If you are a homeowner, a building owner, or an insurance broker, underwriter, adjuster or claims examiner, you need to read this article.
In the nineties, Marshall and Swift, The Building Cost People issued a bulletin regarding property insurance claims and their relationship to insuring to value (ITV). They released the following statistics.
Studies revealed the following;
- 64% of all HOMEOWNER policies are still undervalued by at least 27% to be adequately protected.
- 75% of all COMMERCIAL BUILDINGS are still undervalued by at least 40% to be adequately protected.
- 80% of all CONTENTS, FIXTURES, & EQUIPMENT are still undervalued by at least 60% to be adequately protected.
Ten years later, they released an updated statement which revealed that there had been no change to the previous stats issued in the nineties.
Now today in 2015, appearing in the May issue of Insurance People an article regarding ITV, revealing new statistics have not improved they have even gotten worse. Citing four communities in British Columbia, as a sampling of this crisis in the province, using a chart form, therefore the following amounts can only be theorized, but are effectively accurate for this scenario, the communities are as shown in our table below.
Since we do not know how this sampling was done or can verify these figures, we must read between the lines and assume that it would be based upon weighted averages of property claims in the community. We can expect that these statistics can vary, but we can see a definite problem in determining ITV value.
A loss or breakdown happens to a building every 5 years by a sudden and accidental occurrence or through normal wear and tear.
One out of every 3 buildings will suffer a loss within the next five years.
Out of every five buildings 2 buildings do not have enough insurance or sufficient reserve funding available.
Over the last 10 or so years, as an insurance appraisal firm, we constantly found that buildings and their occupancy design fixtures, as well as furnishings and fixtures were under insured. This kept appearing over and over again each year and we know why.
Replacement Cost, New will give you the value to replace your building of like, kind, and quality making adjustments for expenses not required when constructing a brand new building. A Replacement Cost, New value starts with a clean unobscured site, to rebuild on. Replacement Cost, New is not your true ITV.
After a loss, you have costs associated with the loss such as Emergency Service; Existing Building Stability; Site Security; Abatement; Deconstruction; Demolition; Debris Removal.
Then when it comes time to rebuild, there are a few other factors such as Building Code changes and municipal Bylaws to consider. Then if the loss is part of a catastrophe, such as an earthquake, tornado, forest fire, rising sewer back up and waters from sewage drains, or rising water tables, materials and skilled labour can become scarce. Shortages will occur driving up costs to rebuild.
Reproduction Cost, New will give you the additional and increased costs associated with replacing an existing building. Reproduction Cost, New is your true ITV.
No computerized program can give you like kind and quality of your building to produce an accurate reproduction value. That is why you want a Reproduction Value, New to replace what you had there, not something similar down the street or in the same neighbourhood.
Building owners should not rely on an insurance company to provide values as the onus is on the owner to protect himself. There are two prudent steps an owner can take to protect their investment. They are;
- Have an independent professional insurance appraisal done on their building in the form of a Reproduction Cost, New report. These reports should be updated at least every 3 years.
- Have an independent professional conditional assessment made of their building as proof of the condition of risk for the insurance company. This way the owner will know what condition his or her building is in and not spend monies on replacement of components prior to them reaching life expectancy. They can also budget repairs and replacements adequately in a timely fashion and not wait for the component to fail causing more damage.
Become proactive rather than reactive by insuring to value and qualifying as a good risk for an insurer, thus protecting your biggest investment.