The Risks, Opportunities, and Threats of Undertaking Reinstatement Cost Assessments Correctly for Schools

Reinstatement Cost Assessments (RCAs) are essential for schools to ensure that their buildings are insured at an appropriate level in the event of damage or destruction. Undertaking an RCA correctly can have significant financial and operational implications. Since 2020, post-COVID, the landscape of Reinstatement Cost Assessments has changed significantly due to rising construction costs, supply chain issues, regulatory updates, and shifts in school infrastructure needs. Schools must take proactive steps to regularly update RCAs, review insurance policies, and plan for future uncertainties. Failing to adapt to these changes could leave schools financially vulnerable, underinsured, or struggling with unexpected rebuilding challenges. By staying informed and prepared, schools can safeguard their assets and maintain the ongoing smooth operation of school life.

In the past 5 years, RCA values have been severely impacted, which have been caused by:

• Increased rebuilding costs: timber, steel, and concrete have surged in price due to supply chain issues, with some resources experiencing a 35% jump, peaking in 2022. Contributory factors boil down to: increased global demand, the pandemic and logistical issues, Brexit, HGV shortages and the sharp rise in wholesale energy prices.
• Labour shortages: many skilled workers left the construction industry during the pandemic, leading to increased wages and project delays.
• Higher insurance premiums: Since RCAs reflect the true reinstatement costs, insurers have adjusted policies, often increasing premiums to match inflation.

Schools must navigate the risks associated with underinsurance or over-insurance, recognise the opportunities for enhanced financial planning, and mitigate threats that could arise from miscalculations.

This article explores the risks, opportunities, and threats associated with conducting RCAs correctly, offering insights into how schools can optimise their approach to property insurance as part of good asset and property management.

Understanding Reinstatement Cost Assessments

An RCA determines the cost of rebuilding a property, considering construction costs, professional fees, demolition, and compliance with modern building regulations. Schools require accurate RCAs to maintain sufficient insurance coverage, ensuring that in the event of total or partial loss, they can rebuild without financial strain.

Risks of Undertaking Reinstatement Cost Assessments

A primary risk of miscalculating an RCA is underinsurance. If a school's insurance policy does not cover the full cost of reinstatement, the institution may face financial difficulties in rebuilding after a disaster. This can lead to:

• Delays in reopening and disrupting student learning.
• The need for additional external financial assistance.
• Partial reconstruction due to budget constraints, potentially affecting the school’s reputation and operational capacity.

Conversely, overestimating the reinstatement cost can result in excessive insurance premiums. While this ensures full coverage, it also diverts financial resources away from essential areas such as capital expenditure, facility and sustainability improvements, and student programs.

Inflation and economic conditions can significantly affect construction costs. Schools that do not update their RCAs regularly, with over-reliance on annual index-linking of existing RCAs, risk using outdated figures, leading to inaccurate insurance coverage. This issue is particularly relevant given fluctuating material costs, labour shortages, and supply chain disruptions.

Building regulations evolve, and schools must comply with updated standards when reconstructing facilities. If an RCA does not factor in compliance costs, schools may find themselves underinsured for necessary upgrades, leading to unexpected expenses.

Schools with multiple buildings, heritage sites, or subject specialist facilities (such as laboratories, theatres, or sports centres) may face challenges in correctly valuing their properties. Inaccurate valuations can result from:

• Failure to assess all structures comprehensively.
• Misjudging the complexity of reinstating heritage or listed buildings.
• Overlooking hidden costs such as site clearance or asbestos removal.

An inaccurate RCA can lead to disputes with insurers, delaying claims processing. Schools facing financial uncertainty after a disaster may struggle to maintain operations if insurance settlements take longer due to valuation discrepancies.

Threats & Opportunities of Reinstatement Cost Assessments

A well-conducted RCA ensures that a school’s insurance coverage aligns with actual rebuilding costs, providing financial stability. This enables:

• Effective budgeting and allocation of funds.
• Cost control by avoiding overpayment of insurance premiums.
• Streamlined financial planning, allowing schools to focus on growth and development.

In cases where insurance falls short due to an inaccurate RCA, schools may be forced to compromise on rebuilding, resulting in the loss of valuable assets such as historic buildings, specialist facilities, or modern technology-equipped classrooms. Ensuring adequate insurance coverage prevents disruptions in education delivery. Parents, students, and staff have greater confidence in an institution’s resilience when they know it has a comprehensive recovery plan backed by appropriate insurance.

A school that struggles to recover after property damage may face declining student enrolment and difficulty retaining qualified staff. A school that fails to manage its RCA process effectively may suffer reputational damage, particularly if it becomes public knowledge that the institution was underinsured. This can affect donor confidence, partnerships, and overall institutional reputation. Schools are often accountable to trustees, investors, or governing bodies. Properly conducted RCAs demonstrate due diligence and responsible financial governance, reinforcing the institution’s credibility and commitment to best practices.

Incorrect RCAs can lead to unforeseen financial burdens, forcing schools to:

• Cut costs in other areas, such as academic programs or extracurricular activities.
• Seek emergency loans or external funding, increasing financial strain.
• Rely on community fundraising, which may not be sufficient for full reinstatement.

A well-conducted RCA ensures that a school’s insurance coverage aligns with actual rebuilding costs, providing financial stability. This enables:

• Effective budgeting and allocation of funds.
• Cost control by avoiding overpayment of insurance premiums.

An RCA that lacks clarity or accuracy may lead to disputes with insurers. This can delay claims processing, prolonging school closures and impacting the institution’s ability to operate effectively. In extreme cases, legal battles over insurance settlements may arise. Schools with accurate RCAs can negotiate better terms with insurance providers. Accurate valuation reports provide transparency, reducing the likelihood of disputes and ensuring smoother claims processing. This can also result in premium discounts or tailored insurance packages.

Our Recommendation

To mitigate risks and threats while maximising opportunities, schools should adopt best practices in their RCA approach:

• Engage Professional Valuers – Hiring qualified surveyors or property valuers ensures accurate and up-to-date assessments.
• Regularly Review Assessments – RCAs should be updated every three years or whenever a significant change occurs (e.g., new construction, refurbishment or extension).
• Consider Future Construction Costs – Factor in inflation, material price fluctuations, and potential regulatory changes when estimating costs.
• Maintain Transparent Records – Keeping detailed documentation of property assessments, refurbishment or new-build costs, and insurance policies streamlines claims processing.
• Work Closely with Insurers – Open communication with insurance providers helps ensure the school has adequate coverage tailored to its needs.
• Plan for Sustainability – Integrating eco-friendly rebuilding strategies can provide long-term cost savings and align with environmental commitments.

Conclusion

The Royal Institute for Chartered Surveyors (RICS) guidelines state that the sum insured needs to be checked on a regular basis, with an annual adjustment to reflect inflationary effects, and a major review every three years, or earlier should significant alterations be made to the insured property. According to the Building Cost Information Service (BCIS), construction costs are expected to increase by 17% over the next 5 years to 2029. Alongside this, given the continued tightening of the supply side, long-term loss of employment in the construction labour market, prevailing shortages of skilled labour and expected uptick in demand from 2026, labour costs are expected to increase by up to 18%. This has been compounded by recent increases to Employer’s National Insurance contributions and the National Living Wage from the Chancellor’s recent Budgets within the past 6 months.

Schools must approach Reinstatement Cost Assessments with precision and diligence to ensure financial security, operational continuity, and regulatory compliance. While there are inherent risks, an accurate RCA provides significant opportunities for financial stability, alongside improving risk and financial management.

By implementing best practices and engaging professionals, schools can navigate the complexities of property valuation, safeguard their assets, and reinforce their commitment to providing quality education in a secure and well-maintained environment.