QUESTION:
When we get a new valuation for a building, it usually has the sum insured amount broken down: Reinstatement Cost Estimate and Inflationary Provision Demolition Cost. As a brokering practice, we use 50% adjustment on the MD rate on the inflationary provision on first and second year of the valuation. Is this the correct practice? I can’t locate this information anywhere and have been questioned by an insurer. Can I please get some clarification?
According to the July 2017 FENZ Levy Guide you can use the same multiplier that is accepted by the insure, but no less than 50%. The guide says, "The indemnity inflation factor is deemed to be part of the indemnity value. Whenever inflation is insured in an indemnity value contract of fire insurance, the levy is calculated using the same discount rate the insurer has applied in determining the premium rating for the contract of insurance (to a maximum of 50%)."
The guide is available here: www.fireandemergency.nz (Guide for levy payers – page 5)
