July 31, 2023
It’s estimated that over 75% of commercial properties are underinsured by 40% or more due to improper valuation. Sufficient property insurance relies on more than just property value estimation. When estimating a correct property valuation, it’s crucial to consider the cost of rebuilding, such as materials, contractor fees, and other expenses. Calculating an accurate Insurance to Value (ITV) is essential to ensure you are fully covered should a loss occur. Consequences of undervaluation include paying out of pocket to rebuild after a property loss and possible coinsurance penalties (note: ICAT does not offer Coinsurance).
ITV considers the property value and other factors, such as inflation and material and service costs, to replace the property should a loss occur. An accurate ITV calculation is as close to value as possible between the amount of insurance the policyholder obtains and the estimated value of its property.
Replacement Value: An estimate of the cost to replace or rebuild a property following a loss. This value includes material, labor, architectural services, debris removal, building permit requirements, and other expenses. Note: Estimations should take inflation and other market trends into account.
Demand Surge: In the aftermath of a natural disaster, there is a greater need for materials and services, causing constraints that can increase costs.
Direct Expenses: Includes materials and labor needed to restore and repair the property. Material and labor prices fluctuate, so inflation and supply chain trends should be considered when calculating an accurate ITV.
Indirect Expenses: Includes engineering services, consulting fees, and other expenses.
Property Age: Additional construction costs from upgrading outdated building materials and equipment.
Building Codes: Properties may require specific modifications or upgrades to comply with modern building codes. Ordinance and law coverage helps with this cost and can be added as an additional coverage onto an ICAT policy and becomes a sublimit of the total scheduled value.
Property Accessibility: This may include bracing or other safety measures during demolition and rebuilding operations to ensure accessibility. This coverage becomes a sublimit of the total scheduled value.
Utilize publicly available property valuation tools like Marshall & Swift
The amount of insurance you buy should be revisited with each renewal term – more often if:
It is in a natural disaster-exposed area
It has altered operations since coverage
It has recent building upgrades or modifications
There has been a recent implementation of new technology or equipment
A proper valuation assumes buildings are well maintained, regularly updated and taken care of year-round. Poor maintenance can cause inflated loss costs and potentially expose undervaluation problems. Be sure to work with an insurance professional to ensure you have an accurate property valuation!
Download our property valuation brochure here.