Insurance can be a confusing subject.
In this article, we put questions to a number of Council officers in an attempt to demystify the Assembly Rooms fire insurance pay out and also to gain information about the future of the building.
Q. If the estimated cost of making the Assembly Rooms functional again was £10m why did the Council make a claim for only £5m?
A. The £5m was the figure arrived at after full investigation by the insurer and the Council to meet the costs of our losses caused by the fire. The £10m figure was an initial estimate on how much it would take to bring the Assembly Rooms up to a modern standard.
Q. How did they arrive at £5m?
A. The insurance company focussed on the cost of repairs to the sections of the building that were damaged as well as the cost of insured revenue loss while the Assembly Rooms remained closed. Derby City Council and the insurer worked together to establish the figure of £5m. Various experts, such as engineers, were appointed to assess and calculate the cost of reinstating the building to the position it was in prior to the fire. Accountants were also involved to calculate any financial losses that occurred as result of the fire such as lost ticket revenue. The total assessment came to £5.05m.
Q. Did not the under-valuing of the building have any bearing on this? Your insured value is reported at £20.7m but your auditors said it ought to be valued at £37m!
A. At the time of the fire the insurance valuation for the assembly rooms was £20.7m. This figure was established following a reinstatement (insurance) valuation in 2013 and was considered to be accurate and up to date at that time. The £37m, identified by the auditors, relates to the Council’s accounting valuation. There is a difference between asset (accounting) valuations and reinstatement (insurance) valuations. The insurance value is the reinstatement cost i.e the money it would take to put us back into the same position we were in before the loss. The asset valuation shows what the property is worth, for example if we wanted to sell it.
Q. Could you not gain sufficient insurance to cover the full cost of refurbishment?
A. In the event of a loss, insurance is designed to help put you back in same position you were in before it happened. It is not designed to be used for upgrading buildings or paying for a refurbishment.
Q. Where is that £5.05m today?
A. £1.642m was used to make the building safe, replacing IT equipment, evaluating the options for replacement of the venue, evaluating the fire damage and paying the loss of revenue. There remains £3.408m in the reserve fund.
Q. What will replace the Assembly Rooms?
A. The priority under the City Centre Masterplan 2030 is a new Performance Venue to replace the Assembly Rooms. This will be a game changer to the night time economy of the city. It will offer a greater entertainment offering not only to residents of Derby but the from the East Midlands region.
Q. What will be the cost and when will it be built?
A. Two options were recommended with costs ranging from £25m to £65m. One is a 3,000 seat capacity with a commercially driven programme focussing on live music and comedy events. The other option would be a flexible, up to 2,800 capacity music / entertainment venue with the ability to provide a lyric style theatre with a capacity about 1,500 supported by 400 flexible space. Council Cabinet will take a decision within the next few months about which option to move ahead with.
Q. Why not top up the insurance money and refurbish the building rather than spending millions more?
A. That was an option that was considered but it was not economically feasible because the Assembly Rooms required an annual subsidy of £500,000. There was also, approximately, another £250,000 per year in maintenance costs.
Over a 20 year lifespan, the old Assembly Rooms would require a revenue injection of £15m. In contrast, a new performance venue, as envisaged under the City Centre Masterplan, would not require a subsidy but is expected to generate an annual profit.
Depending on the option that Cabinet selects, a new facility would create up to 26% more footfall and host up to 21% more events than a refurbished Assembly Rooms.
Depending on the option selected, the new performance venue would be able to host between 425 and 500 events per year generating an audience throughput of between 294,000 and 323,000 people.
The average number of ticketed shows that were hosted at the Assembly Rooms was 413 ticketed events with an average attendance of 256,610 people per year.
Refurbishment of the building is therefore uneconomical, financially unsustainable and unattractive to entertainment operators as a concert venue.