Key highlights

• Clients relying on independent assessment to set their declared values need to have confidence that, in the event of a loss, these assessed figures are accurate, defendable and can stand up to insurance market scrutiny​
• While property valuers and quantity surveyors have a role to play in fixed asset management and new construction costing, their limited knowledge of insurance policy terms and how insurers view property risks, could leave owners exposed​
• Insurers now expect higher standards from policy holders in terms of information on the risk provided prior to placement, including how declared values have been arrived at​
• Insurers are also more carefully reviewing values after an insured loss, which not only requires owners to be open on how the insured values were arrived at, but also requires them to provide supporting detail on the assets impacted​
• An independent advisor, specialising in reinstatement cost assessments for insurance, offers clients the comfort that, not only have they got the correct declared values, but that they will have the supporting information to respond to insurers quickly and easily during placement, and to speed up claim settlement in the event of a loss. 

Conclusion

While there is a role for property consultants, contractors and quantity surveyors in the management or development of a policyholder’s asset portfolio, this doesn’t always equate to the correct expertise to arrive at appropriate declared values for property damage insurance policies.  ​

If the assumptions adopted by a valuer do not match to what is expected by the various stakeholders, or what is stated within the insurance policy, the insured can end up exposed to underinsurance, or they could pay excess premiums. ​

This issue is of particular concern when figures are arrived at through computer modelling or by indexing up historic costs.​​

When choosing an advisor, best practice is to review their insurance track record, the experience of the individual team members, their independence in providing the advice and their ability to apply the correct approach to the reinstatement cost assessment of the assets. ​

Key highlights

• Asset registers are designed for accounting purposes – insurable assets may differ from those included in financial statements
• Changes to supply chains, technologies and market sentiment can quickly influence costs
• Building regulations, environmental standards and construction methods are continually changing which may not be reflected in indexed historic costs
• Indices are generic by nature. Applying these to individual facilities or locations can present challenges and produce inaccurate results
• Modelling and indexation have a place when determining declared values, but caution is required and a regular independent review by qualified valuers can be an essential check and balance.

Conclusion

Accurate assessment of reinstatement costs using asset registers is always challenging, especially if the base accounting data is limited in terms of description, or if the entries are not fully representative of the insured assets. Even if the historic records are accurate, and sophisticated models are used based around applying the correct index to individual asset register entries, the resulting estimated values need thorough analysis, benchmarking and appraisal before they can be used as the basis for declared values. For example, computer equipment has fallen in cost over the last decade on a like for like basis, while at the same time the cost of production equipment has increased. So, how do you index a computer-controlled machine tool?

Choosing the right index is not always straightforward and requires a detailed knowledge of the subject assets and an understanding of the indices available. Conducting a regular independent and detailed insurance assessment is still the most defendable way to ensure that declared values submitted to insurers are correct and defendable.