured in the same way. Some schedules show an individual declared value or sum insured for each address, while others may provide a wider overall limit subject to property-level conditions or maximum amounts.
Landlords should not assume that surplus cover on one building will compensate for a shortfall at another. The insurer will apply the policy wording, schedule and limits.
For example, a portfolio might contain nine properties with reasonable figures and one converted HMO valued using information from before the conversion. The combined total could appear generous, while the HMO remains materially understated.
Different properties require different information
A single price-per-square-metre assumption may not work across a varied portfolio. Reinstatement costs can be affected by construction, size, location, access and specification.
Particular attention may be needed for:
- Listed or period buildings
- Non-standard construction
- Terraced properties with restricted access
- Flats and maisonettes
- HMOs and buildings divided into several units
- Properties with basements, outbuildings or extensive boundary walls
- Mixed residential and commercial use
- Buildings with specialist finishes or unusual services
Flats can be especially complicated. The landlord may insure only contents and improvements, or insurance for the whole building may sit with the freeholder or management company. The lease and insurance arrangements should be checked rather than assuming the flat’s market value provides an answer.
New acquisitions need their own assessment
When adding a property, it can be tempting to copy the figure from the previous owner’s schedule, use a mortgage valuation or choose an amount similar to another house nearby. None of these automatically establishes the correct reinstatement cost.
The new property may have a different floor area, construction method, layout or level of finish. Even apparently similar terraced houses may differ because of extensions, loft conversions, basements or access constraints.
Record the source and date of every rebuilding figure. If its basis cannot be explained, it should be reviewed rather than accepted because it already appears on a document.
Improvements can change the figure
Extensions, additional bathrooms, upgraded kitchens, new heating systems and HMO conversions can all affect rebuilding costs. So can structural alterations, fire-safety installations and the creation of extra rooms.
The insurer should be told about relevant work before it begins because renovation may also change the immediate insurance risk. Once completed, the rebuilding information should reflect the property as it now exists.
Portfolio landlords need a process for passing information from property managers, contractors and acquisition teams to whoever manages the insurance. Otherwise, improvements can be completed without the policy records being updated.
Index-linking cannot repair a faulty starting point
Some policies adjust building values using an index intended to reflect changes in construction costs. This can help maintain a suitable figure between reviews, but it is not a substitute for establishing an accurate baseline.
If the original value was too low, annual percentage increases may simply preserve or enlarge the gap. A figure can therefore look current because it changes each year while still being based on incorrect information.
What could underinsurance mean at claim time?
The consequences depend on the policy wording and circumstances. A property-level limit may restrict the maximum payment. Some policies may contain an average condition or another provision allowing a claim to be reduced where the declared value is inadequate.
Landlords should not assume that underinsurance matters only after a total loss. Depending on the wording, it may affect a partial claim as well. The insurer will determine the settlement under the specific contract.
Build a reliable portfolio record
Maintain a central register showing, for every property:
- Address and property type
- Floor area and construction
- Rebuilding value and assessment date
- Source of the figure
- Alterations completed since assessment
- Listed, non-standard or specialist features
- Freeholder or block-insurance arrangements
- Current policy limit and renewal date
Review the register at acquisition, after substantial work and before every renewal. Periodic professional reinstatement-cost assessments may be appropriate, particularly where buildings are unusual or existing figures are old or uncertain.
Review the portfolio as properties—not just numbers
Accurate rebuilding values begin with accurate property information. One incorrect figure can leave a significant asset exposed even when the total portfolio value appears substantial.
NetRent works with Clear Insurance Management and its experienced property-insurance team to help portfolio landlords review their insurance arrangements. Clear re-brokes policies arranged through Clear at renewal, but meaningful comparison depends on the underlying property information being correct.
To ask NetRent to review your existing portfolio insurance documents, telephone 01352 721300 or email insurance@netrent.co.uk.
NetRent does not provide legal advice. This article represents our general understanding of the landlord insurance and rental property market and is provided for information only.