A client who suffers a total loss may discover their coverage falls tens of thousands of dollars short. That is not because their broker failed to place the policy, but because no-one updated the property values. A Kroll study found 68% of commercial buildings appraised from 2020 to 2021 were underinsured by at least 25%.
Sophie Bird (pictured), senior vice president of commercial lines at IMA Financial Group, explains how brokers can close the commercial property underinsurance gap before a claim makes it impossible to ignore.
Commercial property underinsurance is not an edge case. Bird says the valuation gap appears with enough consistency on new accounts to treat it as a baseline assumption rather than an exception.
"We find valuation gaps quite regularly when reviewing new prospects," Bird said. As part of IMA's due diligence process, the team runs a CoreLogic estimated replacement cost analysis on every new prospect and repeats the exercise annually for existing clients. The findings consistently point to the same problem: declared property values that no longer reflect actual reconstruction costs.
Carriers have taken note. "Over the last five to seven years, carriers have become much more aggressive about scrutinizing values and requiring increases to property limits where they believe buildings are underinsured," Bird said. "While that trend appears to be moderating somewhat, we still frequently see insured values that have not kept pace with actual reconstruction costs."
The picture for brokers is unambiguous. Any broker not conducting their own replacement cost analysis is working without the same information their clients' insurers already have.
When a client resists a full valuation review, Bird says the conversation must move quickly from process to consequence.
"When a client is reluctant to undertake a full valuation review, we start by sharing the results of our CoreLogic analysis," Bird said. "I often remind clients that the estimated values can be conservative compared to what many contractors would quote to rebuild a structure today."
Beyond the data, Bird anchors the conversation in practical reality. Her team draws on real-world examples of insureds who have sustained major or total losses to illustrate what underinsurance costs at claim time.
She also poses a question that tends to reframe the discussion entirely: "If you suffered a total loss tomorrow, what would you do?"
The answer, Bird says, shapes the entire conversation. A client who would rebuild requires limits that reflect actual reconstruction costs. One who would walk away with actual cash value and sell the land has a different calculus entirely.
A persistent obstacle is the conflation of market value and insurable value. Bird is direct on the distinction: "It's also important to distinguish between market value and insurable value, as the two are often confused. The discussion should focus on reconstruction cost, not what the property might sell for in the marketplace."
Simple annual inflation adjustments compound the problem. "Ultimately, property valuation should not be a transactional exercise. It should be a consultative risk management conversation focused on the client's long-term objectives," she said.
Coinsurance penalties rank among the more consequential policy conditions a commercial property client can face at claim time. Bird's position is unequivocal.
"My preference is to avoid policies with coinsurance requirements whenever possible," she said. "When they cannot be avoided, it's critical that clients fully understand the provision and its potential impact before purchasing coverage."
That disclosure standard carries specific obligations in practice. "We make those conditions highly visible during our proposal presentations, provide supporting valuation data, and take steps to ensure limits are reasonably aligned with replacement cost values," Bird said.
The professional liability dimension is where the property valuation gap becomes a broker E&O problem. Legal duties vary by state, but Bird's view on the underlying obligation is clear.
"While the legal duties of brokers and insureds vary by jurisdiction, I believe any policy condition that can materially reduce a claim payment must be clearly disclosed and thoroughly explained," Bird said. "When valuation concerns are identified but not communicated, that's when professional liability exposure can become a very real issue."
Not every client will act on professional advice. Bird is clear that when that happens, the broker's obligations do not end there.
"Our responsibility is to ensure the client understands the exposure and the potential consequences of remaining underinsured," Bird said. "If we've presented the information, explained the risks, and made our recommendation, the final decision ultimately belongs to the client."
The process following that decision carries its own requirements. "If the client chooses not to increase limits despite understanding the exposure, we document the discussion carefully and obtain written acknowledgement confirming that they were advised of the potential underinsurance issue and elected not to take corrective action," she said.
Bird frames documentation not as a defensive measure but as standard professional practice. She notes that it belongs in every client file where a valuation recommendation has been declined. Waiting for a client to raise the question is too late.
"Brokers should be proactively advising clients on market trends, construction cost inflation, and changing replacement cost assumptions," Bird said.
The annual cadence Bird describes demands less of brokers than is commonly assumed. "Property valuations should not be an afterthought. In our practice, this is an annual process that requires relatively little time," she said.
