Do You Value Your Club?
Graham Bennett FRICS is the Valuation Director of Bennett Kaye Commercial, Chartered Surveyors, the Official Valuers to The ACC Ltd. Here, he offers some important advice on the subject.
Insurance is a far from fascinating topic and it is not surprising that it is often overlooked. When the peril that you are insuring occurs however, the policy may well be the Club's only surviving asset!
Clearly, if the policy is to work, it must be a sound product protecting all assets for every risk. More importantly, the sums insured must represent the true replacement cost of all assets; this is where many policies fall short. The best policy in the world will fail if the sums insured are inadequate.
Good brokers will recommend a valuation of assets at regular intervals with figures being reviewed at every renewal. In reality this seldom happens and it is common to find that sums insured with no reliable basis are passed from one insurance policy to another, year after year, without any serious form of review. Club Secretaries seldom have any idea about the origin of the figures and have no chance of proving a serious claim.
Fear of premium cost may well be factor. Clearly, insuring for larger amounts will cost more and many baulk at the cost, even though it will probably be only a fraction of the cost of a new tractor. Unlike a mower, a good insurance policy can be worth millions of pounds.
If there is no claim then there is no problem. However, when a serious loss occurs, all insurance companies will instruct a loss adjuster to estimate the theoretical cost of re-building and re-equipping the Club. If the cover is too high, the claim will be fine but you will have wasted money on the premium. If the sum insured is lower than the reinstatement value, the loss adjuster will introduce the 'Condition of Average' Clause as a perfectly legitimate means of adjusting the claim settlement in a downward direction leaving the Club to find the balance. All insurance policies contain this clause.
If the buildings are insured for £750,000 and the loss adjuster proves the true figure should have been £1,000,000, then the Club is only 75% insured and, more importantly, you will receive only 75% of any claim even if the claim is actually for less than the sum insured. In simple terms, if the damage is £200,000, the Club will recover only £150,000. Exactly the same principle applies to Contents.
There is often confusion over who is responsible for establishing the insurance values. Do not be misled; an insurance broker's duty is to provide an insurance policy, not a valuation. The responsibility for figures remains with the Club. The best brokers will recommend a professional valuation be commissioned at five yearly intervals. If you ignore this advice and the figures are inadequate, it is the Club and not the broker that will suffer financial loss.
It is important that the policy definitions are carefully considered before figures are declared. Usually the definition of buildings includes car parks, roadways, gates and boundary walls. If that is the case, allowance must be made accordingly. If the clubhouse is small and the car park or roadways large, massive under insurance can occur if the external areas are ignored (and they often are). Allowance must be made for architects' and surveyors' fees and for demolishing the fire-damaged building. The figure must be based on replacement in the same size and format, so if the building has 600mm elaborate stone walls and a slate roof, the valuation must take this into account. The fact that it would be possible to create a modern brick building for half the cost is not relevant. Most fires do not completely destroy buildings; many can be repaired, so insurance must be sufficient to ensure the repair complements the original building.
These days, all insurance policies provide reinstatement by new cover. This is very generous as it means old furniture and equipment will be replaced with brand new items. However, the Club has to play its part in this deal by paying a premium based on this replacement cost. If the replacement value of the furniture is £200,000, then the declared value must be the same. This is often misunderstood and Clubs nearly always underestimate the replacement value of their assets. Old and worn chairs may only be worth a few pounds, but if their replacement cost runs into hundreds of pounds, then they should be valued accordingly. Second hand values have no place in a modern insurance policy.
Many Clubs are equipped to very high standards. Apart from the general furnishings, also consider the cost of curtains, carpets, cashless systems, computers and catering items. Kitchen equipment valued at over £25,000 is quite common.
Although these are obviously not assets, it is almost always the Club's responsibility to insure these items. Common items include brewery owned equipment, gas systems, gaming machines, coffee machines, cleaning equipment and much more. The cumulative value of these items can have a very significant effect on the sums insured and effect full recovery.
Traditional valuations generally exclude VAT on the basis that this tax on building and equipment is recoverable and therefore need not be insured. Many Clubs have partial exemption status and so only a percentage of the VAT is recoverable. As the percentage differs depending upon the activities of the Club and the accounting methods used, Clubs should consult their VAT specialist to determine the percentage irrecoverable and the insurance figure increased accordingly.
Ensure that your policy covers all eventualities and provides valuable extra services such as legal advice and assistance. Is there a good claims service? If you need to handle the claim yourself, loss assessors fees of around 5% will not be insured. All insurance policies contain warranties. For example, a policy may state that the ashtrays have to be emptied after each session. If you ignore such a warranty (and many do!), your insurance cover will be void.
Dig out your insurance policy and look at the declared values. Stand back and consider, could the Club really be rebuilt and re-equipped for those figures? If there are any doubts, it is vital to obtain a professional valuation without delay.
For more information, contact Graham Bennett, Bennett Kaye Commercial, Chartered Surveyors.
Northern Office: Liverpool House, 1 Carr House Road, Shelf, Halifax, West Yorkshire HX3 7QY.
Southern Office: 56 Broadwater Street East, Worthing, West Sussex BN14 9AP.