Mitigate against risk in the property insurance marketplace
Property valuation is a process that determines the economic value of a property, whether it be personal, commercial, or industrial. A property insurance program is based on these values, ensuring that all buildings and assets are covered in case of a loss
Property that is valued correctly is the cornerstone of a successful property valuation program, therefore if the property has an inaccurate value the owner may not be covered fully (or will be over-covered) in case of a loss.
Inaccurate insurable values affect carriers, as well. Catastrophe models are increasingly being utilized by insurers and re-insurers, and these models will be ineffective if incorrect values are attached. By relying on accurate insured values, a trusted relationship is created for both parties.
When valuing buildings, square footage, occupancy, tenanted space, old structures, and registered historical landmark statuses are taken into factor.
For personal property, used equipment, special production equipment, installation challenges, tooling, property of others, and inventory are considered.
Land, debris removal, demolition cost, improvements (including yards, roadways, parking lots, exterior lighting, etc.), and increased cost due to ordinance or law are not included in a property’s value.
Three common mistakes include:
Not using proper cost indices: Keeping values current and reflecting inflationary cost indices and market trends are also paramount to a successful value for your real estate. Determine the value of the original acquisition cost and factor in inflationary trends in cost.
Relying on depreciated values: Many times, depreciated values of property are taken from financial statements, but this is not a correct determination of replacement cost. What should be considered instead, is replacement cost as defined by your insurance company. For building replacement costs, companies can consult a professional contractor, or construction staff, use a building estimation tool, or a replacement cost appraisal.
Outdated asset records: While using capital asset records is a good place to begin, decision makers must also be aware of how completed goods are valued at selling price and/or cost. Decision makers must also know how this value is determined and ensure that the coverage matches the reported value.
Property insurance values are a critical part of all successful risk management programs. The benefits of a successful, well-managed insurance valuation program include:
They are not always necessary if information on asset records, past appraisals, and building construction cost data can be gathered. This being said, seeing the property in-person is the best way to determine a property’s correct value.
TÜV SÜD GRC provides a complete range of valuation services for your commercial and industrial needs. These offerings include:
ALSO READ: Property Valuation: A Hard Market Issue
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