Addressing the short-term insurance protection gap for residential buildings in South Africa : a simple yet effective cost model

Abstract

PURPOSE OF PAPER : This paper illustrates how a simple yet effective cost model based on manipulated and refined quantity surveying techniques can assist South African homeowners to improve the accuracy of replacement cost estimates and thus sufficiently insure their residential properties. DESIGN/METHODOLOGY/APPROACH : Raw data for 21 residential units was generated through a quantitative process by applying recognised quantity surveying measuring and estimating methods. The data was further processed to derive multipliers for use in the cost model. A two-pronged approach was applied to the analysis of the data, firstly regression and correlation statistical analysis were conducted to illustrate the integrity of the data and secondly the proposed cost model was applied to demonstrate the ease of its use. The data of 15 residential units was used in the comparative analysis while the data of the other 6 units was used as test cases for the cost model. RESEARCH LIMITATIONS/IMPLICATIONS : This paper is based on a pilot study limited to a select sample of residential designs varying in size 2 2 from 56m to 660m . The results and can thus not be viewed as conclusive. FINDINGS : The findings suggest that the proposed cost model is fit for purpose and can produce accurate estimated replacement costs based on the input of the seven identified variables. However, the statistical analysis indicates instability due to large variances within the sample. This could be corrected by improved data. VALUE OF PAPER : Improved replacement cost estimation of residential buildings based on an understandable, reliable and affordable cost model would place residential property owners and insurance industry role-players in a much-improved situation in the event of an insurance claim and lessen the potential financial damage to be suffered. PRACTICAL IMPLICATIONS : Insureds are reliant on building cost information to comply with their responsibility to determine the insured values of their properties. Without readily available, reliable, relevant, understandable and cost effective information in the public domain, insureds are dependent on third parties to supply such information. Developing a cost database through the implementation of the proposed cost model is envisaged in the longer term.