Through out my 50+ years in claims I have seen countless claims where the Insured has relied on a bank valuation to set the sum insured on their commercial building.
The valuation that is prepared for a bank is typically conservative to protect the valuation company from a having to explain why their value was lower than what the bank sold it for during a distressed sale.
Another issue is the building value of interest to the bank the the value based on the sale price including the land whereas for insurance, what is needed is the replacement value of the building excluding the land.
The valuation that I am looking at this morning is showing the value for the bank at $1,000,000 whereas the replacement value of the 11,000 sq metre building is more like $12,000,000. Can you picture yourself explaining all this to an insured after a major loss.
If any of the readers of this blog know any in the valuation companies, I would ask that they suggest that the valuations for banks either have a separate section which shows the value for insurance purposes or they clearly state that the value should NOT be used for insurance purposes. This would protect the owner of the property from making this common mistake and if they feel confident in providing insurance valuations potentially getting them more business.
Having said this, in my experience getting insurance valuations right is not easy and takes great attention to detail and a clear understanding of how property insurance works.
Andrew Nock and Associates are my go to firm. They are the only valuation company to purchase by book Understanding the ISR Policy and are intelligent enough not to assume anything. This includes checking with me if they are unsure of where something fits under a policy.
While no one expects an insurance broker to be a valuation expert, brokers are encouraged to check, particularly where the value put on a building or other asset looks way too low. The question then is on what basis was the valuation arrived at and has it been checked lately.
While bank valuations are one issue, another is where the insured or their accountant has relied on the written down book value of the asset. Again this is going to be far too low in many cases.
Finally, under insurance continues to be rife in business interruption insurance. My colleagues and I provide this valuation service regularly for Insureds, brokers and insurers. To obtain a quotation please email [email protected]
As always if you have any questions or comments please leave them in the comments section below.
