Insurance to Value - How much is this worth?
Valuation is obviously a key part to property insurance. The insurance company will routinely do an “Insurance to Value” calculation and see if your building limit is sufficient. The calculation is often done when you file a claim to confirm that any coinsurance requirements are satisfied.
You may be requested to raise or lower your building limit to satisfy this insurance company requirement. The insurance industry uses online valuation tools that use a variety of data sources to estimate values. While the data used by each provider may be different, the underlying variables that are used are consistent across the platforms. You should always ask to see the report that is being used to establish the value in question.
Big Data – Many insurers use third party data providers to provide the building data for this process. This data can be from prior insurance inspections and tax assessor data. There is no consistent quality control on this data, so ask where the insurance company got the data they are using. It could be outdated or simply wrong.
Address – This data places your building is a specific climate zone and also identifies local cost factors that are applied to the base estimate. Verify that the address on the report is accurate, including zip code.
Occupancy – Each valuation tool has its own selection of occupancy types and associated definitions. Check the occupancy type and ask to see the definition to confirm that is reflects your building.
Construction types – Most ITV tools use the ISO construction types – if you have mixed construction types in your building the most accurate valuation will use the percentage mix of construction types. The insurance rating process distills mixed construction to a single class for rating purposes. This distilled construction type may not accurately reflect your building.
Area of the building – This factor is the most critical of all. The estimation software generally work on a value per square foot basis, so area differences are critical. Review the report and confirm that the area used is accurate.
Number of stories – This and area determine the estimated outline of the building. This affects the costs for many elements.
Building age – This is used if the insurer is calculating a depreciated value. It can be used in replacement costs to estimate what systems or elements may need to be replaced due to code updates.
Construction Quality – Every system has levels of construction quality and associated definitions. This single variable can affect the values by over 50%. What level of quality was used and how is it defined?
Replacement versus Reconstruction Costs – The insurance industry generally uses reconstruction costs to estimate value. Most property losses are not total losses, so the cost to match new to old is used to estimate costs. As anyone who has done remodeling knows, there is a higher cost to match existing finishes. Ask what value the insurer is using in their estimate. What is the valuation required by the policy language?
The Driehaus Difference - Having adequate values is important to protect your interests. If the insurer asks for values to change, be sure you understand how they derived their numbers. We routinely use these valuation tools and can help you interpret the data. We understand the process and can help you navigate the choices to be sure your insurance program protects what is important to you.
The descriptions of insurance coverage are general in nature and are not a replacement for actual policy language.
Call us at 513-977-6860 or visit our website at www.driehausins.com to learn more about us and to get in touch with us.