Index-Linked Replacement Value (VGB)
Index-linked replacement value is a valuation model used in German residential buildings insurance that ties the sum insured to the notional "1914 value" and an annually published adjustment factor, so it moves automatically with construction price inflation.
- Clause type
- Definition
- Origin/Market
- German market
- Favours
- Neutral
- Negotiability
- Market standard
Standard wordings
- VGB 2022, 1914 Value – Gliding Replacement Value Plus
Purpose
Construction values move continuously with inflation, so a sum insured fixed at inception quickly becomes outdated and produces underinsurance at the time of a claim. The index-linked replacement value model solves this by expressing the sum insured not as a fixed euro amount but as a “1914 value” – a notional figure denominated in 1914 gold marks. Multiplied by an adjustment factor recommended annually by the GDV, this produces a current sum insured that tracks the building-price and construction-wage indices automatically.
Effect and limits
Where the starting “1914 value” has been established using one of the recognised methods (a chartered surveyor’s valuation, or accurate answers to the proposal questions on size and specification), the insurer typically grants a waiver of underinsurance: no pro-rata reduction is applied under section 75 of the VVG at the time of a claim. This protection lapses, however, if value-increasing building works carried out after inception are not notified, or if the original information was grossly negligent or intentionally incorrect. The adjustment factor itself is a non-binding GDV recommendation; individual insurers may apply different figures.
Negotiation and practice
Extensions, conversions or value-enhancing renovations should be reported to the insurer promptly to preserve the waiver of underinsurance. For unusual properties (listed buildings, high-specification fittings), an independent valuation is advisable, since the standardised proposal questions can understate the true cost of reinstatement.