Avoiding underinsurance: The key to accurate values
Nonetheless, at If, we highly recommend on-site visits, though we acknowledge the value of desktop analysis to be a valuable starting point. If the desktop appraisal indicates that the values are accurate, then further analysis might not be considered necessary. However, if the desktop appraisal shows that there is a significant gap between the estimated and the actual values, then we strongly recommend conducting a full on-site appraisal.”
A common misconception is...
“Something we see quite often is that values are registered with the purchase price, which can sometimes be 10-15 years old. The actual value should always be calculated as the replacement value as of today. The biggest challenge relates to companies with large, heavy and often old machinery. Such machinery would probably, following a loss, be replaced with a very different piece of equipment performing similar operations and therefore it is difficult to estimate the replacement value in advance.
Replacement values for buildings are in general much more straightforward as this is more standardised, but there can be a variation between countries due to labour costs and the costs of building materials, amongst other things,” Martin-Vivaldi adds.
Underinsuring Business Interruption
“Looking beyond property and assets, we also see a significant number of companies and organisations that have insufficient Business Interruption (BI) cover. Calculating BI values is an area where we can support our clients based on our extensive data and existing expertise in this field.
At If, we have a very experienced Business Interruption Competence Centre who have developed the tools required to support BI assessment. The knowledge and research that comes from the BI Competence Centre is of high value to us but is also an excellent resource for our clients. Having this expertise in-house makes it possible for us to secure our clients’ business, by ensuring full compensation during the time it takes to rebuild and get back into business following a business interruption loss.,” states Martin-Vivaldi.
Following a fire you find out that you are underinsured – then what?
“For many years, as an insurance company we have been rather generous when issuing leeway clauses. This refers to incidents where even though there is a case of underinsurance, the clause protects the client with an additional 20%, or another maximum, to match the actual values. Looking ahead, however, I am sure that the focus will be on getting the values accurately insured first and foremost, as such allowances will be much more restrictive going forward.
I envisage that there will be fewer leeway clauses issued due to an increasingly number of underinsurance cases year on year. Ultimately, we are looking to have accurate values that will bring security to a company and minimise the risk of business interruption. So, understanding the correct values of raw materials, replacing business critical equipment and rebuilding damaged electrical installations or systems is going to be increasingly important,” concludes Martin-Vivaldi.