This article was produced in partnership with Munich Re Specialty Insurance.
Gia Snape of Insurance Business sat down with Vanessa Sullivan and Brandon Beauregard, property underwriting managers, E&S, Munich Re Specialty Insurance, to find out why property valuation is more important than ever in today’s hard market.
Property valuation is the foundation for getting the right coverage and premiums in an insurance policy.
In one of the hardest property insurance markets in decades, it’s taken on a critical role in safeguarding insureds from unnecessarily high premiums and ensuring they have adequate coverage, as well as helping insurers understand and manage their risk portfolios.
“The industry is very aware of undervaluation right now,” said Brandon Beauregard (pictured right), property underwriting manager, E&S, Munich Re Specialty Insurance.
The pandemic masked the growing disparity in property values, and insurance companies saw that their losses were ballooning out of line with their expectations, Beauregard told Insurance Business.
To ensure that their clients are insured to value, agents and brokers should strongly urge them to get their properties appraised to the values in line with today’s prices.
“You don't want to rely on those appraisals that were done pre-COVID because as we all know, everything totally changed after the pandemic and the supply issues that came with it,” said Vanessa Sullivan (pictured left), property underwriting manager, E&S, Munich Re Specialty Insurance.
Property appraisals in the last one to two years are still relevant, according to the underwriting leader.
“Insurance to value has always been a hot topic from an underwriting standpoint, but since COVID, it’s really jumped to the forefront of our minds,” Sullivan continued.
“With the help of our brokers and agents, everyone can get on the same page. It's up to all of us to educate the insureds and let them know that this is for their benefit.”
The danger of inaccurate property valuation is that it can leave policyholders unprotected. Some commercial clients might undervalue their properties in a bid to keep their premiums low amid rising costs. But they also risk severe consequences when it’s time to file a claim.
Underinsurance could result in policyholders receiving only a fraction of the actual cost to repair or replace their damaged property and could be financially crippling for them or their business.
“When you're increasing your values, that also increases the insurance pricing,” Sullivan noted. “But it's needed to make sure that the insureds are properly covered in case of a loss.”
However, other insureds may simply be unaware that their properties have gained value, or that the cost to replace or repair their properties has risen significantly.
The high rate of inflation, supply chain issues, increased labor costs, and changes in building ordinance have all driven up repair and replacement costs for insurers, Sullivan and Beauregard said.
“During the pandemic, insurance companies weren't getting as many loss control surveys done in person,” Beauregard said. “No one was noticing that a property was probably valued much higher because of updated construction codes. There's going to be a lot more requirements to rebuild than there were in 1976.”
That means that a property that was submitted and bound at around $30 million in value might cost about $50 million in today’s standards to replace, Beauregard explained.
“It was like the industry was blind to it until claims checks were being paid. That was the hard proof to say everyone needs to do something about this,” he said.
The need for accurate property valuations puts agents and brokers in a space to provide added value to their clients.
Aside from offering valuable risk mitigation advice, they can help their clients leverage technology that can analyze a building’s values based on key information.
“Some agents and brokers are now using tools similar to the ones underwriters use,” said Beauregard. “There are third-party products that can run an analysis based on the building’s data and give you a range of what a building should be worth in this economy.”
Sullivan added: “Having those tools handy is so helpful because even if the insured plans to conduct an appraisal, we can run the data through the tool and then determine if we’re in the right ballpark.”
Theres another added benefit for agents and brokers that take proactive measures to keep their insureds’ property valuations on point: a better relationship with their underwriters.
“We do appreciate it when they're proactive,” said Beauregard. “When a submission comes in, and the new values are higher, maybe we're not going to give them a larger rate increase since they did that. Maybe it'll be in a more competitive rate increase, since the insured is proactive about keeping their property values up to date.
“We still need to make sure we're getting our cost of capital covered, but we're able to work with them for that good citizenship.”