Published July 11th, 2022 by Kyle Langan
Has your insurance broker reviewed your replacement cost valuations recently?
If not, you need to take action.
Walmart Distribution Center – March, 2022
Insureds commonly underreport values and it can have devastating results when a catastrophic (cat) loss arises.  A recent example of a cat loss is a fire at an Indiana Walmart distribution center, which is now closed for the foreseeable future.  “After the loss occurred, it was discovered that the building was undervalued by as much as $75 million.”  The increased cost of construction is an example of an inflationary factor that insureds must take into consideration for adequate protection of their properties. 
Boulder, CO Wildfires – December, 2021
In the aftermath of the 2021 wildfires in Colorado, property owners like Arturo Barrios discovered they were “severely underinsured.”  This may result in a $300,000 loss for Barrios; “insurance was in place, but it will not come close to covering the full cost of rebuilding.” 
According to the Colorado Division of Insurance, up to 67% of those filing claims in Boulder after the late 2021 fires did not have enough coverage. 
Let Conrey evaluate the structure of your protection to see if you are in the 67%.
Commercial Property Risk: An Ongoing Effort
Establishing adequate property insurance values is an “ongoing risk management activity that must be viewed independently of current market conditions.”  It is difficult to create appropriate building and contents values on a whim, when faced with stringent renewal conditions, “such as limits specific per location, coinsurance, and actual cash value loss settlement.” 
Therefore, your broker should structure property insurance programs continually through stewardship, obtain blanket limits, analyze coinsurance requirements and “set proper loss settlement valuations—replacement cost or actual cash value (replacement cost less physical depreciation).” 
Insureds must carefully ensure that values for buildings and contents are sufficient.  Valuations must also be “in sync with post-loss settlement expectations and the insurer’s policy mandated loss settlement obligations.”  These tools become essential when a loss arises because of timely proof of loss, documentation of items lost or damaged, and proper loss settlement from the insurer.  This is unlike the victims of the Colorado fires, who discovered improper coverage at the worst time: after the loss.
Property owners should envision the possibility of a cat loss that requires “permanent resumption of operations at a new building and permanent movement of [contents] to new or existing locations, thus changing values at many locations.”  This implements a proactive approach to property risk management.
Therefore, during the annual valuation process, these questions should be considered:
- “Can we continue to operate at this location?
- Will building ordinances require us to move?
- Should operations and certain equipment be redeployed at other locations on a permanent basis?
- How many of these ‘alternate’ premises costs will be subject to coverage?” 
If your broker is not raising these concerns about your business, or asking questions from a risk management lens, contact me at email@example.com
“Determining the correct value of an insured asset pre-loss will greatly improve coverage and increase the potential for an insurance settlement that truly puts the insured in the same position post-loss as pre-loss”.  Correct commercial replacement cost valuations can prevent situations like the Walmart distribution center that was undervalued by $75 million, which, as a result, will not reopen for the foreseeable future. 
Austin, W. K. (2008, July). Insurance property valuation and loss settlement clauses-important considerations. Insurance Property Valuation and Loss Settlement Clauses | Expert Commentary | IRMI.com. Retrieved July 11, 2022, from https://www.irmi.com/articles/expert-commentary/insurance-property-valuation-and-loss-settlement-clauses
Brasch, S. (2022, July 7). They lost their home in the Marshall Fire. here’s where they stand six months later. Colorado Public Radio. Retrieved July 12, 2022, from https://www.cpr.org/2022/06/30/six-months-after-they-lost-their-home-in-marshall-fire/
Gallagher Property Market Update — Summer 2022. Ajg.com. (n.d.). Retrieved July 11, 2022, from https://www.ajg.com/us/news-and-insights/2022/jun/gallagher-property-market-update-summer-2022/
Georgiou, M. (2022, June 14). Underinsured homeowners struggle to rebuild after Boulder wildfires. Newsy. Retrieved July 12, 2022, from https://www.newsy.com/stories/fire-victims-warn-others-to-have-complete-insurance/
WLWT. (2022, May 2). Walmart distribution center in Indiana to close after massive warehouse fire. WLWT. Retrieved July 11, 2022, from https://www.wlwt.com/article/walmart-distribution-center-indiana-massive-warehouse-fire/39878850
[1, 3, 4, 17] Gallagher
[2, 18] WLWT
[9-16] Austin, W. K.