Getting insurance quotes is really the best way to calculate the cost of any commercial building insurance you might need to pay to protect your building. There aren’t any official commercial building insurance calculator tools available online, because quote systems essentially do that calculating work.
Many factors are taken into account when getting quotes. Quotes systems developed by insurance providers will take the data points into account in order to calculate a premium. Some types of commercial properties can even be quoted for online. More valuable or complicated properties will require a more in-depth process, however. Regardless of how quotes are generated, let’s take a look at how commercial building insurance calculations are arrived at by insurers in the UK.
Commercial building insurance companies rely on many data points to calculate insurance premiums. Primarily, they rely on the rebuild cost of a building to determine commercial building insurance rates. Why? The worst case scenario for an insurer is having to demolish and rebuild a building from the ground up. This can happen if the building is destroyed by a fire, for example.
So, the insurer wants to know the cost of the worst-case scenario, which would be the rebuild cost. Rebuild costs include the cost to demolish the old building safely and reinstate a new building in its place.
Rebuild costs include the material, labour and professional costs (e.g. architects, surveyors, local authority permissions, etc.) needed to rebuild the property.
Market values are not usually accurate proxies to estimate the rebuild cost. Since market values include the value of the land, they are usually higher than rebuild costs. Using a market value as the insured amount for a property would usually result in the property being over insured. As a result, the property owner would pay a premium higher than is necessary.
It can be expensive to get a proper rebuild cost, but in the long run this can save a property owner money. Using the correct reinstatement value for insurance means having the right amount of protection, and also means not overpaying for an unnecessarily high level of insurance coverage.
To get an estimate for the reinstatement cost of a property, an RICS chartered surveyor can use special tools like the RICS Commercial Reinstatement Tool. This tool calculates reinstatement costs using historic databases that span more than 50 years of UK construction project data, such as tender prices.
Less valuable properties can possibly be costed using a desktop valuation, which means that the valuer does not visit the property in person. Instead, they use RICS tools, Google maps, neighbourhood comps and other tools to determine a rebuild value. Desktop valuations can cost as little as £175.
However, in-person surveys are needed to calculate a rebuild cost for certain properties, such as highly valuable, historic, or complicated properties. These cost more (easily over £1,000), but an in-person survey provides a more accurate reinstatement figure. Accurate valuation can be expensive, but it’s important when deciding what is the correct level of insurance for a property.
Commercial building insurance rates are calculated using other factors as well. The claims history of the property owner makes a difference. If there’s been a history of claims then a property owner will probably be required to pay higher premiums to insure a property compared to a property owner who has not made any claims. This is because claims can be an indication of the care taken by a building owner. For example, a careful owner might catch an issue sooner, before much damage can occur. But a lax owner might let a problem like a leak deteriorate, causing further damage to a building.
Building location can also affect insurance rate calculations, to reflect burglary and flooding risks. Buildings in higher-crime areas are more likely to be burgled or vandalised, and so are more costly to insure. Buildings in flood-prone areas are similarly more expensive to insure. In fact, there might be issues with finding coverage for buildings with a history of floods. Insurers can even exclude coverage for floods in some cases. That’s why it’s important to check the flood risk in an area before buying any property.
Commercial building insurance calculations also reflect the level of building security. This can include locks, gates, cameras, alarms and more. Properties viewed as being more secure typically cost less to insure. Building security certainly affects the risk of burglaries. But it can also affect other risks like fire. This is because some burglars set fire to a property after burgling it, to destroy evidence or just cause further malicious damage.
Insurance companies will also consider the type of business occupying a commercial property when calculating the building insurance rates. Some businesses simply present a higher risk of a claim. For example, an office space that doesn’t receive any footfall from the public would present a relatively low risk. But a business housing manufacturing equipment or even kitchen equipment, or one that sees a lot of traffic from members of the public, are riskier. There’s more chance of a fire or accident occurring, for example.