It’s a common misconception that it’s ‘accurate enough’ to forgo a building insurance valuation and rely on the Consumer Price Index (CPI) and or the Building Price Index (BPI) to update sums insured each year.
Firstly, if there is no professional independent valuation, there is no accurate foundation for these updated sums insured to be based on.
Secondly and equally as worrying, the difference between the CPI and BPI over the last five years is so considerable it could be adding an additional 10% to the already incorrect insurance figures.
Between March 2010 and June 2015 the CPI increased by 13.8% and the BPI increased by 23.4%.
In March 2010, a building was insured for $3,000,000. Each year the building owner relied on the CPI at the time of renewal so the sums insured today would be in the vicinity of $3,414,000. If the owner relied on the BPI each year the current sums insured today would be in the vicinity of $3,702,000.
That’s a difference of $288,000, approximately 10% difference between either of the updated figures today.
Relying on the CPI and BPI without a recent (3 years) building insurance valuation only exacerbates a very preventable problem and it’s usually caused by people not wanting to pay for a valuation; being over confident nothing bad will happen to them; relying on builders and accountants for insurance figures or thinking they know the true value of their assets.
Some people seem to think simply having insurance cover is enough protection. What is the point of paying for insurance coverage if it's not going to compensate you the way you would expect it too?