The Right Property Values are Essential to Proper Coverage

An avoidable insurance mistake that many businesses make is under-insuring their buildings.   When completing the application, they are required to give a value for the building.  Often, the only reference points the owner have is the real estate value or loan amount.  They do not realize that under the terms of the property policy; it pays for the cost to repair or reconstruct the building, not the market value.

Some types of buildings, particularly older structures, have reconstruction costs which far excess the real estate value.  Also, in older cities or depressed areas, the disparity can be quite high.  In the event of a total loss, a payment of the real estate value may be sufficient.  However over 99% of all losses are partial losses requiring restoration and repair.  In this case, underinsurance can be a serious problem for the insured.  The insurance claim may be insufficient to pay for repairs, or the policy may penalize the owner for underinsuring the property.

The property should be valued based on the reconstruction cost.  Reconstruction cost is based on factors such as the type of building, size, design, materials and the local cost of labor.

The responsibility for determining the property value lies with the insured.  A building owner should have the Property valued based on reconstruction cost.  There are property appraisal firms that do this.   Larger insurance agencies may have qualified loss control consultants who can examine a building and generate a replacement cost estimate using Marshall & Swift or other software.  Either of these approaches can assist the property owner in avoiding the ‘real estate value trap.’

If you are a commercial building owner, I hope that this prompts you to have a conversation with your insurance professional regarding your building limits.







Why Workers’ Compensation Premiums Increase at Audit

A recent article I read shared the story of a Restaurateur who had a great year, only to find out their Workers’ Compensation premium doubled at expiration due to an audit.  It made me cringe!  I partner with many restaurant owners and hope none of my clients experience the frustration this business owner suffered.  When you have a profitable year, you should feel proud of that accomplishment and not blindsided by a large additional expense.

A Workers’ Compensation Policy is a contract between the Insurance Carrier and the Insured.  It states the Insurance Carrier will pay for injury to employees in the scope of their work for the Insured.  It also states that the Insured supplies payroll projections at policy inception and any adjustments are made at audit, once the policy expires.  As an insurance broker, I have found one of the easiest ways to prevent clients from receiving a large audit is to touch base quarterly to discuss how their business is doing.  This accomplishes two things:

1) It ensures that the policy payrolls are in-line with current business operations

2) It provides the opportunity to increase payrolls during the policy term, if necessary, so any additional premium may be dispersed over remaining installments.

A large, unexpected bill is never a good thing and most premium audits, unless disputed, are due upon receipt with payment in full.  That is why I encourage my clients to keep payrolls and other exposures updated throughout their policy term.

If you’ve had a great year and expanded your operation, congratulations on your success!  Just remember that talking to your insurance broker on a regular basis and updating exposures throughout the year will not only keep your insurance premiums consistent, but also help to avoid any surprises at policy expiration.