Property & Casualty Insights
Maximize Property Claim Recovery With Accurate Valuations
AUGUST 1, 2023
When your organization’s property is damaged, you expect all repair and replacement costs to be covered in excess of your deductible. However, this will happen only if you set appropriate valuations. Failure to establish accurate values for your property can result in uncovered losses.
More frequently than ever, underwriters are questioning the validity of values for fixed assets, such as buildings, heavy machinery, and company vehicles. When underwriters are dissatisfied with valuations, they usually impose coverage restrictions. Some underwriters may even refuse to offer any coverage unless the values are adjusted to their satisfaction.
Insurance carriers use third-party data sources and internal tools to capture and evaluate values. However, relying solely on these tools without vetting the output can lead to negative results for insureds. USI uses the same tools as insurance carriers, but also conducts a thorough review based on the actual circumstances of a client’s individual properties. This ensures maximum coverage at the time of loss while minimizing premium expenses.
Watch Out for Restrictive Policy Language
Several factors are accelerating this trend; perhaps chief among them are recent natural disaster claims that far exceeded the values reported by insureds. Because insurance carriers have paid out massive sums for catastrophes, they will scrutinize the data reported in your statement of values (SOV) very closely. They may also impose restrictive policy language, which can create shortfalls in property claim recoveries. The most severe policy changes go beyond coinsurance requirements, to margin clauses and occurrence limits of liability.
To further aggravate the situation, inflation has surged over the last two years, averaging 7% in developed countries and 9% in developing nations.1 These high prices have increased the nominal value of buildings, vehicles and other insurable assets. Carriers may be eager to increase your property valuations, which can greatly impact your insurance costs. Implementing a fair and accurate valuation process can significantly improve your bottom line.
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Coinsurance – A penalty imposed on insureds for not insuring to the carrier’s required level. When the insured suffers a loss, the carrier divides the insured’s current coverage by the required amount and applies that percentage to the total cost of the loss. Anything beyond that is at the insured’s expense. Margin clause – A nonstandard commercial property insurance provision stating that the most an insured can collect for a loss at a given location is a specified percentage of the values reported for that location on the insured's statement of values. Occurrence limits of liability – A recovery limitation based on the insured’s statement of values. Essentially, what the insured declares is what the carrier will pay for a claim. Costs in excess of the declared value are uninsured losses. |
What’s the Solution?
Armed with analytics, you can negotiate policy terms and conditions with the carrier and reduce the risk of significant loss following a catastrophic event. This may include:
- Evaluating current values on a cost-per-square-foot basis compared to regional costs for similar buildings.
- Utilizing industry-accepted third-party appraisal software to prepare credible replacement cost valuations.
- Obtaining replacement cost appraisals (when appropriate) through approved third-party appraisal companies.
When the insurer and insured can’t agree on values, an approved independent third-party appraiser can be utilized to determine correct values. This option can:
- Eliminate disputes over valuation between underwriters and the insured.
- Reduce the chances of punitive language being added to the policy by the underwriter.
- Improve premium stability and value of recovery following a loss event by determining and maintaining accurate values.
For example, a USI client that owns and operates shopping centers and commercial office buildings had a replacement cost valuation for its portfolio of $650 million. By using a third-party appraiser, USI was able to negotiate with the carrier to provide a 5% reduction in the client’s total insured building values — resulting in a $30,000 premium savings.
How USI Can Help
USI helps clients fully understand their risks to determine accurate valuations and optimal carrier placement, as well as negotiate policy limitations. USI works with clients to:
- Start the renewal process as early as possible to ensure an accurate and timely submission.
- Internally evaluate current property values.
- Compare to regional costs for similar buildings.
- Gather and validate client’s construction, occupancy, protection, exposure (COPE) data, and other information related to the exposure.
- Run valuation analytics and loss projections to determine appropriate values and limits.
- Get agreement from the underwriter, and in disputed cases, use a third-party valuation service; drive pricing down based upon the certainty of the values.
- Evaluate risk financing structures and program design changes, and align clients with carriers that best fit their needs.
- Present declared values to the carrier, and negotiate policy terms to minimize or potentially remove restrictions, allowing for optimized recovery following a catastrophe.
Natural disasters such as hurricanes, flooding, wildfires, and other severe weather events continue to increase in frequency and severity — and inflation keeps driving up the cost to rebuild. Therefore, it’s more important than ever to ensure appropriate coverage for your organization’s unique risks.
For assistance with setting appropriate property valuations, contact your USI representative or email pcinquiries@usi.com.
Sources:
1U.S. Census Bureau
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