By R. Bruce Wright, CPCU
Here’s a quick reminder to check the values on your property schedules, and few other odds and ends too.
Property values and coverage limits are a concern to insurance carriers, agents, and I hope to you too. Many utilities don’t devote too much attention to the property values on their insurance policies, at least not on a routine basis. But once there is a claim, it’s too late. By then, all you can do is hope that the limits are adequate. Insureds generally tend to underinsure unless they regularly review their property values carefully. Spending a little extra time doing so to make certain your property is adequately insured is worth the time it will take.
Let’s start with a basic question, “How is property valued?” On our policies, coverage is either valued on a replacement cost basis or an actual cash value basis. Replacement cost is defined as the cost to replace the property, new today, with materials of like kind and quality. Actual cash value is the replacement cost less actual depreciation (physical depreciation, not accelerated accounting depreciation). The only difference between RC and ACV is depreciation.
Two Important Notes:
- Accounting or “book value” has no relevance to either method of valuation, and is quite often far lower than either RC or ACV. This is especially crucial in the event of a total loss to a primary building and its contents. The dollar value limit of coverage you select serves as the maximum on the amount to be paid in the event of a loss.
- Don’t forget that equipment leased by your company usually has to be insured by your company as well. Don’t lease an expensive off-road digger or other equipment without advising your agent as soon as possible, so it can be properly listed on your schedule.
Most property policies are written with a coinsurance clause that requires you to insure your property to a set percentage of its full value (80%, 90%, or 100%). When a loss occurs, if it is determined that the limit purchased is less than the limit required by the coinsurance clause, the loss payment will be limited to that same percentage of loss as the ratio of the insurance amount carried to the insurance amount required. Luckily for our program members, your policies do not have this clause. So, does it still matter if your limits are correct? Well, yes, if things go really wrong it will matter a lot!
The limit you list will be the limit paid for your building, if it should be a total loss. But if it has been some time since you and/or your agent sat down and carefully calculated the actual replacement cost of your building(s) you should do so prior to you next renewal. Make sure that you are not using “book value” or the accounting departments accelerated depreciation value for the insurance value. Make a note to do this now, so it doesn’t get overlooked when the renewal comes around.
Property Limits
Here’s a quick reminder to check the values on your property schedules, and few other odds and ends too.
Property values and coverage limits are a concern to insurance carriers, agents, and I hope to you too. Many utilities don’t devote too much attention to the property values on their insurance policies, at least not on a routine basis. But once there is a claim, it’s too late. By then, all you can do is hope that the limits are adequate. Insureds generally tend to underinsure unless they regularly review their property values carefully. Spending a little extra time doing so to make certain your property is adequately insured is worth the time it will take.
Let’s start with a basic question, “How is property valued?” On our policies, coverage is either valued on a replacement cost basis or an actual cash value basis. Replacement cost is defined as the cost to replace the property, new today, with materials of like kind and quality. Actual cash value is the replacement cost less actual depreciation (physical depreciation, not accelerated accounting depreciation). The only difference between RC and ACV is depreciation.
Two Important Notes:
- Accounting or “book value” has no relevance to either method of valuation, and is quite often far lower than either RC or ACV. This is especially crucial in the event of a total loss to a primary building and its contents. The dollar value limit of coverage you select serves as the maximum on the amount to be paid in the event of a loss.
- Don’t forget that equipment leased by your company usually has to be insured by your company as well. Don’t lease an expensive off-road digger or other equipment without advising your agent as soon as possible, so it can be properly listed on your schedule.
Most property policies are written with a coinsurance clause that requires you to insure your property to a set percentage of its full value (80%, 90%, or 100%). When a loss occurs, if it is determined that the limit purchased is less than the limit required by the coinsurance clause, the loss payment will be limited to that same percentage of loss as the ratio of the insurance amount carried to the insurance amount required. Luckily for our program members, your policies do not have this clause. So, does it still matter if your limits are correct? Well, yes, if things go really wrong it will matter a lot!
The limit you list will be the limit paid for your building, if it should be a total loss. But if it has been some time since you and/or your agent sat down and carefully calculated the actual replacement cost of your building(s) you should do so prior to you next renewal. Make sure that you are not using “book value” or the accounting departments accelerated depreciation value for the insurance value. Make a note to do this now, so it doesn’t get overlooked when the renewal comes around.