John Beecher Insurance Advisor/Partner View Bio

When purchasing or renewing commercial property insurance, it’s vital to ensure such coverage includes correct property valuations. Doing so can make all the difference in providing sufficient protection and preventing coinsurance penalties amid covered property losses. Conducting an accurate insurance-to-value (ITV) can provide an approximation of the full cost to replace or restore insured property.

Factors Impacting Property Value

  • Direct and indirect expenses | Property valuations should incorporate both direct and indirect costs to ensure all aspects of rebuilding are included.
  • Property age | Any additional construction costs needed to upgrade outdated building materials and equipment should be included.
  • Building codes | As older properties may also require certain modifications to comply with modern building codes, these adjustments may further compound construction costs and thus increase property valuations.
  • Property accessibility | Properties situated at steep locations or adjacent to neighboring structures may need to have bracing or other safety measures put in place during demolition and rebuilding operations to ensure accessibility. These measures should also be factored into property valuations.
  • Unique features | Custom property elements (e.g., stained glass) could require specialized construction work, elevating rebuilding costs.

Ways to Improve Property Valuations

Here are some additional best practices to help ensure accurate ITV calculations and improve property valuation measures:

  • Find a reputable appraiser | Third-party appraisals are considered the gold standard in property valuations by insurers, as they offer reassurance that calculations were conducted by experienced and objective professionals. As such, it’s vital to secure a trusted and reputable appraiser. Be sure to find a firm that follows the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice from the Appraisal Institute.
  • Seek additional resources | In addition to getting an appraisal, there are additional industry resources, reference guides and validated tools available to help ensure accurate property valuations. Specifically, the Marshall & Swift Valuation Service Cost Manual is a tool that is widely accepted by insurers. This resource features more than 30,000 component costs across 300 building occupancies that can be referenced when conducting valuations.
  • Consult other parties | Determining the value of a property should be a team effort. Make sure to compile a variety of property data from multiple qualified parties when making valuation decisions.
  • Make updates as needed | The value of a property is always changing. This means it’s imperative to update property valuations on a regular basis. For instance, appraisals should be conducted at least every three to five years. The frequency will depend on factors such as changing property exposures, altered operations, building upgrades or modifications, the implementation of new technology or equipment on-site, shifting market conditions, and property construction trends (e.g., inflated labor and material costs).

Consequences of Property Undervaluation

Businesses could face a number of ramifications if they conduct inaccurate ITV calculations and undervalue their properties. Your business could be lacking sufficient coverage following property losses, forcing out-of-pocket expenses & result in coinsurance penalties. Most commercial property insurance policies include coinsurance clauses, which encourage policyholders to carry reasonable and accurate amounts of coverage.

Ultimately, it’s clear that correct property valuations are critical in securing adequate commercial property insurance. By better understanding how to conduct accurate ITV calculations, businesses can stay protected when covered events occur and avoid potential coinsurance penalties.

At Lawley, our dedicated real estate team understands the importance of correct property valuations, understands specific risks, and will work you every step of the way. Contact us today to find out how we can help protect what you’ve worked so hard to build.