I’m concerned that our apartment block is underinsured. What can I do?

I live in a small, four-storey complex of 30 two- and three-bed apartments surrounded by a granite wall in a private gated development in Dublin. The apartments were built in the early 1970s and so would not have been built to the high standards of energy-efficiency and materials required today.

Some of the apartments have been modernised by their owners in recent years to differing standards, eg bathrooms, kitchens, soundproofing, insulation, electrical, plumbing, etc. Others remain largely unchanged.

My first question centres around the insured value. The complex is insured for €11.85 million, which works out at an average cost of about €395,000 per apartment. Modern similar-sized apartments in the area are selling for between €850,000 and €1,000,000, and on that basis I am not convinced that, were the block to be totally destroyed, the true cost of rebuilding a complex of 30 apartments to a similar size with enhanced specification could be completed for €11.85 million. This is particularly so as the site demolition, site clearance, professional fees, planning, council levies, fire-safety requirements, mechanical and engineering works, electrical works, etc, would be included in the current insured valuation of €11.85 million.

This leads to my second question which I appreciate you can only answer in a general way, as you don’t have all the information at your disposal. Would an insurance company agree to insure a complex such as ours in its current condition as described above to a more appropriate rebuild figure? I am thinking perhaps about €16 million.

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The Owners’ Management Company in any development is required to exercise their fiduciary duties at all times in relation to all members, and one of their key responsibilities is to ensure there is adequate insurance cover in place for the development.

Saving money on the annual insurance premium for members’ service charges to remain lower is a false economy.

Professional guidance can help to ensure that a risky short-term cost-saving measure is avoided.

[ Home insurance is vital. Here is how to save money as premiums soar ]

You refer in your query to the potential valuations of the apartments. This is a fairly common mistake, and it is very important that homeowners understand the difference between a valuation and rebuilding costs.

The rebuilding costs are associated with the cost of building or replacing the development. The valuation is what a property would sell for on the open market. These figures can be very different. When seeking insurance cover, the figure you need to focus on is the rebuilding cost. While the Society of Chartered Surveyors Ireland (SCSI) has a rebuild calculator for people living in different types of homes – you can access it here – the calculator does not cover apartments.

The cost of construction materials and labour have increased significantly over the last couple of years, resulting in a large number of residential developments being underinsured.

Underinsurance takes effect when the cost of rebuilding a property, after a claimable event occurs, is more than the insurance policy will pay out, thus leaving a shortfall. A shortfall for rebuilding a residential development would be an enormous burden for the members to absorb and should be avoided at all costs.

For example, if the rebuild cost of your home is, say, €440,000, and you only have it insured for €330,000, you will be facing a shortfall of €110,000 in the event of a catastrophic event such as a fire. To give another example, what a lot of homeowners don’t realise is that in a situation where their property is only insured to cover 75 per cent of its actual rebuilding cost, they will have to cover the remaining 25 per cent cost of the rebuild from whatever financial resources they may have themselves. This applies both in cases where a full or partial rebuild of the property is required. So even if there was a partial loss, which cost €100,000 to address, the insured party would only receive €75,000 and face a shortfall of €25,000. This is because such a homeowner has only insured their property to three-quarters of its rebuilding cost.

That is why it is important for homeowners – in your case the Owners’ Management Company – to ensure the reinstatement costs stated on the insurance policy are up to date and appropriate for the house/apartment type and location.

To get an informed opinion requires a reinstatement valuation from a chartered building surveyor. A list of practising surveyors can be found on the SCSI’s website.

[ Warning: many homes may be underinsured amid spiralling building costs ]

You mention property owners undertaking modernisation of their apartments over the passage of time. This could raise questions as to whether material alterations of the building have occurred within the existing fabric of the building. Since June 1st, 1992, material alterations must be in accordance with Building Control Regulations. For example, issues might arise with apartments which were previously compartmentalised but are now open-plan, with additional services connecting into common areas. These kinds of alterations can be particularly problematic if the workmanship is poor.

Insurance companies will seek to have the asset they insure to be of a minimum standard. A good insurance broker can give you advice on the matter of adequate insurance cover. Shop around for block-insurance cover and ask to see the underwriters’ offers. A good broker will provide this. Pay attention to small details beyond the annual premium to be paid. Provision for appropriate alternative accommodation should be included to ensure that the period provided for is appropriate and will adequately cover the time required for rebuilding works to be completed. Another detail that particular attention should be paid to is the excess amount on certain issues such as water damage.

Paul Huberman is a chartered property and facilities manager and a fellow of the Society of Chartered Surveyors Ireland

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