When it comes to managing properties, insurable values can be a hot topic. Let’s break down why insurable values matter so much to property managers, owners, and insurance carriers.
What Are Insurable Values?
Insurable values represent the dollar amount for which a property is insured and are determined based on detailed assessments that consider construction costs, materials, and local building codes. This figure typically includes the cost to repair, replace, or rebuild the property in the event of damage, excluding land value. However, these figures aren’t static – they change over time due to inflation and evolving labor and material rates. In order to ensure adequate coverage, it’s crucial to keep up with these changes.
The Cost of Getting it Wrong
When insurable values are inaccurate, this can lead to either underinsurance or overinsurance.
- Underinsurance: When insurable values are underestimated, property owners face devastating shortfalls during claims. For example, if an underinsured property is damaged in a fire or natural disaster, the result could be financially devastating.
- Overinsurance: On the flip side, overestimating insurable values leads to unnecessarily high premiums, eating into budgets without adding actual benefit.
Both scenarios highlight the importance of accurate calculations and regular reassessments.
Why Insurable Values Matter – Now More Than Ever
In today’s rapidly changing economic landscape, the topic of insurable values has taken on a new urgency for property managers, owners, and insurance carriers alike. There are various factors driving this focus on insurable values, including:
- Economic Volatility: Rising construction costs, supply chain disruptions, and inflation make it harder to pinpoint accurate replacement values. Values established two to three years ago may no longer reflect today’s reality.
- Natural Disasters: With climate change driving more severe weather events, insurers and property owners are examining their coverage more closely than ever. Properties in disaster-prone areas may require updated values to reflect stricter building codes or increased rebuilding costs.
- External Pressures: Carriers, lenders, regulators, and stakeholders all demand assurances that insurable values are current and accurate. Falling short can lead to disputes, particularly during the claims process.
- Stakeholder Dynamics: Insurers, brokers, property managers, and owners often have different priorities when it comes to insurable values. Balancing these interests can lead to prolonged negotiations and disagreements.
Best Practices for Managing Insurable Values
Staying on top of insurable values requires more than just a yearly policy review. To ensure your property is properly protected and your premiums remain fair, it’s important to follow a strategic approach that keeps valuations up to date amid changing market conditions. With rising risks and shifting regulations, policyholders need to be proactive and informed, leveraging experience, technology, and collaboration to minimize mistakes and avoid costly surprises.
The following strategies can help you ensure accurate insurable values:
- Engage Professionals: Hire licensed appraisers or risk management experts to perform regular valuations. These professionals can help you ensure your numbers are accurate.
- Be Proactive: Don’t wait for policy renewal or a natural disaster to revisit insurable values. Schedule reviews quarterly or whenever significant property changes occur.
- Understand Policy Terms: Familiarize yourself with your insurance policy’s replacement cost provisions, deductibles, and exclusions. This knowledge empowers you to spot gaps or inconsistencies.
- Leverage Technology : Stay ahead of market shifts by tapping into data analytics tools (i.e. Cotality, RS Means, Handy-Whitman Index) to track changes in construction costs and property valuations.
- Collaborate with Stakeholders: Open communication between insured parties, brokers, and carriers ensures everyone’s interests are aligned and minimizes potential disputes.
Takeaways
Accurate insurable values help organizations protect themselves against financial loss and avoid overpaying for insurance. By taking a proactive approach to updating insurable values, organizations can promote financial resilience and operational stability.
Peace of mind starts with accurate numbers. The next time insurable values are mentioned, keep these nuances and best practices in mind so you can safeguard your organization’s future.
Connect with a CBIZ professional to ensure your insurable values are accurate and aligned with your organization’s risk strategy.
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