This assessment is based on cost rather than market value. It assesses the cost of rebuilding a property irrespective of the condition the building or site may be left in following a disaster. It is not the same and can differ hugely from the market price of the property or the cost of building the property.
Some insurance brokers and companies occasionally and inappropriately try to indicate to their clients the Building Costs of properties. In their small print you will usually find that they are not insured and that it is the responsibility of the owner to be certain that the figure they provide is correct.
It is the owner’s duty to make sure that the property is adequately insured. If there is a mortgage on the property it is often a legal obligation to keep this valuation updated. There are also legal ramifications where adjoining properties may be affected.