Increasingly severe weather events throughout the country underscore the need for maintaining insurance to value (ITV) for commercial properties. Accurate ITVs approximate the full cost to replace or restore insured property in the event of a loss. Insureds may face unexpected out-of-pocket expenses when a property is undervalued to cover the full damage and coinsurance penalties.
Keeping Up with Increased Construction Costs, Labor, Materials
Fluctuating property values is one of the key reasons insurance to value is essential. Construction costs, labor rates, and material expenses rise due to inflation, supply chain disruptions, tariff changes, and other economic factors. Outdated property values may no longer reflect what it would cost to rebuild or repair it today. Without adjusting coverage to account for these changes, clients can be left with coverage gaps that expose them to significant financial losses.
Coinsurance Clauses
When a property is underinsured, insureds may encounter penalties due to coinsurance clauses found in many commercial Property insurance policies. These provisions require policyholders to maintain a certain percentage of the property’s full value in coverage—often 80% to 100%. Clients may only receive a partial payout if a claim is filed and the insured amount is below the required threshold, leaving them to cover the remaining costs out of pocket. This can be devastating following a major loss, such as a fire or natural disaster.
Factors Impacting Property Value
- Direct and indirect expenses: Be sure property valuations encompass direct and indirect costs.
- Property age: Additional costs required to upgrade outdated building materials and equipment should be included.
- Building codes: Older properties often require modifications to comply with current building codes. These modifications add additional construction costs, increasing property valuations.
- Unique features: Custom property elements could require specialized construction and add to the building costs.
Ensuring Accurate Property Valuations
Following are best practices to help ensure accurate ITV property values:
- Work with a reputable appraiser: Third-party appraisals offer experienced and objective professionals conduct calculations.
- Consult additional resources: Along with an appraisal, there are industry resources to assist with accurate property valuations. For example, the Marshall & Swift Report has over 30,000 component costs for 300 building occupancies that can be used for a valuation.
- Update property values regularly: A property’s value constantly changes, so it’s critical to update valuations regularly. How often ITVs are updated will depend on factors such as changing property exposures, altered operations, building upgrades or modifications, new technology or equipment, shifting market conditions, and property construction trends Work closely with an insurance agent or broker to review coverage amounts periodically.
About Seneca Insurance Companies
Seneca Insurance Companies are known for having a broad appetite for writing property risks. We offer admitted and non-admitted ISO-based policies, with catastrophe perils based on location and risk characteristics.
