The recent warehouse fire in the Brisbane suburb of Sherwood should send a significant warning to property owners and managers about property replacement cost assessments. The damage to the Sherwood warehouse was massive. From a property owner’s perspective, it was critical that they were not under-insured.

Unfortunately, all too often we see companies that lose their assets (due to fire, flooding etc) without first ensuring they are adequately insured. This is an expensive mistake.

Everyday, property owners are at risk of under-insurance due to a variety of factors. The case study below demonstrates the difference between an insurance replacement cost assessment prepared by a qualified Quantity Surveyor and a property valuation estimate.

The example is based on a 10,000m2 property which has a 4,000m2 industrial building, including a 500m2 office component.

The above example is commonly found when discussing costs and risks with our property owner clients. Inadequate insurance cover leads to the property owner essentially becoming a co-insurer of the property and often relates to protracted negotiations in the event of a claim. This ratio (50% under-insurance in the above example) still applies if there is only a partial damage or loss.

In the other extreme, excess insurance cover provides no benefit to the insurer and will unnecessarily increase the asset’s outgoings.

Insurance against fire and related perils can be extended to cover the breakdown of plant and machinery. An analysis of the plant to be insured, including an assessment of its reinstatement cost and current condition, can also be provided. Properties with multiple buildings on one site should have separate replacement costs for each building and ownership of tenant fitouts needs to be taken into account. These fitouts can, in some cases, equate to a similar cost to the base building, especially when the fitout includes a high value of plant and equipment.

Napier & Blakeley have an extensive database of properties including over 4,000 industrial properties in Queensland. Many of our clients ask us to prepare an accurate assessment initially and then provide annual desktop updates based on construction cost indices and forecasts. More thorough reviews need to be completed after a few years of general indexed updates or when there have been significant changes to the asset or the legislative environment. These include tenant fitouts, renovations or extensions, changes to the BCA and significant variations to the material/labour supply in the local market. Napier & Blakeley will protect you from the substantial risks of under insuring your assets.