Insuring an industrial or logistics building: the reinstatement value

1. The starting point: you insure the reinstatement, not the market

The most costly mistake in damage insurance for a corporate asset is to carry over, into the policy, the purchase price or a resale estimate of the site. These amounts are market values: they include the land, the location within the industrial zone, the market effect. Yet none of these elements is destroyed by a loss. The loss destroys the fabric and its installations — that is what the insurer indemnifies.

The right basis is the as-new value (insurable value): the as-new reinstatement cost of the building and its fixed equipment, land excluded. The principle is identical to the one described for housing — but the stakes change scale as soon as you are talking about a factory or a warehouse.

2. What makes an industrial asset particular

An industrial or logistics building is not a generic large shed. Its technical characteristics weigh directly on the reinstatement cost:

• The structure and the weatherproof envelope — steel or concrete frame, clear height under the truss, span of bays, cladding, roofing: as many parameters that cause the cost per m² to vary strongly.
• The floor slab and foundations — an industrial floor slab with a high permissible load (high-bay storage, machine traffic) is a heavy reinstatement item, often underestimated.
• Fixed equipment inseparable from the building — sprinklers and fire protection, loading docks, overhead cranes, integrated electrical and HVAC installations, cold rooms for cold storage.
• Incidental reinstatement costs — demolition of the damaged structure, clearing (considerable volumes on a large building), design fees, and bringing up to the standards in force at reinstatement.

The more specialised the asset (process factory, data centre, cold-storage warehouse), the more its reinstatement cost departs from any flat-rate estimate — and the more the as-new value must be quantified for itself, as you would for an asset without an active market valued through the depreciated replacement cost (DRC, VPGA 5), with one essential difference (see the box).

3. Splitting the perimeters: walls, fixed equipment, machinery, stock

On an operating site, a single undivided sum is the worst setting. You must split out, because each perimeter follows a different insurance logic:

• The building (weatherproof envelope + inseparable fixed equipment) — this is the object of the reinstatement value dealt with here, calibrated at the as-new value, land excluded.
• The process machinery and lines — presses, production lines, mobile refrigeration equipment: distinct cover (machinery breakdown, plant & machinery), with its own value basis.
• Goods and stock — goods cover, whose basis varies over time and has nothing to do with the cost of the fabric.
• Business interruption — the “business interruption” cover addresses the halt in activity, distinct from indemnifying the asset.

The boundary between fixed building equipment (insured with the walls) and process machinery (insured separately) is not always obvious — an overhead crane, an integrated cold room, a transformer can shift from one perimeter to the other depending on the policy definitions. This is precisely what the appraisal documents.

4. Under-insurance and the average clause

This is the risk that only reveals itself at the moment of the loss — and that strikes all the harder on an industrial asset because the sums are large. There is under-insurance when the sum declared in the policy is lower than the real reinstatement cost. The usual causes:

• A sum frozen at the original construction cost, never revalued despite the rise in the cost of materials and labour.
• Extensions or technical fit-outs (new bay, mezzanine, sprinkler line, bringing up to code) not reflected in the policy.
• The omission of incidental costs — demolition and clearing of a large volume, fees, bringing up to code — which are an integral part of the real reinstatement cost.

The most frequent penalty is the average clause: many policies provide that, in case of under-insurance, the indemnity is reduced in the ratio between the declared value and the real value — including for a partial loss. By way of illustration: if a building whose real reinstatement cost is 100 has been declared for 60, the insured may receive only 60% of their damage, even on a limited loss. The exact terms (tolerance thresholds, exclusions, ceilings) depend on your policy and the framework of the Moroccan insurance code: check these clauses with your insurer.

The symmetric exists too: over-insurance, when you declare the market value (land included, market effect) instead of the reinstatement cost. The premium is then calculated on an inflated basis that will never be indemnified — cash paid out every year for nothing.

5. The method: the cost approach applied to the industrial fabric

Establishing a defensible as-new value is not done by taking a percentage of the purchase price. It is a cost approach exercise, conducted in a documented way:

• Survey of the areas and makeup — built areas by function (production, storage, offices, technical rooms), heights, bays, distinct from the land area.
• Construction method and fixed equipment — type of structure, floor slab and permissible loads, cladding and roofing, sprinklers, docks, integrated technical installations: the inventory of what must be rebuilt.
• As-new reinstatement cost — the cost of rebuilding to an equivalent standard, at current conditions, without deduction of depreciation for the as-new insurance basis.
• Incidental costs — demolition, clearing, design fees, and bringing up to the applicable code at reinstatement.
• Land excluded — the value of the land never appears in the insurance basis.

The result is a documented reinstatement sum — areas, makeup, cost assumptions, incidental costs, split perimeters — which serves to set or adjust the building's sum insured. This is the object of an appraisal assignment, where the value basis adopted (here the insurable value) is formalised from the letter of engagement, in accordance with RICS standards.

6. At the moment of the loss: insured's expert, insurer's adjuster, third-party appraisal

When the loss occurs, the insurer appoints an insurer's adjuster to quantify the damage. The insured is not required to rely on that assessment alone: they may be assisted by an insured's expert, who defends their interests in the discussion of the amount.

• Insurer's adjuster — appointed and paid by the company; assesses the loss on the insurer's behalf.
• Insured's expert — appointed by the insured to produce an adversarial assessment and document their position.
• Third-party appraisal — in case of persistent disagreement between the two, policies generally provide for the appointment, by mutual agreement, of a third expert to decide between them.

This process falls under amicable negotiation framed by the policy and the insurance code: it aims at agreement on the indemnity, not a judgment. It is therefore not a judicial expert appraisal — in litigation, the judge would appoint the expert. In all cases, the quality of the documentationof value — survey, makeup, cost assumptions established upstream — determines the strength of the insured's position in the discussion.

7. When to have the reinstatement value quantified — our reading

• At subscription or renewal, to start from a fair sum rather than a misread original construction cost — all the more on a specialised site.
• After significant works (extension, new bay, bringing up to code, added fixed equipment): the sum must follow the real reinstatement cost, otherwise under-insurance sets in silently.
• Periodically, to track the evolution of construction costs — a sum frozen for years drifts mechanically towards under-insurance, and the average clause will do the rest at the loss.
• For an atypical or specialised asset (process, cold storage, data centre, technical structure), where neither the purchase price nor a standard flat rate reflects the true reinstatement cost.

In all these cases, a report compliant with RICS (Red Book) standards establishes the as-new value in a documented way, useful for calibrating the sum insured with your insurer and for supporting your position at a loss — from MAD 3,500 excl. tax, delivered in 5 to 8 days (48-72h express).

8. FAQ

Note: The as-new value (insurable value) is defined by the RICS valuation standards as the as-new reinstatement cost of the building excluding land, increased by incidental costs. The covers, ceilings, deductibles, perimeters and indemnity rules (including any average clause and recourse to third-party appraisal) fall under your policy and the Moroccan insurance code in force (Law 17-99): confirm your situation with your insurer. The figures given in this article are purely illustrative. To establish the reinstatement value of your asset, see our real estate appraisal page or the blog.